Latestech Equipment Ltd operates an equipment rental business. The equipment has an internal computer that enables remot
Posted: Mon Apr 25, 2022 7:29 am
Latestech Equipment Ltd operates an equipment rental business.
The equipment has an internal computer that enables remote
monitoring of usage:
Casual equipment hire at a rate of $25 per machine hour, with a
minimum charge of $200 per day, e.g., if a customer hires a machine
on Monday, collecting it at 5.00 p.m. and returns it by 5.00 p.m.
Tuesday, after using it for 10 machine hours, the customer will be
charged $250, but if the customer used the machine for only 4
hours, the charge would be $200, being the minimum daily
charge.
Extended equipment hire agreement for a fixed fee of $12,000
payable in advance, which entitles the customer to the
following:
o possession of the equipment for one year
o use of the equipment for up to 500 machine hours
o additional machine hours are charged at $25 per hour.
The equipment has a useful life of five years.Big Plans Ltd is a
customer of Latestech Equipment Ltd. Big Plans Ltd entered into an
extended equipment hire agreement on 1 March 20X3. The initial
payment of $12,000 was debited to Prepayments. The equipment was
used for 200 machine hours in the first four months of the extended
hire agreement. Big Plans Ltd’s reporting date is 30 June.
d) The trainee bookkeeper suggests that $12,000 payment should
be treated as an expense in the current period. Propose an
alternative accounting policy that differs in terms of definition,
recognition or measurement from that suggested by the trainee
bookkeeper. In this question you are required to describe the
policy only. You are not required to evaluate or justify it (save
that for part e)
e) Based on the principles you identified in part c)
evaluate
i) the policy suggested by the trainee bookkeeper and
ii) the policy that you suggested in part d)
f) Recommend a policy.
The equipment has an internal computer that enables remote
monitoring of usage:
Casual equipment hire at a rate of $25 per machine hour, with a
minimum charge of $200 per day, e.g., if a customer hires a machine
on Monday, collecting it at 5.00 p.m. and returns it by 5.00 p.m.
Tuesday, after using it for 10 machine hours, the customer will be
charged $250, but if the customer used the machine for only 4
hours, the charge would be $200, being the minimum daily
charge.
Extended equipment hire agreement for a fixed fee of $12,000
payable in advance, which entitles the customer to the
following:
o possession of the equipment for one year
o use of the equipment for up to 500 machine hours
o additional machine hours are charged at $25 per hour.
The equipment has a useful life of five years.Big Plans Ltd is a
customer of Latestech Equipment Ltd. Big Plans Ltd entered into an
extended equipment hire agreement on 1 March 20X3. The initial
payment of $12,000 was debited to Prepayments. The equipment was
used for 200 machine hours in the first four months of the extended
hire agreement. Big Plans Ltd’s reporting date is 30 June.
d) The trainee bookkeeper suggests that $12,000 payment should
be treated as an expense in the current period. Propose an
alternative accounting policy that differs in terms of definition,
recognition or measurement from that suggested by the trainee
bookkeeper. In this question you are required to describe the
policy only. You are not required to evaluate or justify it (save
that for part e)
e) Based on the principles you identified in part c)
evaluate
i) the policy suggested by the trainee bookkeeper and
ii) the policy that you suggested in part d)
f) Recommend a policy.