Question

Revaluation of property, plant and equipment You are the accountant for Superstar Ltd, and you are required to account for the company’s equipment for the years ended 30 June 2017 and 30 June 2018, which are measured using the revaluation model. The directors elect to depreciate equipment on a straight-line basis. Equipment 1: The first equipment has a carrying amount as follows, prior to any depreciation or revaluation being recognised for the year ended 30 June 2017: Revalued amount (as at 30 June 2016): $60,000 Less: accumulated depreciation - Carrying amount $60,000 This equipment was revalued for the first time on 30 June 2016, from $70,000 to $60,000. The directors determined that as at 30 June 2016, this equipment had an estimated remaining useful life of 4 years, and an estimated residual value of $10,000. The directors have determined that the fair value of this equipment on 30 June 2017 is $55,000. At 30 June 2017, this equipment had an estimated remaining useful life of 3 years, and the residual value remains unchanged at $10,000. The directors have determined that the fair value of this equipment on 30 June 2018 is $44,000. Equipment 2: The second equipment at has a carrying amount as follows, prior to any depreciation or revaluation being recognised for the year ended 30 June 2017: Revalued amount (as at 30 June 2016): $20,000 Less: accumulated depreciation - Carrying amount $20,000 This equipment has been revalued a number of times, with revaluation decrements amounting to $1,000 being previously recognised in profit or loss. The directors determined that as at 30 June 2016, this equipment had an estimated remaining useful life of 4 years, and an estimated residual value of $4,000. The directors have determined that the fair value of this equipment on 30 June 2017 is $18,000. At 30 June 2017, this equipment had an estimated remaining useful life of 3 years, and the residual value has been revised to $6,000. This equipment is sold on 31 December 2017 for $13,000. Required: Prepare the necessary journal entries to account for each of the above equipment for the years ended 30 June 2017 and 30 June 2018 (including entries for depreciation, revaluations, and any disposals). Show all relevant workings. Note: you are not required to account for income tax associated with revaluations. Marking Guide - Question 4 Max. marks awarded Journal entries 12 Workings 4

Answer 1

	Journal Entries
30-Jun-17	Depreciation expense	$12,500
	Accumulated Depreciation-Equipment 1		$12,500
30-Jun-17	Equipment 1	$7,500
	Gain on revaluation of Equipment 1		$7,500
30-Jun-17	Gain on revaluation of Equipment 1	$7,500
	Asset revaluation Reserve		$7,500
30-Jun-17	Depreciation expense	$4,000
	Accumulated Depreciation-Equipment 2		$4,000
30-Jun-17	Equipment 1	$2,000
	Gain on revaluation of Equipment 1		$2,000
30-Jun-17	Gain on revaluation of Equipment 1	$2,000
	Asset revaluation Reserve		$2,000
31-Dec-17	Depreciation expense (4000*1/2)	$2,000
	Accumulated Depreciation-Equipment 2		$2,000
31-Dec-17	Cash	$13,000
	Loss on sale of equipment-2	$3,000
	Equipment-2		$16,000
30-Jun-18	Depreciation expense	$15,000
	Accumulated Depreciation-Equipment 1		$15,000
30-Jun-18	Equipment 1	$4,000
	Gain on revaluation of Equipment 1		$4,000
30-Jun-18	Gain on revaluation of Equipment 1	$4,000
	Asset revaluation Reserve		$4,000

Working note
Equipment 1
Revalued amount	$60,000
Residual value	$10,000
Depreciable value	$50,000
Useful life	4
Depreciation per year	$12,500
Carrying Value of Equipment 1
Revalued amount	$60,000
Less: Accu. Depreciation	$12,500
Carrying Value of Equipment 1	$47,500
Fair value on 30 june 2017	$55,000
Less: Carrying value	$47,500
Revaluation gain	$7,500
30-Jun-18
Revalued amount	$55,000
Residual value	$10,000
Depreciable value	$45,000
Useful life	3
Depreciation per year	$15,000
Revalued amount	$55,000
Less: Accu. Depreciation	$15,000
Carrying Value of Equipment 1	$40,000
Fair value on 30 june 2018	$44,000
Less: Carrying value	$40,000
Revaluation gain	$4,000
Equipment 2
Revalued amount	$20,000
Residual value	$4,000
Depreciable value	$16,000
Useful life	4
Depreciation per year	$4,000
Carrying Value of Equipment 2
Revalued amount	$20,000
Less: Accu. Depreciation	$4,000
Carrying Value of Equipment 2	$16,000
Fair value on 30 june 2017	$18,000
Less: Carrying value	$16,000
Revaluation gain	$2,000
Revalued amount 30 june 2017	$18,000
Less: Accu. Depreciation	$2,000
Carrying Value of Equipment 2	$16,000
Less: Cash proceeds from sale	$13,000
Loss on sale	$3,000