Iky's Prawns Ltd is a company that recently expanded and now delivers its prawns to coastal...

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Iky's Prawns Ltd is a company that recently expanded and now delivers its prawns to coastal restaurants from its main shop in Durban. Three vans were acquired for purposes of facilitating this expansion. The following report has been compiled by the bookkeeper who is not quite sure how to deal with all the related transactions and events: Information pertaining to the initial costs in acquiring the three delivery vans: Three vans were purchased on 1 July 20X8 in order to help reach the new delivery points. Total cost C600 000 (C200 000 per van). . ● ● . Information pertaining to the depreciation of the vans: • The company uses the cost model to measure its assets. The vans have a useful life of 4 years. All assets are depreciated on the straight-line basis unless another method is justifiable. The residual value of each delivery van is currently estimated to be C45 000, before considering related selling costs of C5 000 per van. Information relating to a freak hailstorm at the end of the financial year: A freak hailstorm hit the coast on 31 December 20X8 and, as the vans had been purchased so recently, no protective parking had yet been built for them. . . ● ● ● Management has calculated the remaining value in use of each van to be C150 000, (this has been calculated by adding the present value of the net cash flows from use of C120 000 to the present value of the net proceeds from sale of C30 000). Information relating to the trade-in of the old delivery vans and purchase of the new vans: On 3 January 20X9, the insurance company paid out C120 000 per van to settle the damages caused by the hailstorm. ● Cost of transporting the vans from the manufacturer in Gauteng was C70 000 in total. The once-off cost of galvanising the vans in Durban was C90 000. Galvanising provides protection against rust, (necessary since Durban is a coastal city). The cost of repainting the vans in company colours to promote the new delivery business was C30 000. . The vans were exposed to the elements during the storm and were badly damaged, resulting in the fair value less cost of disposal dropping to C80 000 (i.e. the market value of each van dropped to C100 000, before taking into account the expected selling costs of C20 000 per van). After intensive board meetings and discussions amongst the management of lky's Prawns, it was decided that the old, damaged vehicles would be traded-in on three new vans, and the insurance money would be used to pay the balance owed on this purchase. . The trade-in value for the three damaged vans combined was established to be C300 000. Three new delivery vans were purchased for C660 000, and management decided to depreciate these over three years to a nil residual value. ● Required: a) With regards to the first set of delivery vans, calculate the total amount at which they should initially be measured, and their subsequent measurement up to 31 December 20X8. b) Show all journals relating to the above information up to 31 December 20X9. Iky's Prawns Ltd is a company that recently expanded and now delivers its prawns to coastal restaurants from its main shop in Durban. Three vans were acquired for purposes of facilitating this expansion. The following report has been compiled by the bookkeeper who is not quite sure how to deal with all the related transactions and events: Information pertaining to the initial costs in acquiring the three delivery vans: Three vans were purchased on 1 July 20X8 in order to help reach the new delivery points. Total cost C600 000 (C200 000 per van). . ● ● . Information pertaining to the depreciation of the vans: • The company uses the cost model to measure its assets. The vans have a useful life of 4 years. All assets are depreciated on the straight-line basis unless another method is justifiable. The residual value of each delivery van is currently estimated to be C45 000, before considering related selling costs of C5 000 per van. Information relating to a freak hailstorm at the end of the financial year: A freak hailstorm hit the coast on 31 December 20X8 and, as the vans had been purchased so recently, no protective parking had yet been built for them. . . ● ● ● Management has calculated the remaining value in use of each van to be C150 000, (this has been calculated by adding the present value of the net cash flows from use of C120 000 to the present value of the net proceeds from sale of C30 000). Information relating to the trade-in of the old delivery vans and purchase of the new vans: On 3 January 20X9, the insurance company paid out C120 000 per van to settle the damages caused by the hailstorm. ● Cost of transporting the vans from the manufacturer in Gauteng was C70 000 in total. The once-off cost of galvanising the vans in Durban was C90 000. Galvanising provides protection against rust, (necessary since Durban is a coastal city). The cost of repainting the vans in company colours to promote the new delivery business was C30 000. . The vans were exposed to the elements during the storm and were badly damaged, resulting in the fair value less cost of disposal dropping to C80 000 (i.e. the market value of each van dropped to C100 000, before taking into account the expected selling costs of C20 000 per van). After intensive board meetings and discussions amongst the management of lky's Prawns, it was decided that the old, damaged vehicles would be traded-in on three new vans, and the insurance money would be used to pay the balance owed on this purchase. . The trade-in value for the three damaged vans combined was established to be C300 000. Three new delivery vans were purchased for C660 000, and management decided to depreciate these over three years to a nil residual value. ● Required: a) With regards to the first set of delivery vans, calculate the total amount at which they should initially be measured, and their subsequent measurement up to 31 December 20X8. b) Show all journals relating to the above information up to 31 December 20X9.

Answer rating: 100% (QA)

a Calculation of Initial Measurement and Subsequent Measurement Initial Measurement 1 July 20X8 Cost of purchasing three vans C600000 C200000 per van ... View the full answer