QUESTION TWO $[30]$

Fibre$-$bond Limited specializes in supplying mining material to other companies. As at $31$

December $2016($reporting date$)$ the following details are available to you:

Machine:

$-$ The machine was purchased for R$298000$ in cash on $1$ February $2016$ but needed to be

installed before it could be used.

$-$ The installation cost of R$10000$ was also paid for in cash. The asset was in a condition

ready for use in the manner intended by management on $1$ May $2016.$

$-$ It was not until $1$ June $2016$ that it was brought into use since the directors had an old

machine that they wished to use until its pistons gave up completely.

$-$ It was not until $1$ June $2016$ that it was brought into use since the directors had an old

machine that they wished to use until its pistons gave up completely.

$-$ It has an estimated useful life of $3$ years and a residual value of R$44000.$

Plant:

$-$ Plant was purchased on $1$ January $2014$ at a cost of R$720000.$

$-$ The plant needed to be tested to ensure that the goods it produces were safe to use

before it could be put into production: the cost of testing the plant was R$40500.$ The

goods were sold to staff for R$4500.$

$-$ It is estimated to have a useful life $($an acquisition$)$ of $5$ years and its residual value is

R$36000.$

$-$ At year end the accountant ascertained that similar items of the plant were $5$ years old

and were correctly selling for R$63000$ but his projections $($using present values$)$ suggest

that he would be able to sell this plant for R$50000$ at the end of its useful life.

$-$ The accountant believes that the residual value of R$36000$ should be changed but is not

sure whether to use R$63000$ or R$50000$ as the new residual value.

The company uses the reallocation method to account for changes in estimates.

Required:

Prepare all the journal entries to account for the above for the year ended $31$ December $2016.$

Note: In addition to journal entries, marks will also be awarded for workings$/$ calculations.