Reference no: EM132896972

Question - TTaxi Pte Ltd ("TTaxi") operates a fleet of taxis in Singapore. On 1 January 20X1, the company bought a new fleet of taxis locally from VVehicle Pte Ltd ("VV") for $77,000 per unit. VV guarantees the fleet of taxis against defects for 3 years. VV expects the warranty expenses over 3 years to add up to $30,000. VV made payments amounting to $8,000 to satisfy warranty claims from TTaxi in 20x1.

The vehicle has an estimated salvage value of $7,000 and an estimated useful life of 7 years or 280,000 kilometres. Assume that the average distance travelled by one such vehicle is 45,000 kilometres in 20X1, 50,000 kilometres in 20X2 and 55,000 kilometres in 20X3.

In addition, on 1 March 20X1, TTaxi also purchased 1000 shares in CComfort Ltd as investment. The price for each CComfort Ltd share on 1 March 20X1 is $1 and the price on 31 December 20X1 is $1.50. TTaxi paid for the investment in cash.

(a) Suppose TTaxi is also in the manufacturing business. On 1 January 20X1, it purchased a piece of machinery for $400,000. The machinery has an expected useful life of 7 years and a $50,000 estimated residual value. Assume the straight-line depreciation method is used. On 1 January 20X4, new information reveals that the machinery should have an expected total useful life of 10 years instead of 7, and an estimated residual value of $45,000 instead of $50,000. Compute and show the depreciation expense for the machinery for the year ended 31 December 20X4.

(b) Account for TTaxi's investment in CComfort Ltd's shares for the year ending 31 December 20X1 if TTaxi had classified the investment as measured at (i) FVPL and as (ii) FVOCI. (Partial Answer Key: Unrealised gains of $500)

(c) Prepare journal entries to show how VV would account for its warranty-related expenses in 20X1? (Partial Answer Key: Net credit to provision for warranty of $22,000)