Cobalt Ltd Owns an Item of Machinery That Has a Cost

question 56

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 2013.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% 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 dollar) ?

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Definitions:

Void

A term describing a contract or legal action that is null, having no legal force or effect from the outset.

Ratification

The formal approval of an agreement or treaty by authoritative body, making it officially valid.

Writing

The process of using symbols, such as letters and characters, to communicate thoughts and ideas in a readable form.

Unlimited Liability

A legal status where business owners are personally responsible for all the debts and liabilities of the business.