Question

Revaluation—Depreciable Assets. To illustrate the accounting for revaluations of depreciable assets, assume that Lenovo Group purchases equipment for $500,000 on January 2, 2017. The equipment has a useful life of five years, is depreciated using the straight-line method of depreciation, and its residual value is zero. Lenovo chooses to revalue its equipment to fair value over the life of the equipment.

1) At December 31, 2017, what is the j/e for annual depreciation

2) After this entry, Lenovo receives an independent appraisal for the fair value of equipment at December 31, 2017, which is $460,000. To report the equipment at fair value, what is the adjusting journal entry?

Answer 1

Solution:

1) At December 31, 2017, what is the j/e for annual depreciation.

Date	Account titles and explanation	Debit($)	Credit($)
31/12/2017	Depreciation Expense A/c Dr ($500,000/5)	$100,000
	To Accumulated depreciation A/c		$100,000
	(To record the depreciation of equipment)

2) After this entry, Lenovo receives an independent appraisal for the fair value of equipment at December 31, 2017, which is $460,000.

Date	Account titles and explanation	Debit($)	Credit($)
	Accumulated depreciation A/c Dr	$100,000
	To Equipment A/c		$100,000
	(To record the reversal of accumulated depreciation)
	Equipment A/c Dr	$60,000
	To Revaluation surplus (reserve) A/c		$60,000
	(To record revaluating of asset to new gross carrying amount)