Cobalt Ltd Owns an Item of Machinery That Has a Cost

question 22

Multiple Choice

Cobalt Ltd owns an item of machinery that has a cost of $700,000 and accumulated depreciation of $200,000 as at 1 July 2003. On that date the machine is sold to Blue Ltd for $533,493, and then leased back over 8 years (the remaining life of the machine) . The lease is non-cancellable. The lease payments are $100,000 per annum, payable in arrears on 30 June each year. The interest rate implicit in the lease is 10 per cent and the economic benefits of the asset are expected to be realised evenly over its life. What are the entries to record the transactions in Blue's books on 1 July 2003 and 30 June 2004 (rounded to the nearest dollar) ?

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Definitions:

Consistent Estimator

An attribute of an estimator indicating that, as the sample size increases, it converges in probability to the true parameter it estimates.

σ

Denotes the standard deviation in statistics, a measure of the dispersion or variability of a set of values.

Null Hypotheses

A statement or hypothesis set for statistical testing, positing that there is no significant difference or effect.

Alternative Hypotheses

In hypothesis testing, it is the statement that suggests a possible relationship between variables or a difference in groups, contrasting the null hypothesis.