Answer Happy

Question 3 (20 Marks) You have just received the followinge-mail from Ben, a friend of yours who works at Building TogetherPty (Ltd), a construction company based in Woodstock. You arerequired to answer questions asked by Ben in the mail. Hi Tshego.The construction manager that I report to has asked for feedback ona number of issues relating to the treatment of PPE for the yearended 31 July 2013. I really need your help as I am a littleuncertain where to start with answering her questions. So heregoes...... 3.1 On 1 August 2012, Machine A was delivered to thepremises of Building Together Pty (Ltd). On this date the machinewas recognised at an amount of R1 800 000. On 31 July 2013, thebusiness paid the supplier R2 070 000. The payment period waslonger than normal credit terms. Please explain why the businessrecognised Machine A at a different amount to the amount paid tothe supplier on 31 July 2013. (5 marks) 3.2 Building Together Pty(Ltd) ordered Machine B from a supplier in Gauteng on 2 July 2013.The purchase price of Machine B amounted to R765 000. The contractindicated that the machine would be sent by truck, FOB shippingpoint, on 28 July 2013 and would be paid for in full on the date ofdelivery. The machine is expected to be delivered to our businesspremises on 21 August 2013. The bookkeeper has already recognisedthe machine and the amount of R765 000 is already sitting in thePPE: Machinery account. How can this be? It is not physically onthe business premises AND it has not been paid for! Please providethe general journal entry/ies that would be processed on the datesunderlined. If no journal entry is required, please provide areason for this. (5 Marks) 3.3 The construction manager indicatedthat delivery costs for Machine B (in question 3.2 above) willamount to R15 600 and installation costs will amount to R36 000. Ineed to tell her where to record these costs and why. Am I correctin saying these costs should be debited to the delivery expensesand installation expenses accounts in the general ledger? Pleaseindicate whether or not I am correct, in either case please beclear as to HOW these costs should be treated and why they shouldbe treated in this way. (5 Marks) 3.4 On 1 October 2011, BuildingTogether Pty (Ltd) purchased an eight-wheeler truck for delivery ofsand and stone. The truck was ready for use on the purchase date.The truck had a purchase price of R870 000 and a residual value ofR160 000 and was expected to be used evenly over 6 years. On 28February 2013, the business purchased and installed an additionalunit to the truck that sweeps excess stone and sand off the back ofthe truck. The total cost of the unit (including installation)amounted to R195 000. It is expected that the new unit will bedisposed of on the same date as the truck. The new unit has aresidual value of R35 000. Please calculate the depreciationexpense for the year ended 31 July 2014. (5 Marks)