Flash Auto is a luxury car rental business in Darwin. The business has a financial year that ends on 31 October every year. It uses the diminishing method at an annual rate of 30% to depreciate its fleet.

On 1 November 2018, Flash Auto bought a used limousine at a cost of $180,000. Payment was made to the supplier who gave a trade discount of 5% with a further 2% cash discount upon immediate payment.

Additional costs paid for the limousine on 1 November 2018 included:

• insurance and registration costs of $500;

• company logo sticker for $100; and

• fitted with a set of new tyres that cost $1,500 in total to replace punctured tyres. The used limousine has an expected residual value of $10,000.

REQUIRED:

Prepare Flash Auto's general journal to record the following transactions. Round answers to the nearest dollar.

a. Purchase of the used limousine on 1 November 2018. 

b. Sale of the limousine on 31 July 2021 for cash with no gain or loss on disposal. Assume the general journal entry for depreciation expense for the period ended 31 July 2021 is also required. 

c. Tyres of other limousines purchased as new vehicles were changed once every few years, depending on the usage of the tyres.

i. What would be the general journal entry to record the payment for these change in the tyres? [

ii. Is this the same accounting treatment for the cost of the tyres for the used limousine? Explain your answer.

Answer rating: 100% (QA)

Journal Entries a Purchase of the used limousine on 1 ... View the full answer