Question

In: Accounting

Frozen Ltd purchased machinery on 1 July 2011 for $680,000.  The machinery is expected to have a...

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.

  1. Record depreciation of the machinery for the year ended 30 June 2012.
  2. Record the entries to revalue the machinery on 30 June 2012.
  3. Record depreciation of the machinery for the year ended 30 June 2013.
  4. Record allentries necessitated by the sale of the machinery on 31 December 2013.

Solutions

Expert Solution

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

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