On 1 May 2021, Topdog Ltd. buys and puts into service an item of specialised equipment to increase the production capacity of its Property, Plant and Equipment. Details of the new equipment item are: Cost $314,000 Estimated residual value $14,000 Estimated useful life = 10 years (to be used equally over its life) The equipment will be purchased by issuing 110,000 shares at $1 each and borrowing the remaining amount. The loan will be repaid in a lump sum in 2025. The interest of 10% p.a. will be paid at the end of each 6 months after the purchase of the equipment. Topdog Ltd. failed to record the new equipment in the 30 June 2021 annual financial statements. Management discovered the omission in October 2021 and decided that the omission is material. Required: Prepare the journal entries in October 2021 to record the omitted information. Explain the change (including amounts) to Topdog Ltd’s net profit, total assets, total liabilities and total equity after the correction of this error.

On 1 May 2021, Topdog Ltd. buys and puts into service an item of specialised equipment to increase the production capacity of its Property, Plant and Equipment. Details of the new equipment item are: Cost $314,000 Estimated residual value $14,000 Estimated useful life = 10 years (to be used equally over its life) The equipment will be purchased by issuing 110,000 shares at $1 each and borrowing the remaining amount. The loan will be repaid in a lump sum in 2025. The interest of 10% p.a. will be paid at the end of each 6 months after the purchase of the equipment. Topdog Ltd. failed to record the new equipment in the 30 June 2021 annual financial statements. Management discovered the omission in October 2021 and decided that the omission is material. Required: Prepare the journal entries in October 2021 to record the omitted information. Explain the change (including amounts) to Topdog Ltd’s net profit, total assets, total liabilities and total equity after the correction of this error.

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter8: Depreciation, Cost Recovery, Amortization, And Depletion

Section: Chapter Questions

Problem 29CE

See similar textbooks

Similar questions

Stag, a public limited company, is preparing its financial statements for the year ending 31 December 2021. The exhibits contain information relevant to the question Exhibit 2 – Research and Development Stag plc started a project on 1 January 2021. The initial costs of setting up the project incurred before 2021 were £2 million. From 1 January 2021 to 31 March 2021 ongoing project costs were £15,000 per month. On 1 April 2021, the project was considered to be technically feasible and commercially viable and from this date, project costs increased to £65,000 per month. From 1 July 2021 to 30 August 2021, additional £1.5 million was spent for the design and construction of a pilot for the project. This pilot is not capable of operating on a scale economically feasible for commercial production. From 1 September 2021 to 31 December 2021, additional £350,000 were also spent for testing of the pilot. Between 1 April 2021 and 31 December 2021, Stag spent £140,000 on research staff, £50,000…
Resonant Holdings owns a commercial shipping fleet and is in the process of refitting a container ship that was bought from a previous owner. They took ownership on 1 June 2020 and anticipate that it will take twelve months to complete the refurbishment at a total cost of R15 million. One-third of the project cost is to be financed by a specific loan at an interest rate of 6.5% and the balance will be financed from two general sources, namely debentures worth R10 million at an interest rate of 7.25% and a revolving loan costing 7%, also worth R10 million. The company expects to make three payments to the ship builders during the year as follows: R4 000 000 on 1 June 2020 R5 000 000 on 1 October 2020 A final payment of R6 000 000 on 1 April 2021 Calculate the borrowing costs that Resonant Holdings will capitalise for the year ended 31 May 2021.
On 1 April 2016, Gidimadjor Ltd received a government grant of GH¢8 million towards the purchase of new plant with a gross cost of GH¢64 million. The plant has an estimated life of 10 years and is depreciated on a straight-line basis.One of the terms of the grant is that the sale of the plant before 31 March 2020 would trigger a repayment on a sliding scale as follows:Sale in the year ended: Amount of repayment31 March 2017 100%31 March 2018 75%31 March 2019 50%31 March 2020 25%Accordingly, the directors propose to credit to the statement of profit or loss GH¢2 million (GH¢8 million x 25%) being the amount of the grant they believe has been earned in the year to 31 March 2017.Gidimadjor Ltd accounts for government grants as a separate item of deferred credit in its statement of financial position. Gidimadjor Ltd has no intention of selling the plant before the end of its economic life.Required:Advise, and quantify where possible, how the above items should be treated in Gidimadjor…
On 1 April 2021, PHI plc acquired a new machine for a price of £25,000. On the same day, PHI paid £5,000 for a staff training session on how to operate the machine. For the subsequent measurement of the machine, PHI chose the revaluation model and the diminishing balance method with an annual rate of 30%. PHI expects to use the machine for 10 years and to dispose of it at the end of these 10 years (residual value of £0). On 31 December 2021, the machine has a fair value of £23,000; on 31 December 2022, the machine has a fair value of £12,000. PHI has a fiscal year ending 31 December. REQUIRED: i) Explain what the subsequent measurement of the machine tells you about the subsequent measurement of other items of property, plant and equipment (PPE). ii) Calculate the relevant amounts and prepare the journal entries for the initial recognition and subsequent measurement of the machine in fiscal years 2021 and 2022. Explain each of your steps.) 3)On 31 December 2021, annual depreciation…
On 1 April 2021, PHI plc acquired a new machine for a price of £25,000. On the same day, PHI paid £5,000 for a staff training session on how to operate the machine. For the subsequent measurement of the machine, PHI chose the revaluation model and the diminishing balance method with an annual rate of 30%. PHI expects to use the machine for 10 years and to dispose of it at the end of these 10 years (residual value of £0). On 31 December 2021, the machine has a fair value of £23,000; on 31 December 2022, the machine has a fair value of £12,000. PHI has a fiscal year ending 31 December. REQUIRED: a) Explain what the subsequent measurement of the machine tells you about the subsequent measurement of other items of property, plant and equipment (PPE). b) Calculate the relevant amounts and prepare the journal entries for the initial recognition and subsequent measurement of the machine in fiscal years 2021 and 2022. Explain each of your steps.) c)On 31 December 2021, annual depreciation…
Trecek Corporation incurs research and development costs of $612,000 in 2020, 30 percent of which relate to development activities subsequent to IAS 36 criteria having been met that indicate an intangible asset has been created. The newly developed product is brought to market in January 2021 and is expected to generate sales revenue for 10 years. Assume that Trecek Corporation is a U.S.-based company that is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes. Required: Prepare journal entries for research and development costs for the years ending December 31, 2020, and December 31, 2021, under (1) U.S. GAAP and (2) IFRS. Prepare the entry(ies) that Trecek would make on the December 31, 2020, and December 31, 2021, conversion worksheets to convert U.S. GAAP balances to IFRS.
Sandstorm Corporation decides to develop a new line of paints. The project begins in 2023 in the U.S. Sandstorm incurs the following expenses in 2023 in connection with the project: Salaries $90,000 Materials 27,000 Depreciation on equipment 13,500 The benefits from the project will be realized starting in July 2024. If an amount is zero, enter "0". Sandstorm Corporation capitalizes and amortizes its research and experimental expenditures. What are its related deductions in 2023 and 2024?2023: $fill in the blank 12024: $fill in the blank 2
On 1 July 2023 Perth Ltd entered into a 50:50 joint operation with Tasmania Ltd to develop robotic home appliances. Each operator’s initial contribution was $1 million. Perth contributed $500 000 cash and equipment with a fair value of $500 000 and a book value of $400 000. The remaining useful life of the equipment contributed by Perth is 5 years. Tasmania Ltd contributed $1 million cash. Additional information: An extract of the joint operation’s balance sheet at 30 June 2024 shows: Assets $ Cash 290,000 Raw materials 80,000 Work in progress 460,000 Finished goods inventories 100,000 Equipment 500,000 less: Accumulated depreciation -100,000 Total Assets 1,330,000 Liabilities Accrued wages 40,000 Accounts payable 140,000 Total Liabilities $180,000 Net Assets 1,150,000 Production costs for the joint operation for the year ended 30 June 2024 were: Raw materials $420,000 Wages…
On 1 July 2023 Perth Ltd entered into a 50:50 joint operation with Tasmania Ltd to develop robotic home appliances. Each operator’s initial contribution was $1 million. Perth contributed $500 000 cash and equipment with a fair value of $500 000 and a book value of $400 000. The remaining useful life of the equipment contributed by Perth is 5 years. Tasmania Ltd contributed $1 million cash. Additional information: An extract of the joint operation’s balance sheet at 30 June 2024 shows: Assets $ Cash 290,000 Raw materials 80,000 Work in progress 460,000 Finished goods inventories 100,000 Equipment 500,000 less: Accumulated depreciation -100,000 Total Assets 1,330,000 Liabilities Accrued wages 40,000 Accounts payable 140,000 Total Liabilities $180,000 Net Assets 1,150,000 Production costs for the joint operation for the year ended 30 June 2024 were: Raw materials $420,000 Wages…
On 1 July 2023 Perth Ltd entered into a 50:50 joint operation with Tasmania Ltd to develop robotic home appliances. Each operator’s initial contribution was $1 million. Perth contributed $500 000 cash and equipment with a fair value of $500 000 and a book value of $400 000. The remaining useful life of the equipment contributed by Perth is 5 years. Tasmania Ltd contributed $1 million cash. Additional information: An extract of the joint operation’s balance sheet at 30 June 2024 shows: Assets $ Cash 290,000 Raw materials 80,000 Work in progress 460,000 Finished goods inventories 100,000 Equipment 500,000 less: Accumulated depreciation -100,000 Total Assets 1,330,000 Liabilities Accrued wages 40,000 Accounts payable 140,000 Total Liabilities $180,000 Net Assets 1,150,000 Production costs for the joint operation for the year ended 30 June 2024 were: Raw materials $420,000 Wages…
Stag, a public limited company, is preparing its financial statements for the year ending 31 December 2021. Stag plc started a project on 1 January 2021. The initial costs of setting up the project incurred before 2021 were £2 million. From 1 January 2021 to 31 March 2021 ongoing project costs were £15,000 per month. On 1 April 2021, the project was considered to be technically feasible and commercially viable and from this date, project costs increased to £65,000 per month. From 1 July 2021 to 30 August 2021, additional £1.5 million was spent for the design and construction of a pilot for the project. This pilot is not capable of operating on a scale economically feasible for commercial production. From 1 September 2021 to 31 December 2021, additional £350,000 were also spent for testing of the pilot. Between 1 April 2021 and 31 December 2021, Stag spent £140,000 on research staff, £50,000 on initial staff training, and 30,000 on initial marketing plan. The project was not completed…
Stag, a public limited company, is preparing its financial statements for the year ending 31 December 2021. Stag plc started a project on 1 January 2021. The initial costs of setting up the project incurred before 2021 were £2 million. From 1 January 2021 to 31 March 2021 ongoing project costs were £15,000 per month. On 1 April 2021, the project was considered to be technically feasible and commercially viable and from this date, project costs increased to £65,000 per month. From 1 July 2021 to 30 August 2021, additional £1.5 million was spent for the design and construction of a pilot for the project. This pilot is not capable of operating on a scale economically feasible for commercial production. From 1 September 2021 to 31 December 2021, additional £350,000 were also spent for testing of the pilot. Between 1 April 2021 and 31 December 2021, Stag spent £140,000 on research staff, £50,000 on initial staff training, and 30,000 on initial marketing plan. The project was not completed…