Question

On July 1, 2017, Bramble Ltd., a publicly listed company, acquired assets from Sheffield Ltd. On the transaction date, a reliable, independent valuator assessed the fair values of these assets as follows: Manufacturing plant (building #1) $399,930 Storage warehouse (building #2) 209,860 Machinery (in building #1) 75,000 Machinery (in building #2) 44,860 The buildings are owned by the company, and the land that the buildings are situated on is owned by the local municipality and is provided free of charge to the owner of the buildings as a stimulus to encourage local employment. In exchange for the acquisition of these assets, Bramble issued 145,900 common shares. Bramble shares are thinly traded, and in the most recent sale of Bramble's shares on the Toronto Stock Exchange, 520 shares were sold for $5 per share. At the time of acquisition, both buildings were considered to have an expected remaining useful life of 10 years, the machinery in building #1 was expected to have a remaining useful life of 3 years, and the machinery in building #2 was expected to have a useful life of 9 years. Bramble uses straight-line depreciation with no residual values. At December 31, 2017, Bramble fiscal year end, Bramble recorded the correct depreciation amounts for the six months that the assets were in use. An independent appraisal concluded that the assets had the following fair values: Manufacturing plant (building #1) $386,830 Storage warehouse (building #2) 177,810 At December 31, 2018, Bramble once again retained an independent appraiser and determined that the fair value of the assets was: Manufacturing plant (building #1) $339,970 Storage warehouse (building #2) 159,500 Prepare the journal entries required for 2017 and 2018, assuming that the buildings are accounted for under the revaluation model (using the asset adjustment method), and that the machinery is accounted for under the cost model.

Answer 1

	Journal entries required for 2017 and 2018
1-Jul-17	Building #1	$399,930
	Building #2	$209,860
	Machinery#1	$75,000
	Machinery#2	$44,860
	Common Stock		$729,650
31-Dec-17	Depreciation-Building#1	$19,997
	Depreciation-Building#2	$10,493
	Depreciation-Machinery#1	$12,500
	Depreciation-Machinery#2	$2,492
	Accumulated Depreciation-Building		$30,490
	Accumulated Depreciation-Machinery		$14,992
31-Dec-17	Building #1	6,897
	Revaluation Surplus		$6,897
31-Dec-17	Impairment Loss	$21,557
	Building #2		$21,557
31-Dec-18	Depreciation-Building#1	$42,981
	Depreciation-Building#2	$19,757
	Depreciation-Machinery#1	$25,000
	Depreciation-Machinery#2	$4,984
	Accumulated Depreciation-Building		$62,738
	Accumulated Depreciation-Machinery		$29,984
31-Dec-18	Revaluation Surplus	$3,879
	Building#1		$3,879
31-Dec-18	Building #2	$1,447
	Revaluation Surplus		$1,447
	Working Note:
	Building # 1
	Cost on acquisition	$399,930
	Less Depreciation for 6 months	$19,997
	Book Value on 31 dec 2017	$379,934
	Fair Value on Dec 31, 2017	$386,830
	Revaluation Surplus (Fair value-Book value)	$6,897
	Depreciation (386830/9)	$42,981
	Book Value on 31 dec 2018 (386830-42981)	$343,849
	Fair Value on Dec 31, 2018	$339,970
	Impairment Loss	($3,879)
	Building # 2
	Cost on acquisition	$209,860
	Less Depreciation for 6 months	$10,493
	Book Value on 31 dec 2017	$199,367
	Fair Value on Dec 31, 2017	$177,810
	Impairment Loss (Fair value-Book value)	($21,557)
	Depreciation (177810/9)	$19,757
	Book Value on 31 dec 2018 (177810-19757)	$158,053
	Fair Value on Dec 31, 2018	$159,500
	Revaluation Surplus	$1,447