Question

Kookaburra Ltd used the cost model to measure its machine. Machine Z had cost of $80 000 and had a carrying amount of $70 000 at 30 June 2020 and is depreciated on a straight-line basis over a 10-year period.

On 31 December 2020, the directors of Kookaburra Ltd decided to change the basis of measuring the equipment from the cost model to the revaluation model. Machine Z was revalued to $70 000 with an expected useful life of 8 years.

REQUIRED

Provide the numbers for the journal entries in the blanks below for Machine Z on 31 December 2020 and on 30 June 2021. Complete the four blanks.(You don't need to provide the numbers for "??")

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31 December 2020

a)

            Depreciation expense – Machine Z                          Dr   

                     Accumulated depreciation – Machine Z          Cr                                       

b)

            Accumulated depreciation – Machine Z                   Dr   

                     Machine Z                                                        Cr                                       

c)

            Machine Z                                                                 Dr    

                     Gain on revaluation – Machine Z (OCI)         Cr                                       

            Gain on revaluation – Machine Z (OCI)                  Dr ??

                     Asset revaluation surplus – Machine Z           Cr ??   

30 June 2021

d)

            Depreciation expense – Machine Z                          Dr   

                     Accumulated depreciation – Machine Z          Cr                                       

Answer 1

WN1

Depreciation for the Machine pre revaluation would be

=$80000/10

=$8000

WN2

The Carring value of machine on 30th June, 2020 is 70,000 which means Accumultade Depreciation of $10,000 until 30th June, 2020. By this its easier to assume that the Machine was purchased on 31st October, 2019 and $2000 was depreciated for until 31st December, 2019, hence the total Accumultade Depreciation should be:

=10000+ 8000*6/12

=14000

WN3

Carrying Value on 31st December, 2020= 80000-14000

=66000

Revalued Amount=70000

Gain on Revaluation=70000-66000

=4000

WN4

Depreciation Expense post Revaluation

=70000/8

=8750

Depreciation for 6 months as on 30th June, 2021= 8750*6/12

=4375

Journal Entries

31 December 2020

a) Depreciation expense – Machine Z  (See WN1) Dr 8000

                     Accumulated depreciation – Machine Z          Cr 8000   

(Being depreciation provided for the year)

b) Accumulated depreciation – Machine Z (See WN2) Dr 14000

                     Machine Z                                                        Cr 14000

(Being Accumulated Depreciation provided on machine Z)

c) Machine Z (See WN3) Dr 4000

                     Gain on revaluation – Machine Z (OCI)         Cr 4000

(Being gain recognized on revaluation of machine)

30th June, 2021

Gain on revaluation – Machine Z (OCI) (WN4) Dr 4375

                     Asset revaluation surplus – Machine Z           Cr 4375