ACCT5930- Topic 5 Seminar solutions
• Non-current assets
E.g., LMN has a machine initially costing $100,000 with $15,000
accumulated depreciation.
• What is its net carrying value?
It is decided that the machine’s recoverable amount is $80,000
• an impairment loss must be recognised
Dr Impairment Loss $?
Cr Accumulated Depreciation – machine $?
What is the asset’s carrying value under the cost model after the
above entry is made?
Cost Model
= $85,000
= $5,000
= $80,000
Impact of multiple revaluations – Illustration 1
Question
• On 31 December 2019 Alex Limited revalued its land upwards by
$2,000,000 to reflect its fair value.
• On 31 December 2021, this same land was revalued downward by
$500,000 to reflect a reduction in its fair value.
Required
Prepare journal entries to account for the revaluation adjustments on 31
December 2019 and 31 December 2021.
31/12/19 Dr Land 2,000,000
Cr Revaluation Surplus 2,000,000
31/12/21 Dr Revaluation Surplus 500,000
Cr Land 500,000
Impact of multiple revaluations – Illustration 2
Question
• On 31 December 2019 Bradley Limited revalued its land downwards by
$400,000 to reflect its fair value.
• On 31 December 2021, this same land was revalued upward by
$1,000,000 to reflect an increase in its fair value.
Required
Prepare journal entries to account for the revaluation adjustments on 31
December 2019 and 31 December 2021.
31/12/19 Dr Loss on Revaluation of Land 400,000
Cr Land 400,000
31/12/21 Dr Land 1,000,000
Cr Gain on revaluation of land 400,000
Cr Revaluation Surplus 600,000
Impact of multiple revaluations – Illustration 3
Question
• On 31 December 2019 Carlie Limited had a building that cost
$1,000,000 with accumulated depreciation of $200,000. It
was decided the fair value was $900,000.
Required
Prepare journal entries to account for the revaluation
adjustment on 31 December 2019.
Illustration 3 (cont.)
31 December 2019
Dr Accumulated Depreciation - Building 200,000
Cr Building 200,000
31 December 2019
Dr Building 100,000
Cr Revaluation surplus 100,000
Illustration 3 (cont.)
At the time of the last revaluation, it was decided to
depreciate the building over 18 years on a straight line
basis (no residual value). Two years later the building was
valued again, at 600,000.
Write the journal entries as at 31 December 2021.
31 December 2021
Dr Accumulated Depreciation - Building 100,000
Cr Building 100,000
31 December 2021
Dr Revaluation Surplus 100,000
Dr Loss on revaluation of building 100,000
Cr Building 200,000
Disposal of an asset
E.g., car originally cost $20,000 and $12,000 of accumulated depn:
1. Sold for $10,000 2. Sold for $5,000
Option 1 Option 2
Dr Cash
Dr Accumulated depreciation
CR Asset
DR Loss on sale OR CR Gain on sale
Dr Cash (unless told otherwise)
Cr Proceeds from sale (revenue)
Dr Accumulated Depreciation
Dr Carrying value of asset (expense)
Cr Asset
Gain/loss = Proceeds – Carrying value
Dr cash $10,000
Dr Accum. Depn 12,000
Cr Car 20,000
Cr Gain on Sale 2,000
Dr cash $5,000
Dr Accum. Depn 12,000
Cr Car 20,000
Dr Loss on Sale 3,000
Illustration
Question: Prepare journal entries to record the events below:
1. A machine with an original cost of $50,000 and
accumulated depreciation of $24,000 (as at 30 June 2022)
was sold on 1 August 2022 for $27,000 cash.
The straight line method was used to record depreciation
on the old asset. The annual amount of depreciation was
$12,000.
Illustration (cont.)
1. Update depreciation
Dr Depreciation Expense 1,000
Cr Accumulated Depreciation 1,000
2. Record disposal
Dr Cash 27,000
Dr Accumulated Depreciation 25,000
Cr Machinery 50,000
Cr Gain on Sale of Machinery 2,000
OR
Dr Cash 27,000
Cr Proceeds from Sale of Machinery 27,000
Dr Accumulated Depreciation 25,000
Dr Carrying Amount of Machinery Sold 25,000
Cr Machinery 50,000