Cobalt Plc Owns an Item of Machinery That Has a Cost

question 62

Multiple Choice

Cobalt Plc owns an item of machinery that has a cost of €700 000 and accumulated depreciation of €200 000 as at 1 July 2013.On that date the machine is sold to Blue Plc 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% 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 Cobalt's books on 1 July 2013 and 30 June 2014 (rounded to the nearest euro) ?

• A) \(\begin{array}{l}
• 01 \text { July } 2013\\
• \begin{array}{|c|l|r|r|}
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Cash } & 533493 & \\
• \hline \mathrm{Dr} & \text { Accumulated depreciation-machine } & 200000 & \\
• \hline \mathrm{Cr} & \text { Machine } & & 700000 \\
• \hline \mathrm{Cr} & \text { Deferred gain } & & 33493 \\
• \hline\\
• \hline \text { Dr } & \text { Leased machine } & 533493 & \\
• \hline \mathrm{Cr} & \text { Lease liability } & & 533493\\
• \hline\\
• \hline 30 \text { June } 2014\\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Interest expense } & 53349 & \\
• \hline \mathrm{Dr} & \text { Lease liability } & 46651 & \\
• \hline \mathrm{Cr} & \text { Cash } & & 100000 \\
• \hline\\
• \hline \text { Dr } & \text { Amortisation of leased asset } & 66687 & \\
• \hline \text { Dr } & \text { Accumulated leased machine amortisation } & & 66687 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Deferred gain } & 4187 & \\
• \hline \mathrm{Cr} & \text { Profit on sale of leased asset } & & 4187 \\
• \hline
• \end{array}
• \end{array}\)
• B) \(\begin{array}{l}
• 01 \text { July } 2013\\
• \begin{array}{|c|l|r|r|}
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Cash } & 533493 & \\
• \hline \mathrm{Dr} & \text { Accumulated depreciation-machine } & 200000 & \\
• \hline \mathrm{Cr} & \text { Machine } & & 700000 \\
• \hline \mathrm{Cr} & \text { Gain on sale of machine } & & 33493 \\
• \hline\\
• \hline30 \text { June } 2014\\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Rent expense } & 100000 & \\
• \hline \mathrm{Cr} & \text { Cash } & & 100000 \\
• \hline
• \end{array}
• \end{array}\)
• C) 01 July 2013
• \(\begin{array}{|l|l|r|r|}
• \hline \mathrm{Dr} & \text { Cash } & 533493 & \\
• \hline \mathrm{Dr} & \text { Accumulated depreciation-machine } & 200000 & \\
• \hline \mathrm{Cr} & \text { Machine } & & 700000 \\
• \hline \mathrm{Cr} & \text { Deferred gain } & & 33493\\
• \hline
• \end{array}\)
• \(30 \text { June } 2014\)
• \(\begin{array}{|r|l|r|r|}
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Rent expense } & 100000 & \\
• \hline \mathrm{Cr} & \text { Cash } & & 100000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Deferred gain } & 4187 & \\
• \hline \mathrm{Cr} & \text { Profit on sale of leased asset } & & 4187 \\
• \hline
• \end{array}\)
• D) \(\begin{array}{l}
• 01 \text { July } 2013\\
• \begin{array}{|l|l|r|r|}
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Cash } & 533493 & \\
• \hline \mathrm{Dr} & \text { Accumulated depreciation-machine } & 200000 & \\
• \hline \mathrm{Cr} & \text { Machine } & & 700000 \\
• \hline \mathrm{Cr} & \text { Deferred gain } & & 33493\\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Leased machine } & 533493 & \\
• \hline \mathrm{Cr} & \text { Lease liability } & & 533493 \\
• \hline\\
• \hline30 \text { June } 2014\\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Rent expense } & 95813 & \\
• \hline \mathrm{Dr} & \text { Deferred gain } & 4187 & \\
• \hline \mathrm{Cr} & \text { Cash } & & 100000 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Amortisation of leased asset } & 66687 & \\
• \hline \mathrm{Dr} & \text { Accumulated leased machine amortisation } & & 66687 \\
• \hline
• \end{array}
• \end{array}\)

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Definitions:

Subsistence

The means by which an individual or group sustains life, usually referring to basic necessities like food and shelter.

Socioeconomic Systems

The structured ways societies organize and distribute economic resources and social status among their members.

Rational And Adaptive

Describes actions or behaviors that are both logical, based on reason and evidence, and beneficial for adjustment or effectiveness in responding to specific challenges or environments.

Biologically Adapted

The processes through which organisms develop traits over generations that better enable them to survive and reproduce in their specific environments.