Question 9.13
Acquisitions, disposals, depreciation
Jumper Ltd purchased equipment on 1 July 2016 for $39 800 cash. Transport and
installation costs of $4200 were paid on 5 July 2016. Useful life and residual value were
estimated to be 10 years and $1800 respectively. Mandurah Ltd depreciates equipment
using the straight-line method to the nearest month, and reports annually on 30 June.
The company tax rate is 30%.
In June 2018, changes in technology caused the company to revise the estimated total
life from 10 years to 5 years, and the residual value from $1800 to $1200. This revised
estimate was made before recording the depreciation for the financial year ended 30
June 2018.
On 30 June 2018, the company adopted the revaluation model to account for
equipment. An expert valuation was obtained showing that the equipment had a fair
value of $30 000 at that date.
On 30 June 2019, depreciation for the year was charged and the equipment’s carrying
amount was remeasured to its fair value of $16 000.
On 30 September 2019, the equipment was sold for $8400 cash.
Required
(Show all workings and round amounts to the nearest dollar.)
Prepare general journal entries to record the transactions and events for the period
1 July 2016 to 30 September 2019.
General journal entries
DATE
Dr
Cr
DETAILS
2016
1 July
Equipment
39 800
Cash
39 800
5 July
2017
30 June
2018
30 June
30 June
Equipment
Cash
4 200
Depreciation – Equipment
Accumulated depreciation - Equipment
($44 000 – $1 800/10 = $4 220)
4 220
4 200
4 220
Depreciation – Equipment
Accumulated depreciation - Equipment
($44 000 – $1 200/4 = $8 560 + prospective adjustment
for change in estimates [$8 560 – 4 220] = $4 340)
12 900
Accumulated depreciation – Equipment
Equipment
(Write down to carrying amount)
17 120
Equipment
Gain on revaluation of equipment (OCI)
12 900
17 120
3 120
3 120
(Fair value $30 000; Carrying amount $26 880;
Revaluation increase $3 120)
Income tax expense (OCI)
Depreciation – Equipment
936
9 600
30 June
Accumulated depreciation – Equipment
($30 000 – $1 200/3 = $9 600)
30 June
Accumulated depreciation – Equipment
Equipment
(Write down to carrying amount)
9 600
Loss on revaluation of plant (OCI)
Loss on revaluation of plant (P&L)
Equipment
(Fair value $16 000; Carrying amount $20 400;
Revaluation decrease $4 400)
3 120
1 280
Deferred tax liability
Income tax expense (OCI)
(Tax effect on decrement relating to prior increment)
2019
30 Sept
9 600
9 600
4 400
936
936
Asset revaluation surplus
Income tax expense (OCI)
Loss on revaluation of plant (OCI)
(Reduction in accumulated equity due to devaluation of
plant)
2 184
936
Depreciation expense – Equipment
Accumulated depreciation - Equipment
(3/12[$16 000 – $1 200/2])
1 850
Accumulated depreciation – Equipment
Carrying amount of Equipment
Equipment
Cash
Proceeds on sale – Equipment
3 120
1 850
1 850
14 150
16 000
8 400
8 400