Question 4 (7 marks)

The table below presents the data related to the purchase of a machine by Burleigh Waters Limited.

Table 3. Purchase of Machine by Burleigh Waters Limited
	$
The invoice price of the machine	285 714
Freight cost	4 857
Installation charges	6 571
cost of transit insurance	3 714
Testing of machinery before use	1 429
Note. This machine was purchased on 1 July 2011. The year ends on 30 June.

The company decided to use the straight-line method of depreciation since it is expected that the pattern of economic benefits flow towards the entity remains constant during this machine's useful life of ten years. Further, it is expected that the residual value of this machine will be

$2 857. Ignore GST.

Required:

What is the accounting treatment of the cost of transit insurance? Determine the cost of the machine (3 marks)

ANSWER a):

Calculate annual depreciation (2 marks)

ANSWER b):

Calculate the balance of accumulated depreciation at the end of the seventh year.

(2 marks)

ANSWER c):