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 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 Kookabu
a Ltd showed the following non-
cu
ent assets after charging depreciation.
Building $ XXXXXXXXXX
Accumulated depreciation XXXXXXXXXX) $ XXXXXXXXXX
Motor vehicle XXXXXXXXXX
Accumulated depreciation XXXXXXXXXX
The company has adopted fair value for the valuation of non-cu
ent assets. This has resulted in
the recognition in previous periods of an asset revaluation surplus for the building of $ XXXXXXXXXXOn
30 June 2022, an independent valuer assessed the fair value of the building to be $ XXXXXXXXXXand 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
espectively, 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 XXXXXXXXXX
Building Cr XXXXXXXXXX
(Write off accumulated depreciation against building)
Revaluation adjustment for Building
CA of building XXXXXXXXXX
FV of building XXXXXXXXXX
Loss/decrease XXXXXXXXXX
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 XXXXXXXXXX
(Loss on revaluation: reverse previous gain on building, remainder to P&L)
Defe
ed tax liability Dr 12 000
Income tax expense (OCI) Cr XXXXXXXXXX
(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 XXXXXXXXXX
(Close OCI line items and recognise the net result as a reduction in ARS)
Accumulated depreciation – Vehicle Dr 80 000
Vehicle Cr XXXXXXXXXX
(Write off accumulated depreciation to vehicle)
Revaluation adjustment for Vehicle
CA of vehicle XXXXXXXXXX
FV of vehicle XXXXXXXXXX
Gain/increase 20 000
Vehicle Dr 20 000
Gain on revaluation (OCI) Cr XXXXXXXXXX
(Gain on revaluation)
Income tax expense (OCI) Dr 6 000
Defe
ed 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 XXXXXXXXXX
(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 XXXXXXXXXX
($320 000 / 25 years)
Depreciation expense – Vehicle Dr 45 000
Accumulated depreciation – Vehicle Cr XXXXXXXXXX
($180 000 / 4 years)
3
Exercise 5.17
Swan Ltd purchased equipment on 1 July 2021 for $ XXXXXXXXXXcash. 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
ecording 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 ca
ying 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). (Na
ations 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 XXXXXXXXXX
(($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 XXXXXXXXXX
(($132 000 – 12 660 - $3 600)/4 = $28 935)
4
2.
30 June 2023
Accum. deprec. – Equipment Dr 41 595
Equipment Cr XXXXXXXXXX
(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 XXXXXXXXXX
(($90 000 - $3 600)/3)
Accum. deprec. – Equipment Dr 28 800
Equipment Cr XXXXXXXXXX
(Write off accumulated depreciation: CA equipment now $61 200)
Revaluation adjustment for equipment
CA of equipment XXXXXXXXXX
FV of equipment 48 000
Loss/decrease 13 200
Loss on revaluation (P&L) Dr 13 200
Equipment Cr XXXXXXXXXX
(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
Ca
ying amount – Equipment* Dr 42 450
Equipment Cr XXXXXXXXXX
Cash Dr 25 200
Proceeds on sale – Equipment* Cr XXXXXXXXXX
*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 $ XXXXXXXXXXyears
Machine B XXXXXXXXXXyears
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 $ XXXXXXXXXXyears
Machine B XXXXXXXXXXyears
On 1 January 2024, Machine B was sold for $58 000 cash. On the same day, Resonante Ltd
acquired Machine C for $ XXXXXXXXXXcash. Machine C has an expected useful life of 4 years. Peewee
Ltd also made a bonus issue of XXXXXXXXXXshares at $1 per share, using $16,000 from the general
eserve 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 $ XXXXXXXXXXyears
Machine C XXXXXXXXXXyears
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 XXXXXXXXXX
Machine B Dr XXXXXXXXXX
Cash Cr XXXXXXXXXX
(Initial recognition of machines acquired)
30 June 2023
Depreciation expense – Machine A Dr 40 000
Accumulated depreciation – Machine A Cr XXXXXXXXXX
(1/5 x $200 000)
6
Accumulated depreciation – Machine A Dr 40 000
Machine A Cr XXXXXXXXXX
(Writing down to ca
ying amount)
Machine A Dr 8 000
Gain on revaluation – Machine A (OCI) Cr 8 000
(Gain on revaluation: CA $ XXXXXXXXXXto FV $168 000)
Income tax expense (OCI) Dr 2 400
Defe
ed 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 XXXXXXXXXX
(1/3 x $120 000)
Accumulated depreciation – Machine B Dr 40 000
Machine B Cr XXXXXXXXXX
(Writing down to ca
ying 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 XXXXXXXXXX
($76 000/2 x 6/12)
7
Accumulated depreciation – Machine B Dr 19 000
Ca
ying amount – Machine B* Dr 57 000
Machine B Cr XXXXXXXXXX