Question

Question 1    Topic: Property, Plant and Equipment

PART A

On 1 July 2017, ABC Ltd purchased and recorded equipment at its cost of acquisition of $4,800,000. ABC Ltd depreciates the asset over its estimated useful life of eight years using the straight-line method. Disposal value at the end of the eighth year is zero. ABC Ltd uses the revaluation model to account for equipment and records accumulated depreciation using the net method. On 30 June 2018 the fair value of the equipment was the same as its carrying amount. On 30 June 2019 the fair value of the equipment was $4,680,000. There was no change in the estimated useful life or the disposal value of the equipment. There were no indicators of impairment evidenced in the years ended 30 June 2018 and 30 June 2019.

REQUIRED:                                                                                                                      

1. Calculate the carrying amount, showing its component parts, of the equipment on 30 June 2019 immediately before the revaluation.
2. Prepare journal entries, including narrations, to account for the revaluation of the equipment on 30 June 2019 consistent with AASB 116 – ‘Property, Plant and Equipment’.
3. Calculate the depreciation expense in respect of the equipment to be recorded in the year ending 30 June 2020.

Answer 1

		Annual Depreciation=$4800000/8	$600,000
		Carrying Value on June 30,2018=4800000-600000	$4,200,000
		Fair Value of the Equipment on June 30,2018	$4,200,000
		Carrying Value on June30,2019, before revaluation	$3,600,000	(4200000-600000)
		Gross Equipment value as on June 30,2019	$4,800,000
		Accumulated Depreciation on June,30,2019	$1,200,000	(600000+600000)
		Fair Value of the Equipment on June 30,2019	$4,680,000
		Revaluation Reserve =4680000-3600000=	$1,080,000
		JOURNAL ENTRY
	Date	Account Title	Debit	Credit
	June 30,2019	Equipment	$1,080,000
		Revaluation Reserve		$1,080,000
		(To Record revaluation of the equipment)
		Depreciation expense to be recorded in the year ending June 30,2020
		Carrying Value of Asset as on June 30,2019 after revaluation	$4,680,000
		Useful life left as on June 30,2019 in years	6
		Annual Depreciation =4680000/6	$780,000
		Depreciation expense to be recorded in the year ending June 30,2020	$780,000