HA3011 Tutorial Questions On Advanced Financial Accounting - Assignment 1

Week 5 Question (10 marks)

Max Ltd acquires an item of machinery on 1 July 2016 for a total acquisition cost of $61,000. The life of the asset is assessed as being six (6) years, after which time Max Ltd expects to be able to dispose of the asset for $6,000. It is expected that the benefits will be generated in a pattern that is best reflected by the sum—of—digits depreciation approach. On 1 July 2019, owing to unforeseen circumstances, the machinery is exchanged for a motor vehicle. Note the motor vehicle is two years old, originally cost $17,000 and has a fair value of $11,000.

Required:
Provide the necessary journal entries for the disposal of the machinery and the acquisition of the motor vehicle on 1 July 2019.