Question

ABC corporation purchased machine Z beginning 2016 at a cost of $120000. the machine is used in the productin of product X. the machine is expected tto have a useful life of 10 years and no residual value. the straight line methods of depreciation is used. if you know that at december 31,2018, the appraisal value of machine Z is $88 200. at December 2020 an adverse economic conditions result in a signigicant decline in demand for Product X and the appraisal value estimated to be $58000

If you know that the ABC corporation is using Revaluation method to deal with property, plant & Equipment, required:

A) Determaine the carrying amonut for Machine Z to be reported on the balance sheet at the end of 2018 under IFRS and record the journal entry if needed.

B) Calculate the amount of depreciation expense for 2019.

C) A) Determaine the carrying amonut for Machine Z to be reported on the balance sheet at the end of 2020 under IFRS and record the journal entry if needed.

D) Calculate the amount of depreciation expense for 2019.

E) Determaine the carrying amonut for Machine Z to be reported on the balance sheet at the end of 2018 under US GAAP.

Answer 1

		Figures in $
	Purchase price at the beginning of the 2016	120000
	Estimated useful life	10 years
	Depreciation method	SLM
	Residual value	Nil
	Depreciation per annum
	(Original Cost - Residual Value)/Useful life	12000
A	Carrying amount of Machine at the end of Dec 2018	Original cost - depreciation for Year 2016 to 2018
		120000-(12000*3)
		84000
	Add: Revaluation Reserve (balancing figure)	4200
	Revised Carrying Amount to be reported at the end of Dec 2018	88200
	Journal Entry
	Machine Z A/c Dr.   4200
	To Revaluation Reserve          4200
	(Being Machinery re3valued)
B.	Amount of Depreciation expenses for 2019
	Carruing amount at the beginning	88200
	Remaining useful life	7
	Depreciation p.a (88200/7)	12600
C.	At the end of Dec 2020 appraisal of machine Z i.e recoverable amount is $58000
	Impairment Loss = Carrying amount - Recoverable Amount
	Carrying Amount should be'=88200-(12600*2) =63000
	Recoverable amount= 58000
	Impairment Loss = 63000-58000=5000
	Treatment of Impairment Loss
	Revaluation Reserve as on Dec 2018	4200
	Less: Depreciation Adjusted
	For the year 2019 (12600-12000)	600
	For the year 2020 (12600-12000)	600
	Available Revaluation reserve	3000
	Journal Entry
	Revaluation reserve Dr. 3000
	Profit and Loss Statement Dr. 2000
	To Provision for Impairment Loss                                     5000
	(Being Impairment loss adjusted)
	Carrying Amount at the end of 2020 is equal to $58000
D	Same as point B
E	US GAAP does not allow upward revaluation but IFRS allows.
	Hence carrying amount of Machinery as on DEC2018 is 120000-(12000*3) = $84000