8.New legislation was promulgated on 1 September 20x1 whereby all public transpo

Question

8.New legislation was promulgated on 1 September 20x1 whereby all public transport buses are required to undergo regular major inspections every 2 years. Vroom Limited owns a bus that has a carrying amount of $80,000 as at 1 January 20X1. This bus is depreciated on the straight-line method to a nil residual value and had a remaining useful life of 10 years on 1 Janua on 1 October 20X1 at a cost of $20,000. ry 20x1. A major inspection of this bus was performed Required: Show the journal entry relating to the major inspection and pr the detailed statement of financial position of Vroom Limited as at 31 Decenher esent the bus in

Explanation / Answer

The major inspection shall be treated as an expense and shall not be capitalized, hence the journal entry will be as follows:

Inspection cost A/c Dr 20000

to Cash A/c 20000'

(being expense incurred)

Bus reporting in financial statement

opening :80000

Less dep 8000(80000/10)

WDV: 72000

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