Reference no: EM133099321

Question 1 - On 2 January 2019, Perth Ltd purchased a machine for $39600 (gst inclusive) with a useful life of 5 year and a residual value $6000. In order to keep the machine running properly, the company has performed regular maintenance and repairs each year since its acquisition. in the fourth year (2022), ordinary repairs amounted to $990 (gst inclusive) on 3 January 2023, Perth Ltd decided to completely overhaul the machines major operating parts at a cost of $10560 (gst inclusive) after which the machine is expected to have a useful life of 4 more years and a revised residual value of $4000. Perth Ltd uses the straight line depreciation method. The carrying amount of the parts replaced was considered to be $400.

Required - Prepare general journal entries to record:

i) the purchase of the machine on January 2019.

ii) the day to day repairs on the machine in 2022.

iii) the overhaul of the machine on 3 January 2023.

iv) depreciation expenses on the machine on 31 December 2023.

Question 2 - Karen Broderick commenced business on 1 July 2019. On 30 June 2020, she found that she had written off debts amounting to $2062.50. In addition she found it necessary to create an allowance for doubtful dents of $3030 during the year to 30 June 2021, debts totalling $2640 from Xi and yo, proved to be bad and were written off and $363 was recovered from abi in respect of bad debts previously written off. The total of debtor's balance at 30 June 2021 was $92730 (GST inclusive, the amount is after the bad debts had been written off) it was decided to increase the allowance for doubtful debts to 5% of this fixture.

Required -

A) Prepare general journal entries to record all of the transaction

B) Prepare the bad debts expense account and the allowance for doubtful debts amount for 2020 and 2021.

C) Explain why an allowance for doubtful debts is created.