Question

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

Cost of Machinery = $280,000

Useful life = 10 years

Salvage Value = 0

Annual Depreciation

= (Cost - Salvage Value) / Useful life

= ($280,000 - 0) / 10

= $28,000

Period expired at the time of revaluation of machinery = 1 July 2016 to 1 July 2020 = 4 years

Accumulated Depreciation = 4*$28,000 = $112,000

Book Value of Machinery

= Cost - Accumulated Depreciation

= $280,000 - $112,000

= $168,000

Revalued Value = $150,000

Journal Entry to record revaluation:

Profit and Loss a/c Dr $18,000

To Machinery a/c $18,000

[Being Asset revalued and there is a downward revaluation]