Question

Week 6 – Question 1 An item of depreciable machinery is acquired on 1 July 2016 for $280 000. It is expected to have a useful life of 10 years and a zero-residual value (straight-line). On 1 July 2020, it is decided to revalue the asset to its fair value of $150 000.

Required: Provide journal entries to account for the revaluation

Answer 1

Journal Entries:

Date	Account title and explanation	Debit	Credit
1 July 2020	Accumulated depreciation	$112,000
	Machinery		$112,000
	[To written down machinery to carrying amount]
1 July 2020	Loss on revaluation of machinery	$18,000
	Machinery		$18,000
	[To record revaluation surplus]

Calculations:

Accumulated depreciation [1 July 2016 to 1 July 2020] = [($280,000- $0)/10 years] x 4 years = $28,000 x 4 = $112,000

Revaluation Loss:

Fair value		$150,000
Carrying value:
Cost	$280,000
Accumulated depreciation	($112,000)	$168,000
Revaluation surplus(Loss)		($18,000)