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ABC Ltd purchases equipment for $1,000,000 on January 2, 2019. The equipment has a useful life...

ABC Ltd purchases equipment for $1,000,000 on January 2, 2019. The equipment has a useful life of five years, is depreciated using the straight‐line method of depreciation, and its residual value is zero. ABC chooses the revaluation model for its equipment over the life of equipment. The fair value of equipment at 31 December 2019 (the end of reporting period of ABC Ltd) is $950,000. The fair value of equipment at 31 December 2020 is $570,000. Indicators of impairment were identified on 31 December 2021, and indicators of a reversal of impairment were found on 31 December 2022. ABC Ltd makes the following estimates of the value of the equipment: Date 31 December 2021 31 December 2022 REQUIRED: Fair value $375 000 $220 000 Value in use 370 000 230 000 Cost of disposal 10 000 10 000 Answer each of the following questions. Show all working and round to the nearest dollar.

(1) Prepare journal entries to account for the equipment of 31 December 2019.

(2) Prepare journal entries to account for the equipment of 31 December 2020.

(3) Prepare journal entries to account for the equipment of 31 December 2021.

(4) Prepare journal entries to account for the equipment of 31 December 2022.

Business   Accounting   
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Answer #1

The Required Entries have been journalised below:

All the required entries have to be made comparing the:

Carrying Value

with

Recoverable amount (viz., Higher of Fair Value less costs to sell and Value in Use)

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