Reference no: EM132980700

(a) On 1 July 2019 Fruity & Fresh Ltd, a grocery store in Tasmania, purchased an item of equipment at a cost of $750,000. The asset is to be depreciated using the straight-line method on the basis of an estimated useful life of 10 years and a negligible residual value. On 30 June 2022 it is determined that the same item of equipment was assessed as having a recoverable amount of $455,000 and a remaining useful life of 7 years. On 30 June 2025 the equipment was assessed as having a recoverable amount of $315,000 and a remaining useful life of 3 years.

Required

(i) Prepare general journal entries for the equipment of Fruity & Fresh Ltd for the years ended 30 June 2022, 30 June 2025 and 30 June 2026. Round to the nearest dollar and show all calculations. Closing entries are not required.

(b) You are working as an accountant in a local accounting firm in Hobart. One of your clients, a listed company in Australia, plans to develop a new product that will be a game-changer for electric vehicles. The company wants to employ experts and start research for developing the product. Your client has heard of research and development costs, but the client is unsure about the differences in research and development costs and how to account for these costs. Your boss has asked you to write to your client and explain the difference between research and development costs and how to account for these costs with examples. Your boss has also advised you to mention AASB138 in your response to the client.