Question

TAKULAH Traders Ltd purchased a machine for $650 000 and there was an accumulated depreciation balance of $110 000 at 30 June 2022. Its fair value is assessed at this time, with its first revaluation as $450 000. The machine’s useful life is expected to be 5 more years and the residual value to be $50 000. On 1 July 2023 the asset’s fair value is $460 000 and the residual value and useful life are expected to be unchanged (that is, there is 4 years of remaining life)

Required:

Provide the journal entries necessary to account for all the above transactions and events up to 1 July 2023, in accordance with AASB 116 if the revaluation is undertaken. .

Answer 1

Journal Entries:(In $)

Date Account title Debit Credit   

30/06/2022 Loss on Revaluation (Or impairment loss) 90,000

To Machine 90,000

(Being Loss on revaluation recognised)(Note 1)

01/07/2023   Asset 90,000

To Gain on revaluation 90,000

(Being Gain to the extent of previous impairment now recognsied)(Note 2)

Note 1: The impairment loss as on 30.06.2022

1.Fair value		450,000
2.Purchase cost	650,000
3.Less: Depreciation	-110,000	540,000
4.Impairment loss (1-3)		90,000

Note 2: Revaluation gain as on 01.07.2023

1.Fair value		460,000
2.Carrying value	450,000
3.Less :Depreciation**	-80,000	370,000
4.Gain on revaluation (1-3)		90,000

**Depreciation = (Carrying value - Residual value) / Useful life

Depreciation = (450,000-50,000) / 5

Depreciation = 80,000