Club York is located in the center of Sydney. In a major refurbishment, it purchased a new sound system and a new lighting system on 1 March 2019.
- The sound system cost $35,000 to purchase and $4,500 to install. The lighting system cost $55,000.
- The sound system has a useful life of 8 years and residual value $500. The lighting system has a useful life of 5 years and no residual value. Both are depreciated on a straight-line basis.
Club York’s accounting period ends on 30 June each year. It has adopted straight-line method of depreciation.
- What is the cost and the carrying value for the assets discussed above as at 30 June 2019?
- Would Club York’s profit be higher or lower for the year ending 30 June 2019 if it had adopted the diminishing value method of depreciation? Explain.
- On 1 September 2019, it was found that the lighting system was no longer flashing ultraviolet rays in time with the music (as it should). $900 was spent to have this fixed. On 1 October 2019, $6500 was spent to give the sound system a heavier bass beat. What is the appropriate accounting treatment for the events that occurred on 1 September 2019 and 1 October 2019? Explain.
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