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Question 8 Seasons Resort owns several types of property, plant and equipment (PPE) to cater to tourists in Brisbane

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Question 8

Seasons Resort owns several types of property, plant and equipment (PPE) to cater to tourists in Brisbane. The business has a financial year end on 30 September every year and uses different depreciation methods for each type of PPE.

On 1 October 2018, Seasons Resort acquired land, building and a cruise boat from another hotel that is closing down for a total amount of $1 million using a bank loan. The estimated fair values of these assets then were as follows:

Land: $750,000

Building: $300,000

Boat: $450,000

The boat is depreciated using the straight-line method at an annual rate of 20% with a residual value of $50,000. On 1 October 2020, Seasons Resort paid $30,000 for a new turbo engine to replace the old engine with a net carrying amount estimated at $20,000. This changed its residual value to $60,000 but will not extend its useful life.

Required:

a. Prepare Seasons Resort general journal to record the following transactions. Narrations are NOT required. Round answers to the nearest dollar.

i. Record the purchase of the different types of assets in separate appropriate account names on 1 October 2018. [5 marks] ii. Assuming annual depreciation expense is recorded at each financial year end, record the overhaul of the boat engine on 1 October 2020. [7 marks]

b. If Seasons Resort wanted to trade-in the boat on 30 September 2021, calculate with explanations the minimum trade-in allowance it must secure in order not to make a loss on exchange. [4 marks]