80.2K

Verified Solution

Link Copied!

Question 4 [16 marks]

Revaluation of property, plant andequipment

You are the accountant for Superstar Ltd, and you are requiredto account for the company’s equipment for the years ended 30 June2017 and 30 June 2018, which are measured using the revaluationmodel. The directors elect to depreciate equipment on astraight-line basis.

Equipment 1:

The first equipment has a carrying amount as follows, prior toany depreciation or revaluation being recognised for the year ended30 June 2017:

Revalued amount (as at 30 June2016): $60,000 Less: accumulated depreciation    - Carrying amount $60,000

$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 30June 2016, this equipment had an estimated remaining useful life of4 years, and an estimated residual value of $10,000.

The directors have determined that the fair value of thisequipment on 30 June 2017 is $55,000. At 30 June 2017, thisequipment had an estimated remaining useful life of 3 years, andthe residual value remains unchanged at $10,000.

The directors have determined that the fair value of thisequipment on 30 June 2018 is $44,000.

Equipment 2:

The second equipment at has a carrying amount as follows, priorto any depreciation or revaluation being recognised for the yearended 30 June 2017:

Revalued amount (as at 30 June2016): $20,000 Less: accumulated depreciation    - Carrying amount $20,000
	$20,000

  

This equipment has been revalued a number of times, withrevaluation decrements amounting to $1,000 being previouslyrecognised in profit or loss. The directors determined that as at30 June 2016, this equipment had an estimated remaining useful lifeof 4 years, and an estimated residual value of $4,000.

The directors have determined that the fair value of thisequipment on 30 June 2017 is $18,000. At 30 June 2017, thisequipment had an estimated remaining useful life of 3 years, andthe 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 theabove equipment for the years ended 30 June 2017 and 30 June 2018(including entries for depreciation, revaluations, and anydisposals). Show all relevant workings. Note: you are not requiredto account for income tax associated with revaluations.