Question

QUESTION 1                                                                                                                

Anna Ltd owns a machine that originally cost $36 000. It has been depreciated using the straight-line method for 3 years, giving an accumulated depreciation of $15 000 (the salvage value was estimated at $6000 and the useful life at 6 years). At the beginning of the current financial year its carrying value is therefore $21 000. It has been decided by the directors to revalue it to fair value, which is assessed to be $38 000. The salvage value and useful life are considered to be unchanged. Identify whether the machine has revaluation increment or decrement.

REQUIRED

What are the necessary journal entries to record the revaluation in the current financial year? You are required to show all calculation.

Answer 1

The Machine requires Revaluation Increment.

The carrying value at the beginning of current financial year is $ 21000, it has been revalued to its value to $ 38000. Hence the fair value of asset increased by $ 17000 ( 38000 - 21000), the journal entry for revaluation is

Machine A/C Dr $ 17000

To Revaluation Surplus A/C $ 17000

Depreciation for the current year is to be calculated considering the revised value of machinery.

= ($38000 - $ 6000) / 3 years( remaining useful life)

= $ 10666.666