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In: Accounting

On 1 July 2018, ABC Ltd purchased and recorded equipment at its cost of acquisition of...

On 1 July 2018, ABC Ltd purchased and recorded equipment at its cost of acquisition of $320 000. The equipment is expected to have a useful life for seven years and an estimated residual value of $10 000. ABC Ltd depreciates the asset using the straight-line method. ABC Ltd uses the revaluation model to equipment and records accumulated depreciation using the net method. The reporting period end of ABC Ltd is 30 June. ABC Ltd revalued the equipment on 30 June 2020, when the fair value of the equipment was $250 000. On 1 July 2020, the useful life of the equipment is reassessed: it is expected to have a remaining useful life of 6 years. The estimated residual value remains unchanged. ABC Ltd revalued the equipment on 30 June 2021, when the fair value of the equipment was $180 000. On 30 June 2022 the equipment was sold for $200 000.

REQUIRED: (1) Prepare journal entries to account for the revaluation of the equipment of 30 June 2020. Show all working steps.

(2) Prepare journal entries to account for the revaluation of the equipment of 30 June 2021. Show all working steps.

(3) Prepare journal entries to account for the sale of the equipment of 30 June 2022. Show all working steps.

Solutions

Expert Solution

(1) Journal entry to account for the revaluation of the equipment on 30 June, 2020:

Working:

Cost of equipment = $320,000

Useful life = 7 years

Residual Value = $10,000

Depreciation per annum = ($320,000 - $10,000) / 7 years = $44,286

Depreciation up to 30th June, 2020 = $44,286 x 2 years = $88,572

Book value as on 30th June, 2020 = $320,000 - $88,572 = $231,428

On 30th June, 2020, it is revalued at $250,000.

Upward revaluation = $250,000 - $231,428 = $18,572

(2) Journal entries to account for the revaluation of the equipment of 30 June, 2021:

(or)

Working:

Also, on 1st July, 2020, the remaining useful life of the equipment is reassessed to 6 years.

Depreciation per annum = ($250,000 - $10,000) / 6 years = $40,000

Book value as on 30th June, 2021 = $250,000 - $40,000 = $210,000

On 30th June, 2021, it is revalued at $180,000.

Downward revaluation = $210,000 - $180,000 = $30,000

(3) Journal entries to account for the sale of the equipment of 30 June, 2022:

Working:

Depreciation for 2022 = ($180,000 - $10,000) / 5 years = $34,000

Book value as on 30th June, 2022 = $180,000 - $34,000 = $146,000

On 30th June, 2022, it is sold at $200,000.

Profit on sale = $200,000 - $146,000 = $54,000

ekkarill92 answered 10 months ago
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