Cobalt Plc Owns an Item of Machinery That Has a Cost

question 18

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 Blue's books on 1 July 2013 and 30 June 2014 (rounded to the nearest euro) ?

• A) 01 July 2013
• \(\begin{array}{|c|l|c|c|}
• \hline \mathrm{Dr} & \text { Machine } & 533493 & \\
• \hline \mathrm{Cr} & \text { Cash } & & 533493 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Lease receivable } & 533493 & \\
• \hline \mathrm{Cr} & \text { Lease payable } & & 533493 \\
• \hline
• \end{array}\)
• \(30 \text { June } 2014\)
• \(\begin{array}{|c|l|c|c|}
• \hline \mathrm{Dr} & \text { Cash } & 100000 & \\
• \hline \mathrm{Cr} & \text { Interest revenue } & & 53349 \\
• \hline \mathrm{Cr} & \text { Lease receivable } & & 46651 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Depreciation machine } & 66687 & \\
• \hline \mathrm{Cr} & \text { Accumulated depreciation machine } & & 66687 \\
• \hline
• \end{array}\)
• B) 01 July 2013
• \(\begin{array}{|c|l|c|c|}
• \hline \mathrm{Dr} & \text { Machine } & 533493 & \\
• \hline \mathrm{Cr} & \text { Cash } & & 533493 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Lease receivable } & 533493 & \\
• \hline \mathrm{Cr} & \text { Machine } & & 533493 \\
• \hline
• \end{array}\)
• \(30 \text { June } 2014\)
• \(\begin{array}{|l|l|l|l|}
• \hline \mathrm{Dr} & \text { Cash } & 100000 & \\
• \hline \mathrm{Cr} & \text { Interest revenue } & & 53349 \\
• \hline \mathrm{Cr} & \text { Lease receivable } & & 46651 \\
• \hline
• \end{array}\)
• C) 01 July 2013
• \(\begin{array}{|c|l|r|r|}
• \hline \mathrm{Dr} & \text { Machine } & 500000 & \\
• \hline \mathrm{Dr} & \text { Loss on machine } & 33493 & \\
• \hline \mathrm{Cr} & \text { Cash } & & 533493 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Lease receivable } & 533493 & \\
• \hline \mathrm{Cr} & \text { Machine } & & 500000 \\
• \hline \mathrm{Cr} & \text { Loss on machine } & & 33493 \\
• \hline
• \end{array}\)
• \(30 \text { June } 2014\)
• \(\begin{array}{|l|l|l|l|}
• \hline \mathrm{Dr} & \text { Cash } & 100000 & \\
• \hline \mathrm{Cr} & \text { Interest revenue } & & 100000 \\
• \hline
• \end{array}\)
• D) 01 July 2013
• \(\begin{array}{|c|l|c|c|}
• \hline \mathrm{Dr} & \text { Machine } & 533493 & \\
• \hline \mathrm{Cr} & \text { Cash } & & 533493 \\
• \hline & & & \\
• \hline \mathrm{Dr} & \text { Lease receivable } & 533493 & \\
• \hline \mathrm{Cr} & \text { Machine } & & 533493 \\
• \hline
• \end{array}\)
• \(\text { 30 June } 2014\)
• \(\begin{array}{|l|l|l|l|}
• \hline \mathrm{Dr} & \text { Cash } & 100000 & \\
• \hline \mathrm{Cr} & \text { Lease revenue } & & 100000 \\
• \hline
• \end{array}\)

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Definitions:

Tax Cuts

Reductions in the amount of taxes that individuals or corporations must pay to the government, often aimed at stimulating economic growth or achieving policy goals.

Legislation

Laws that have been passed by a governing body or legislature.

Aggregate Demand

The all-inclusive demand for goods and services within an economy, set at a definite price level and over a specific duration.

Goods and Services

The output of an economy, enterprise, or system that includes tangible products (goods) and intangible activities (services) provided to individuals or entities.