New Era Bookbinders Pty Ltd commenced business on 1 July 2022. On 5 July 2022 spent $165000 (GST inclusive) on industrial printing and binding machinery, payable in two equal instalments on 1 August and 1 November 2022. They incurred $4950 (GST inclusive) in transport costs to deliver the machinery to the business premises and a further $5000 (plus GST) in electrical wiring and installation before the machinery could be used for production. These expenses were paid in cash. The supplier informed management that the machinery has a productive capacity of 600 000 hours. It is estimated the residual value would be $10000 in scrap metal at the end of the machinery useful life.
On 30 August 2022, the business purchased a second-hand truck for $38 500 (GST inclusive) for deliveries incurring a $1050 stamp duty fee (GST does not apply). Four new tyres were fitted at a cost of $1320 (GST inclusive) to be road-worthy and a signwriter was paid to wrap the business logo design across the truck body for $935 (GST inclusive). The truck was expected to have a useful life of 5 years and a residual value of $5000.
On 1 March 2026, the trucks head gasket blew, causing the engine to seize up. A new engine was purchased at a cost of $19 800 (GST inclusive) which was installed for $3300 (GST inclusive). Management believes this will provide an additional 4 more years to the existing life of the truck. The residual value remains unchanged.
The company has adopted the units-of-production method of depreciation for the printing and binding machinery and the diminishing balance method for the truck. The end of its reporting period is 30 June.
Required
i. Prepare general journal entries to record the transactions and the depreciation adjustments necessary for the year ended 30 June 2023 if production totaled 74 000 hours. Show narrations and all workings. (Round to nearest whole dollar)
ii. Justify the value you recognized as the cost of the second-hand truck purchased on 30 August 2022 by referring to the IAS 16/AASB 116 compliance requirements.
iii. Prepare the journal entries to record the new engine and identify the cost to be recorded for the value of the truck in the financial statements for 30 June 2026.
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