Question

2. 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

ANSWER

Journal Entries

30/06/2022	Loss on Revaluation (Or impairment loss) (Note 1) Dr	$90,000
	To Machine		$90,000
	(Loss on revaluation recognised)
01/07/2023	Asset Dr	$90,000
	To Gain on revaluation (Note 2)		$90,000
	(Gain to the extent of previous impairment now recognsied)

1.

The impairment loss as on 30/06/2022

Fair value		$450,000
Purchase cost	$650,000
Less: Depreciation	($110,000)	$540,000
So, impairment loss		$90,000

2.

As on 01/07/2023:

Revaluation gain

Fair value		$460,000
Carrying value	$450,000
Less: Depreciation (450,000-50,000)/5	($80,000)	$370,000
Gain on revaluation		$90,000

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