Question

There are two unrelated parts to this question. Part 1 is worth 9 marks and Part 2 is worth 11 marks.

1. On 1 January 2018, Walli Ltd purchased equipment for a total cost of $55,016 paying cash. The estimated useful life of the equipment was 8 years, with an estimated residual value of $5,000. The entity’s reporting period ends on 30 June, and it uses straight-line depreciation. On 1 July 2018, Walli Ltd revalued the equipment upwards to reflect the fair value of $70,000. The revised useful life was 7 years and residual value was estimated to be nil. On 1 January 2020, Walli Ltd sold the equipment for $52,000. Walli Ltd is not registered for GST.

Required:

1. Prepare the journal entries in relation to the equipment from the date of acquisition to the date of disposal [9 Marks]

2. At 31 December 2018, Prince Ltd reported these non-current assets:

	$	$
Building	318,000
Less: Accumulated depreciation	145,200	172,800
Equipment	720,000
Less: Accumulated depreciation	288,000	432,000
Total non-current assets		604,800

During 2019, the following selected transactions occurred:

May 1      Sold equipment that cost $720,000 for $420,000.

June 30   There was an indication that the building could be impaired due to flooding, Prince Ltd calculated the recoverable amount of the building. The net selling price was $155,000 and the value in use was estimated to be $147,000.

Prince Ltd uses straight-line depreciation for buildings and equipment. The building is estimated to have a 40-year useful life and no residual value. The equipment is estimated to have a 10-year useful life and no residual value.

Required

1. Journalise the transactions that occurred during 2019 [8 marks]
2. Explain the difference between impairment and depreciation [3 Marks]

WORKINGS

1. GENERAL JOURNal

Answer 1

Part 1

a. The accounting treatment would deffer based on whether Wali Ltd follows US GAAP or IFRS. I have sold for both the alternatives.

If Wali Ltd Follows US GAAP

US GAAP doe not allow revaluation of Fixed Assets, thus the equipment would be carried at cost only. However, it is permitted to change its accounting estimates i.e. change in useful life or change in salvage value.

Thus the entries would be as follows:

If Wali Ltd Follows IFRS

The journal entries would be:

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