- 15 Marks
FA – May 2012 – L1 – SB – Q5 – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16
Recording journal entries for three trade-in options for machinery and selecting the most viable option.
Question
Fancy Enterprises has machinery that cost N750,000 with an accumulated depreciation of N510,000. The firm is contemplating acquiring new machinery to replace the old one. The new machinery has a catalog price of N1,290,000 and attracts a 12% trade discount. The following options are available:
(i) Trade in the old machinery and add cash of N895,200.
(ii) Trade in the old machinery and add cash of N600,000.
(iii) Trade in the old machinery and add cash of N1,080,000.
You are required to:
(a) Record journal entries for each of the options, considering the information provided above.
(b) Which of the options is economically viable for the firm to acquire the new machinery?
(14 Marks)
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