Neco 2020 Financial Accounting Question 3

A manufacturing company acquired a new machine on 1 January 2022. The total cost of the machine was ₦500,000. The company paid ₦200,000 in cash and the balance was purchased on credit. The supplier offered a 2% cash‑discount on the credit amount if paid within 30 days. The machine is expected to have a useful life of 5 years and a residual value of ₦50,000, and the company uses the straight‑line method of depreciation. During the year, the company incurred ₦30,000 of repair work that will extend the useful life of the machine and therefore must be capitalised. Prepare the necessary journal entries for the following and compute the carrying amount of the machine as at 31 December 2022. (a) Record the purchase of the machine, including the cash‑discount term. (b) Record the depreciation expense for the year. (c) Record the capitalisation of the repair work. (d) Record the receipt of the cash‑discount (assume the discount was taken within the period). (e) State the carrying amount of the machine on 31 December 2022.