document. The questions to be answered are: Week 1 Tea Tree Bay Ltd acquires a Gizmo Machine from Jetsons Ltd for the following consideration: Cash $20,000 Land In the books of Tea Tree Bay Ltd the...

Week 1
Required:
a) Calculate the acquisition cost of the Gizmo Machine that will be used as the base for future depreciation charge.
Ans –
    Acquisition cost of
Gizmo Machine
    Particulars
    Amount ($)
    Cash
     20,000
    FV of Land
     1,40,000
    FV of Equipment
     23,000
    Bank Loan Assumed
     30,000
    Installation Cost
     5,000
    Testing Cost
     2,500
    Transportation Cost
     700
    Total Cost
     2,21,200
) Provide the journal entries that would appear in Tea Tree Bay Ltd.’s books to account for the acquisition of the Gizmo Machine.
Ans –
    Journal entry in books of Tea Tray Bay Ltd.
    Particulars
    Debit ($)
    Credit ($)
    Machinery
     2,21,200
     
    Accumulate Dep -
equipment
     20,000
     
    To Equipment
     
     50,000
    To Land
     
     1,00,000
    To Loan Payable
     
     30,000
    To Cash
     
     28,200
    To Gain on Exchange
(balancing figure)
     
     33,000
    (Being Gizmo Machine purchased)
     
     
c) Will the maintenance cost be included in the acquisition cost of the machine? Justify your answer.
Ans –
No, the maintenance cost will not be included in the acquisition cost of the machine. It is because maintenance cost is a subsequent cost that ca
ies no probable future economic benefit. Therefore, it must be expensed as and when it occurs.
Week 2
a) What factors should be considered in determining the issue price of a debenture.
Ans –
Factors to be considered in determining the issue price of a debenture are:
· Interest Rate
· Credit Rating
· Maturity Date
· Cash flows the company
· Profitability of the company
· Times interest ratio of the company
· Management past performance
· Collateral offered for debentures issued
) Required:
(i) Determine the issue price of the debenture.
Issue price = Total Face Value * Present value factor at nyears for semi-annual market rate
+
Semi Annual interest * Cumulative Present value factor at nyears for semiannual market rate
Here n = 12 years (As interest is paid semi-annually for 6 years)
Total Face Value = $2,000,000
Semi Annual Interest = $2,000,000 * 8% * ½ = $80,000
Semi Annual Market Rate = 6/2 = 3%
Present value factor as per factor table for 12 years at 3% = 0.701
Cumulative Present value factor as per factor table for 12 years at 3% = 9.954
Therefore Cash proceeds = $2,000,000*0.701 + $80,000 * 9.954
     = $1,402,000 + $796,320
= $2,198,320
(ii) Provide the journal entries at:
1 July 2018, 30 June 2019, & 30 June 2020.
    Journal Entries
     
     
    Date
    Particulars
    Debit...