Raspberry Travel Ltd. owns and operates a coach service that transports tourists on interstate tours around...
Raspberry Travel Ltd. owns and operates a coach service that transports tourists on interstate tours around Australia. On 1 January 2015 Raspberry Travel Ltd. purchased a new coach for $500,000 with a cash deposit of $50,000 and a bank loan for the remainder. The firm's accountant identifies that the coach comprises two main items for recording and depreciation purposes: the body of the coach has been allocated a cost of $400,000 and the engine an allocated cost of $100,000. Raspberry Travel Ltd.'s management expects that the coach will be sold after 10 years with a residual value of $50,000. The management expects the engine to be replaced after 5 years with nil residual value. The management applies the straight line basis for depreciation of the engine. It also expects that the engine will last for 700,000 kms. On 31 December 2017 the engine unexpectedly seizes up after travelling 500,000 kilometres. As the engine is out of warranty the engine requires a replacement. On 1 January 2018, Raspberry Travel Ltd. replaced the engine with a reconditioned engine. The reconditioned engine cost $56,000 (also funded by a bank loan) and is expected to last the remaining life of the coach when both coach body and engine will be sold.