Question

On January 1, 2017, Choco Corp. purchased an asset for P1,000,000 with an estimated useful life of 10 years. Straight-line method of depreciation is to be used. On December 31, 2018, it was properly determined that the recoverable amount of the asset is P640,000. On December 31, 2019, it was properly computed that the recoverable amount of the asset is P740,000.

1. Under the cost model for long-lived assets, what are the amounts to be reported in the profit or loss statement and shareholders’ equity, respectively, immediately on December 31, 2019?

2.Under the revaluation model for long-lived assets, what are the amounts to be reported in the profit or loss and shareholders’ equity on December 31, 2019?

Answer 1

Cost model

Date	Particular	Amount (Dr)	Amount (Cr)
Dec 31 2019	P& L A/c    Dr	80,000
Dec 31 2019	To Depreciation		80,000
	(Being the Amount debited P&L A/c)
Dec 31 2019	Depreciation A/c Dr	80,000
Dec 31 2019	To Accumulated Depreciation A/c		80,000
	(Being depreciation credited to accumulated depreciation)

Note: Balance sheet is carrying an impairment loss of 160000

            Under cost model upward revaluation are not accounted in the books

Revaluation Model

Dec 31 2019	Building A/c Dr	20,000.00
Dec 31 2019	Impairment Loss A/c Dr	160,000.00
	To Revaluation Surplus A/c		180,000.00
	Being the revaluation effect is adjusted with earlier impairment loss and balance with the asset account
Dec 31 2019	P& L A/c    Dr	83,000.00
Dec 31 2019	To Depreciation		83,000.00
	(Being the Amount debited P&L A/c)
Dec 31 2019	Depreciation A/c Dr	83,000.00
Dec 31 2019	To Accumulated Depreciation A/c		83,000.00
	(Being depreciation credited to accumulated depreciation)