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On 1 July 2017, Cambridge Ltd paid $250,000 cash to acquire a machine. On this date...

On 1 July 2017, Cambridge Ltd paid $250,000 cash to acquire a machine. On this date it was estimated that the machine had a useful life of ten years and a residual value of $30,000. In accordance with AASB 116 Property, Plant and Equipment, Cambridge Ltd uses the revaluation model as its accounting policy to measure items of property, plant and equipment and the straight-line method of depreciation. Cambridge Ltd has a 30 June reporting date.

An independent valuer provided the following fair values for the machine:

Reporting date Fair value

30 June 2018 $255,000

30 June 2019 210,000

30 June 2020 173,500

On 31 December 2020, the machine was sold for $160,000 cash. Required Prepare the journal entries to account for the events and transactions in relation to the machine between 1 July 2017 and 31 December 2020. you are also required to show the calculations at the end and explain all the criteria in relation to the AASB 116 Plant, Propert and Equipment.

Solutions

Expert Solution

As per AASB 116, gain on revalution will be taken to revaluation reserve and shown in other comprehensive income and if loss then it is charged to profit and loss account.

Date Accounts Title Debit Credit
July 2017, 1 Machine          250,000
Cash          250,000
Jun 2018, 30 Depreciation            22,000
Machine            22,000
Jun 2019, 30 Machine            27,000
Revaluation Reserve            27,000
Jun 2019, 30 Depreciation            22,500
Machine            22,500
Jun 2019, 30 Revaluation Reserve            20,000
Machine            20,000
Jun 2020, 30 Depreciation            22,500
Machine            22,500
Jun 2020, 30 Revaluation Reserve               7,000
Loss on Revaluation               7,000
Machine            14,000
Dec 2020, 31 Cash          160,000
Profit on Sale            13,500
Machine          173,500

Working Notes:

Date Details Amount in $
Jun 2018, 30 Machine Value          250,000
Less: depreciation          (22,000)
         228,000
Fair value as on 30th June 2018          255,000
Revaluation Reserve            27,000
Jun 2019, 30 Machine Value          255,000
Less: Depreciation (225000 /9)          (25,000)
         230,000
Fair value as on 30th June 2018          210,000
Revaluation Reserve          (20,000)
Jun 2020, 30 Machine Value          210,000
Less: Depreciation (180,000 / 8)          (22,500)
         187,500
Fair value as on 30th June 2018          173,500
Revaluation Reserve*            (7,000)
Loss on revaluation            (7,000)
Dec 2020, 31 Cost as per 30.06.2019          173,500
Sale price          160,000
Gain on Sale            13,500

* Balance in revaluation reserve is $7,000 so out of 14,000; 7,000 will be on revaluation and remaining on loss on revaluation

ekkarill92 answered 1 year ago
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