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(a) A machine was bought on credit for £15,000 from the XY Manufacturing Co Ltd, on
1 October 2001. The estimated useful economic life of the machine was seven years and the estimated
scrap value £1,000. The machine account is to be maintained at cost. Financial statements are prepared
annually to 30 September and the straight line depreciation method is used on machines.
Required:
(a) Prepare the journal entries and ledger accounts to record the machine and its depreciation for
the first two years of its working life.
(b) Illustrate how the machine would appear in the balance sheet at 30 September, 2003.
(b) The machine was sold for £7,500 cash to another manufacturer on 1 October 2004. A new
replacement machine was bought on credit for £18,000 from the XY Manufacturing Co Ltd. It also
has an estimated useful economic life of seven years but its estimated scrap value is £1,200.
Required:
(a) Prepare the machine account, the accumulated provision for depreciation account and the
machine disposal account for the year to 30 September 2005.
(b)
Repeat (a) but this time assume that the selling price of the old machine was £12,000.