Question

Can you show how you would write the 5 entries with notes

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1. In the 30 June 2018 annual report of Baker and Anderson Ltd, the equipment was reported as follows:

      Equipment                                                    $650,000

      Accumulated depreciation                         ($280,000)     $370,000

The equipment consisted of two machines, Machine X and Machine Y. Both machines are measured using the cost model and depreciated on a straight-line basis over a 10-year period. As at 30 June 2018, these machines were reported as follows:

Machine X – Cost                                        $380,000

Carrying amount                                          $190,000

Machine Y – Cost                                        $270,000

Carrying amount                                          $180,000                                                      

On 31 December 2018, the directors of Baker and Anderson Ltd decided to change the basis of measuring equipment from the cost model to fair value model. Machine X was revalued to $200,000 with an expected useful life of 6 years, and Machine Y was revalued to $160,000 with an expected useful life of 5 years.

On 1 July 2019, Machine X was assessed to have a fair value of $175,000 with an expected useful life of 5 years, and Machine Y’s fair value was $143,000 with an expected useful life of 4 years.

Required:

1. Prepare the revaluation journal entries for both Machines X and Y required for the event on 1 July 2019 (5 journal entries required). Show all workings.

Answer 1

31 Dec 2018 Accumulated Depreciation on Machine x ( $380000-$190000) Dr    $190000

To Revaluation reserve ($200000-$190000) $10000

To Machine X ( $380000-$200000) $180000

( Machine X revalued by de-recognizing accumulated depreciation till date and de- valuing the Machine from its original cost of $ 380000. Since there is revaluation gain of $ 10000. It is transferred to revaluation reserve)

31 Dec 2019 Accumulated Depreciation On Machine Y  ($270000-$180000)    Dr $90000

  Income Statement ( Revaluation Loss) ($180000-$160000) Dr    $20000

To Machine Y ($270000-$160000)    $110000

( Being machine Y revalued. Revaluation loss is treated as an expense and transferred to Profit and loss )

1 July 2019 Revaluation reserve Dr 10000

Income Statement Dr 15000

To Machine X 25000

( Machine X being revalued. Since there is revaluation loss of $ 25000.Calculated by subtracting Fair Market value on 1st July 2019 From carrying amount on 31st Dec 2018 from i.e, ($200000- $175000). According to IAS 16 Accounting for Property Plant And Equipment this loss is first written off from  corresponding revaluation reserve i.e, $ 10000. and remaining $15000 is transferred to income Statement as expense.)

1 July 2019 Income Statement Dr $17000

To machine Y $17000

( Being Machine Y revalued. since there was no revaluation reserve for machine Y. whole revaluation loss of $17000 (160000-143000) is  transferred to Income Statement)

31 Dec 2019 Depreciation for Machine X Dr $17500

Depreciation for Machine Y Dr $17875

To Accumulated Depreciation for Machine X $17500

To Accumulated Depreciation for Machine Y $17875

( Being Depreciation charged for 6 months.

Machine X : (175000/5)*6/12 = $17500

Machine Y : (143000/4)*6/12 = $17875)