Question

DEF Company uses the asset adjustment (elimination) revaluation model to account for its machinery. Machinery that cost $80000 had a net book value of $65000 on January 1, 2019. On this date the machine had an estimated residual value of $5000 and a remaining useful life of 15 years. At December 31, 2019 the machinery’s fair market value is $63000. This is the first year DEF is applying the revaluation model. Required: Prepare the journal entries to record the machinery depreciation for 2019 and the revaluation at December 31, 2019. (Assume straight line depreciation)

Answer 1

Net book value as on jan 1 -2019 = 65000

Depreciable value = 65000-5000 = 60000

Useful life = 15 years ( remaining)

So annual depreciation = 60000/15 = 4000

So. net bookvalue as on 31-12-2019 after charging depreciation of rs 4000 = 61000 ( 65000-4000)

Fair market value as on that date = 63000

journal entries are

1) Depreciation account Dr 4000

   To Machinery    4000

2) Machinery account Dr 2000

To revaluation surplus a/c 2000    ( 63000-61000)