Question

On 1 Aug 2018, Chelmer Ltd acquired an item of equipment at a purchase price of $60,000, which included import duties of $2,700. The following expenses were incurred in relation to the equipment between 1 August and 16 October 2018 when it was first used in production:

• Installation and assembly costs of $1,300
• When installing the equipment, part of the factory wall was removed and access cleared. This resulted in a temporary clearing, which the management of Chelmer Ltd rented out to employees from a nearby office block as a temporary car park. Chelmer Ltd received total parking fees of $6,000 from this venture.
• Costs of $2,000 to test the equipment to ensure it functioned properly. These tests generated samples of products which were sold for $500.
• Costs of staff training totalling $3,200. The training was necessary to deal with a new class of customer to whom the product from the new equipment would be sold.
• Costs of $1,400 to market the new product to be produced by the equipment.

The management plans to measure the equipment using the cost model.

Required:

a)Prepare any necessary general journal entry(ies) to record the acquisition of the equipment in accordance with AASB 116 ‘Property, Plant and Equipment’.

b)Two years later, the Commonwealth government passed environmental protection legislation. To ensure that the equipment and another item of property, plant and equipment comply with the new regulations, $20,000 is spent on the assets. Prepare any necessary general journal entry(ies) to record this expenditure on the equipment in accordance with AASB 116 ‘Property, Plant and Equipment’.

Answer 1

A)

Acquisition Cost of equipment

Purchase price including Import duty :                                                                                                                 60,000

Installation and assembly costs                                                                                                                              1,300

Testing Expense excluding sale proceed of sample(2000-500)                                                                              1,500

Total Cost of Equipment                                                                                                                                       62,800

Asset A/C Dr              62,800

To Bank                              62,800

B)

Expenditure incurred in accordance with environmental protection legislation will be capitalized

Asset A/C Dr              20,000

To Bank                                 20,000