1 School of Accounting, Economics and Finance ACCY200: FINANCIAL ACCOUNTING IIA Autumn 2021 Week 6 Tutorial Solution • Chapter 5: Ex XXXXXXXXXXnote: the asset revaluation surplus amount is an after...

i have my test tomorrow of only 3 questions it start 1:30 in afternoon Sydney timming


1 School of Accounting, Economics and Finance ACCY200: FINANCIAL ACCOUNTING IIA Autumn 2021 Week 6 Tutorial Solution • Chapter 5: Ex. 5.12 (note: the asset revaluation surplus amount is an after tax figure. Assume the tax rate is 30%) • Ex 5.17 • Ex 5.18 (assume there was NO bonus share issue) • Topic 5 Lecture Questions Exercise 5.12 On 30 June 2022, the statement of financial position of Kookaburra Ltd showed the following non- current assets after charging depreciation. Building $ 600 000 Accumulated depreciation (200 000) $ 400 000 Motor vehicle 240 000 Accumulated depreciation (80 000) 160 000 The company has adopted fair value for the valuation of non-current assets. This has resulted in the recognition in previous periods of an asset revaluation surplus for the building of $28 000. On 30 June 2022, an independent valuer assessed the fair value of the building to be $320 000 and the vehicle to be $180 000. Required 1. Prepare any necessary entries to revalue the building and the vehicle as at 30 June 2022. 2. Assume that the building and vehicle had remaining useful lives of 25 years and 4 years respectively, with zero residual value. Prepare entries to record depreciation expense for the year ended 30 June 2023 using the straight-line method. 30 June 2022 Accumulated depreciation – Building Dr 200 000 Building Cr 200 000 (Write off accumulated depreciation against building) Revaluation adjustment for Building CA of building 400 000 FV of building 320 000 Loss/decrease 80 000 Previous gain = Asset revaluation surplus 28 000/(1-0.3) = 40 000 2 Loss on revaluation (OCI) Dr 40 000 Loss on revaluation (P&L) Dr 40 000 Building Cr 80 000 (Loss on revaluation: reverse previous gain on building, remainder to P&L) Deferred tax liability Dr 12 000 Income tax expense (OCI) Cr 12 000 (Reversing previous tax effect – recognising tax on OCI item) Asset revaluation surplus Dr 28 000 Income tax expense (OCI) Dr 12 000 Loss on revaluation (OCI) Cr 40 000 (Close OCI line items and recognise the net result as a reduction in ARS) Accumulated depreciation – Vehicle Dr 80 000 Vehicle Cr 80 000 (Write off accumulated depreciation to vehicle) Revaluation adjustment for Vehicle CA of vehicle 160 000 FV of vehicle 180 000 Gain/increase 20 000 Vehicle Dr 20 000 Gain on revaluation (OCI) Cr 20 000 (Gain on revaluation) Income tax expense (OCI) Dr 6 000 Deferred tax liability Cr 6 000 (Recognise tax on OCI item) Gain on revaluation (OCI) Dr 20 000 Income tax expense (OCI) Cr 6 000 Asset revaluation surplus - vehicle Cr 14 000 (Close OCI line items and recognise the net result as an increase in ARS) 2. Depreciation expense – Building Dr 12 800 Accumulated depreciation – Building Cr 12 800 ($320 000 / 25 years) Depreciation expense – Vehicle Dr 45 000 Accumulated depreciation – Vehicle Cr 45 000 ($180 000 / 4 years) 3 Exercise 5.17 Swan Ltd purchased equipment on 1 July 2021 for $119 400 cash. Transport and installation costs of $12 600 were paid on 5 July 2021. Useful life and residual value were estimated to be 10 years and $5400 respectively. Swan Ltd depreciates equipment using the straight-line method to the nearest month, and reports annually on 30 June. In June 2023, changes in technology caused the company to revise the estimated useful life from 10 years to 5 years, and the residual value from $5400 to $3600. This revised estimate was made before recording the depreciation for the reporting period ended 30 June 2023. (a) On 30 June 2023, the company adopted the revaluation model to account for equipment. An expert valuation was obtained showing that the equipment had a fair value of $90 000 at that date. (b) On 30 June 2024, depreciation for the year was charged and the equipment’s carrying amount was remeasured to its fair value of $48 000. (c) On 30 September 2024, the equipment was sold for $25 200 cash. Required 1. Prepare general journal entries to record depreciation of the equipment for the years ended 30 June 2022 and 2023. 2. Prepare general journal entries to record the transactions and events for the period 1 July 2022 to 30 September 2024 for items (a) to (c). (Narrations are not required.) (Show all workings and round amounts to the nearest dollar.) 1. 30 June 2022 Depreciation expense – Equipment Dr 12 660 Accum. deprec. – Equipment Cr 12 660 (($132 000 - $5 400)/10 = $12 660) In June 2023, when useful life is now considered to be 5 years (not 10), the remaining useful life is 4 years (5 – 1). 30 June 2023 Depreciation expense – Equipment Dr 28 935 Accum. deprec. – Equipment Cr 28 935 (($132 000 – 12 660 - $3 600)/4 = $28 935) 4 2. 30 June 2023 Accum. deprec. – Equipment Dr 41 595 Equipment Cr 41 595 (Write off accumulated depreciation: CA equipment now $90 405) Revaluation adjustment for equipment CA of equipment 90 405 FV of equipment 90 000 Loss/decrease 405 Loss on revaluation (P&L) Dr 405 Equipment Cr 405 (Recognise loss on revaluation) Note: After this date, 3 years remaining useful life 30 June 2024 Depreciation expense – Equipment Dr 28 800 Accum. deprec. – Equipment Cr 28 800 (($90 000 - $3 600)/3) Accum. deprec. – Equipment Dr 28 800 Equipment Cr 28 800 (Write off accumulated depreciation: CA equipment now $61 200) Revaluation adjustment for equipment CA of equipment 61 200 FV of equipment 48 000 Loss/decrease 13 200 Loss on revaluation (P&L) Dr 13 200 Equipment Cr 13 200 (Recognise loss on revaluation) Note: After this date, 2 years remaining useful life 30 September 2024 Depreciation expense – Equipment Dr 5 550 Accum. deprec. – Equipment Cr 5 550 (($48 000 - $3 600)/2 x 3/12) Accum. deprec. – Equipment Dr 5 550 Carrying amount – Equipment* Dr 42 450 Equipment Cr 48 000 Cash Dr 25 200 Proceeds on sale – Equipment* Cr 25 200 *net result is a loss of $17 250 5 Exercise 5.18 On 1 July 2022, Resonante Ltd acquired two assets within the same class of plant and equipment. Information on these assets is as follows. Cost Expected useful life Machine A $200 000 5 years Machine B 120 000 3 years The machines are expected to generate benefits evenly over their useful lives. The class of plant and equipment is measured using fair value. At 30 June 2023, information about the assets is as follows. Fair value Expected useful life Machine A $168 000 4 years Machine B 76 000 2 years On 1 January 2024, Machine B was sold for $58 000 cash. On the same day, Resonante Ltd acquired Machine C for $160 000 cash. Machine C has an expected useful life of 4 years. Peewee Ltd also made a bonus issue of 20 000 shares at $1 per share, using $16,000 from the general reserve and $4000 from the asset revaluation surplus created as a result of measuring Machine A at fair value. At 30 June 2024, information on the machines is as follows. Fair value Expected useful life Machine A $ 122 000 3 years Machine C 137 000 3.5 years Required 1. Prepare the journal entries in the records of Resonante Ltd to record the events for the year ended 30 June 2023. 2. Prepare journal entries to record the events for the year ended 30 June 2024. 1. 1 July 2022 Machine A Dr 200 000 Machine B Dr 120 000 Cash Cr 320 000 (Initial recognition of machines acquired) 30 June 2023 Depreciation expense – Machine A Dr 40 000 Accumulated depreciation – Machine A Cr 40 000 (1/5 x $200 000) 6 Accumulated depreciation – Machine A Dr 40 000 Machine A Cr 40 000 (Writing down to carrying amount) Machine A Dr 8 000 Gain on revaluation – Machine A (OCI) Cr 8 000 (Gain on revaluation: CA $160 000 to FV $168 000) Income tax expense (OCI) Dr 2 400 Deferred tax liability Cr 2 400 (Tax effect on gain through OCI) Gain on revaluation – Machine A (OCI) Dr 8 000 Income tax expense (OCI) Cr 2 400 Asset revaluation surplus – Machine A Cr 5 600 (Close OCI line items and recognise the net result as an increase in ARS) Depreciation expense – Machine B Dr 40 000 Accumulated depreciation – Machine B Cr 40 000 (1/3 x $120 000) Accumulated depreciation – Machine B Dr 40 000 Machine B Cr 40 000 (Writing down to carrying amount) Loss on revaluation – Machine B (P&L) Dr 4 000 Machine B Cr 4 000 (Loss on revaluation: CA $80 000 to FV $76 000) 2. 1 January 2024 Depreciation expense – Machine B Dr 19 000 Accumulated depreciation – Machine B Cr 19 000 ($76 000/2 x 6/12) 7 Accumulated depreciation – Machine B Dr 19 000 Carrying amount – Machine B* Dr 57 000 Machine B Cr 76 000