On 1 May 2015, your company acquired a machine at a cost of $300,000. This machine has an expected a useful life of 20 years in normal conditions, and a residual amount of $10,000. The financial year ends on 30thJune every year. Assume the tax rate is 30%. For tax purposes the asset is depreciated at 10% per annum with no residual value.
Market A is the most commonly used by the company for identical machines. However, transactions are infrequent and sometimes the users are unreliable (fake profiles). Market B has a sentimental attachment as the company’s directors usually go there to celebrate their annual achievements. This market has the most reliable users for similar machines traded on on going basis.
market A B
Disposal costs$ 3,000 $ 15,000
Transaction costs $ 1,000 $ 500
Transport costs$800 $2,000
Expected selling price $ 220,000 $ 280,000
Expected cash flow $25,000 $ 40,000
Discount rate (monthly)1.08%1.02%
a. Prepare the relevant journal entries for the financial year ended on 30 June 2018.
b. Based on the previous question, state any assumptions you made.
