Question

# An item of depreciable machinery is acquired on 1 July 2016 for \$280 000. It is...

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.

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]

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