In: Accounting
Frozen Ltd purchased machinery on 1 July 2011 for $680,000. The machinery is expected to have a useful life of 20 years and a residual value of $80,000. The firm accounts for the machinery using the revaluation model. The fair value of the machinery on 30 June 2012 is $699,400. The machinery was sold for $500,000 cash on 31 December 2013. No revisions are made to the useful life and residual value at the time of the revaluations.
Depreciation = $680000-$80000/20 = $30000
Depreciation Entry on 30th June, 2012
Debit | Credit | |
Depreciation Expense A/c | $30000 | |
To Accumulated Depreciation A/c | $30000 |
Revaluation Entry on 30th June, 2012
Debit | Credit | |
Machinery A/c | $19400 | |
To Revaluation Reserve A/c | $19400 |
Increase in Value = $699400-$680000=$19400
Depreciation after revaluation = $699400-$80000/19=$32600
Depreciation Entry on 30th June, 2013
Debit | Credit | |
Depreciation Expense A/c | $32600 | |
To Accumulated Depreciation A/c | $32600 | |
Revaluation Reserve A/c | $2600 | |
To Retained Earnings | $2600 |
Entries on 31st december, 2013
Debit | Credit | |
Depreciation Expense A/c | $16300 | |
To Accumulated Depreciation A/c | $16300 | |
Revaluation Reserve A/c | $1300 | |
To Retained Earnings | $1300 | |
Cash | $500000 | |
Accumulated Depreciation | $78900 | |
Loss on Sale of Machinery | $120700 | |
To Machinery | $699600 | |
Revaluation Reserve A/c | $15500 | |
To Retained Earnings | $15500 | |