Question

At 1 July 2014, Lobstar Ltd acquired the following non-current assets: Equipment $100 000 Vehicles $80 000 They are in different classes of non-current assets and are to be measured at fair value. The expected useful lives of vehicles and equipment are 5 years and 10 years, respectively. At 30 June 2015, the fair values of both assets were assessed. The equipment had a fair value of $82 000, and the vehicles, $70 000. The remaining useful lives were assessed to be 8 years for equipment and 7 years for vehicles. Tax rate applied  30%. Required Prepare the journal entries for Lobstar Ltd for the years ending 30 June 2015 and 2016.

Answer 1

Solution:

JOURNAL ENTRIES:

30 June 2015

Dr.Depreciation expense – equipment $10 000

Cr. Accumulated depreciation – equipment $10 000

(Depreciation = $100 000 / 10 years)

Dr. Accumulated depreciation - equipment $10 000

Cr. Equipment $10 000

(Write down of equipment to carrying amount: $90 000)

Dr. Expense- write-down of equipment Dr 8 000

Cr. Equipment Cr 8 000

(Revaluation from carrying amount to fair value equals $90 000 - $82 000)

Dr. Depreciation expense – vehicles $16 000

Cr. Accumulated depreciation – vehicles $16 000

(Depreciation $80 000*20%)

Dr. Accumulated depreciation – vehicles $16 000

Cr. Vehicles $16 000

(Write-down to carrying amount of $64 000)

Dr. Vehicles $6 000

Cr. Gain on revaluation of vehicles (OCI) $6 000

(Revaluation increment: $70 000 - $64 000)

Dr. Income tax expense (OCI) $1,800

Cr. Deferred tax liability $1,800

(The effect of tax of revaluation increment)

Dr. Gain on revaluation of vehicles (OCI) $6,000

Cr. Income tax expense (OCI) $1,800

Cr. Asset revaluation surplus - vehicles $4,200

(Accumulation of net revaluation gain in equity)

30 June 2016

Dr. Depreciation Expense – Equipment $10,250

Cr. Accumulated depreciation – Equipment $10,250

(Depreciation amount $82 000 / 8years)

Dr. Accumulated depreciation - Equipment $10,250

Cr. Equipment $10,250

(Write down from previous FV $82,000 - $71,750 = $10,250)

Dr. Equipment Dr 10 000

Cr. Gain on revaluation of equipment (P/L) $8,000

Cr. Gain on revaluation of equipment (OCI) $2,000

(Revaluation of equipment i.e $71,750 to $81,750, and with the prior revaluation write-down of the amount $8 000)

Dr. Income tax expense (OCI) $600

Cr. Deferred tax liability $600

(Tax effect of revaluation gain)

Dr. Gain on revaluation of equipment (OCI) $2 000

Cr. Income tax expense (OCI) $600

Cr. Asset revaluation surplus $1,400

(Accumulation of revaluation gain in equity)

Dr. Depreciation expense – vehicles $10,000

Cr. Accumulated Depreciation – vehicles Cr 10,000

(Being depreciation amount $70 000 / 7 years)

Dr. Accumulated depreciation – vehicles $10 000

Cr. Vehicles $10 000

(Write down of vehicles to carrying amount of $60 000)

Dr. Loss on revaluation of vehicles (OCI) $5,000

Cr.Vehicles Cr 5,000

(Write down to fair value: $60 000- $55 000 = $5000)

Dr. Deferred tax liability $1,500

Cr. Income tax expense (OCI) 1,500

(Tax effect of write down to fair value)

Dr. Asset revaluation surplus $3,500

Dr. Income tax expense (OCI) $1,500

Cr. Loss on revaluation of vehicles (OCI) $5,000

(Reduction in accumulated equity due to revaluation decrement on vehicles)