Cost of machine is R4000000. useful life of 8 years and residual value of R500 000. overhaul every 4 years at R500 000 during january 2018

Question

 lux ltd purchased a machine on 1 january 2014 at cost of R4000000. the machine has an expected economic useful life of 8 years with a residual value of R500 000. in terms of its operating conditions, the machine requires a complete overhaul every 4 years. the estimated cost to overhaul the machine during january 2018 amounts to R500 000. for tax purposes, the machine qualifies for wear and tear allowances, deductible on a straight line basis over 5 years. prepare all journal entries

Answer 1

for the purchase

,,

Fixed Asset-Machine 4,000,000dr

Cash or Acct. Pay. 4,000,000

for depreciation

Depreciation expense 437,500Dr

Accumulated Deprecia 437,500Cr

per year for 8 years. this is less the residual value of 500,000

To record Overhaul

Repairs and Maint. 500,000dr

Cash 500,000Cr

there is not enough information to answer the tax question. So I think that it is there to throw you off. So I think that no entry is required for the tax effect difference.