Question

Question 12 G11414 Waterhouse Ltd purchased machinery on 1 January 2019, at a cost of $880 000 (GST Inclusive). The machinery is depreciated using the straight-line method over a useful life of 8 years with a residual value of $80 000. On Hanuary 2022, an overhaul of the machinery was made at a cost of $123 290 (GST Inelusive). Because of this overhaul, the useful life was re-estimated at 4 years from Hanuary 2022, and the residual value was amended to $40 000. The carrying amount of parts replaced was eensidered to be $10 000. 880 000 Required: Assuming the financial year ends on 31 Dec, prepare journal entries (including narrations) to record: Dy machinery a. the purchase of the machinery on 1 January 2019 Dr GST Verein 5 b. depreciation expense for 2019, 2020 and 2021 on3% e. the overhaul expenditure on Hanuary 2012 10-1 Dowody . depreciation expense for 2022.

Can you explain each step?

Answer 1

As Gst rate is not given in question, I am explaining the question in two ways

1.without giving effect to GST 2.Assuming Gst rate 10%

1.without giving effect to GST

On purchase of machinery on 1st Jan 2009

Machinery A/c Dr 8,80,000.

To Vendor/Cash A/c 8,80,000

( being machinery purchased and cash paid or payable to vendor)

At the end of the year -Entry for depreciation (same for all years)

Depreciation A/c Dr 100000

To Machinery A/c 100000

(Being depreciation provided)

Calculation of Depreciation for Year=(Asset cost-Residual Value)/no of useful Years

Depreciation=(880000-80000)/8=100000

2.Assuming Gst rate 10%

Total value of asset=880000

Gst component=880000/110*10=80000

Value of Machinery without Gst=880000-80000=800000

On purchase of machinery on 1st Jan 2009

Machinery A/c Dr 8,00,000.

GST receivable Dr 80,000

To Vendor/Cash A/c 8,80,000

( being machinery purchased and cash paid or payable to vendor)

At the end of the year -Entry for depreciation (same for all years)

Depreciation A/c Dr 90,000

To Machinery A/c 90,000

(Being depreciation provided)

Calculation of Depreciation for Year=(Asset cost-Residual Value)/no of useful Years

Depreciation=(8,00,000-80,000)/8=90,000