Question
In: Accounting
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
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