On 25 September 2020, Ebonie Ltd purchased a second-hand truck for $66 000. Stamp duty amounted to $600. The truck dealer also fitted four new tyres at a cost of $1200 and spray painted the business logo onto the truck doors at a cost of $900. All amounts were paid in cash. The truck was expected to have a useful life of 3 years and a residual value of $12 000.

On 23 April 20212, the truck was traded in on a new truck costing $91 000. An amount of $17 000 was allowed for the trade-in of the old truck and the balance paid in cash. The new truck was expected to have a useful life of 7 years and a residual value of $7000.

Ebonie Ltd depreciates trucks using the straight-line method and records depreciation to the nearest month. The end of the reporting period is 30 June.

Required:

a) Prepare general journal entries (round all amounts to the nearest dollar) to record the above transactions and to record depreciation necessary for the years ended 30 June 2016 and 2017. 

b) Justify the value you recognised as the cost of the second-hand truck, purchased on 25 September 2020 by reference to the requirements of AASB 116.

Answer rating: 100% (QA)

a Purchase of truck on 25 September 2020 Debit Trucks 66000 Credit Cash 66000 Stamp duty on purchase ... View the full answer