Reference no: EM131722132

Q1. Anglesea Ltd constructed a building in 2010 for a cost of $960 000. The building was expected to have a useful life of 25 years after which time it would be demolished at an expected demolition cost of $100 000. Being on the coast, the building was subject to wild winds at times. At the end of the 2014 financial year the roof of the building was blown away and a replacement was constructed at a cost of $200 000. It was predicted that by replacing the building's roof its expected useful life would be extended a further 25 years after the end of the 2014 financial year.

REQUIRED - Calculate the depreciation cost for the 2013, 2014 and 2015 financial years.

Q2. On 1 July 2015 Kruger Ltd privately issues $1 million in six-year debentures, which pay interest each six months at a coupon rate of 6 per cent per annum. At the time of issuing the securities, the market requires a rate of return of 4 per cent. Consistent with the requirements of AASB 9, the debentures are accounted for using the effective interest method.

Required -

(a) Determine the fair value of the debentures at the time of issue (which will also be their issue price).

(b) Provide the journal entries at:

(i) 1 July 2015

(ii)   31 December 2015

(iii)  30 June 2016.