ACCY200 Tutorial Solutions Week 8 Essay

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ACCY200: Financial Accounting IIA
School of Accounting and Finance
Autumn 2014
Week 8 Tutorial Solutions: Chapter 13, Ex 13.10, Ex 13.15, Ex 13.16
In-class activity: Ex 13.14
Exercise 13.10

REVALUATION OF ASSETS

Required
1. Prepare any necessary entries to revalue the building and the vehicle as at 30 June
2013.
2. Assume that the building and vehicle had remaining useful lives of 25 years and 4 years respectively, with zero residual value. Prepare entries to record depreciation expense for the year ended 30 June 2014 using the straight-line method.

KOOKABURRA LTD
General Journal
1.
Accumulated depreciation – Building
Building
(Writing down to carrying amount)

Dr
Cr

100 000

Loss on revaluation of building (P&L)
Loss on revaluation of building (OCI)
Building
(Revaluation downwards of building)

Dr
Dr
Cr

20 000
20 000

Deferred tax liability
Income tax expense (OCI)
(Tax-effect of revaluation decrement on previously revalued asset)

Dr
Cr

6 000

100 000

40 000

6 000

1

Asset revaluation surplus - Building
Dr
Income tax expense (OCI)
Dr
Loss on revaluation of building (OCI) Cr
(Reduction in accumulated equity due to revaluation decrement on building)

14 000
6 000

Accumulated depreciation – Vehicle
Vehicle
(Writing down to carrying amount)

Dr
Cr

40 000

Vehicle
Dr
Gain on revaluation of vehicle (OCI) Cr
(Revaluation to fair value)

10 000

20 000

40 000

10 000

Income tax expense (OCI)
Deferred tax liability
(Tax-effect of revaluation increment)

Dr
Cr

3 000

Gain on revaluation of vehicle (OCI)
Income tax expense (OCI)
Asset revaluation surplus - vehicle

Dr
Cr
Cr

10 000

Depreciation expense – Building
Dr
Accumulated depreciation – Building Cr
($160 000/25)

6 400

Depreciation expense – Vehicle
Dr
Accumulated depreciation – Vehicle Cr
($90 000/ 4)

22 500

3 000

3 000
7 000

2.
6 400

22 500

2

Exercise 13.15

ACQUISITIONS, DISPOSALS, DEPRECIATION

Required
Prepare general journal entries to record the transactions and events for the period 1
July 2012 to 30 September 2015. (Narrations are not required.) (Show all workings and round amounts to the nearest dollar.)

SWAN LTD GENERAL JOURNAL ENTRIES
DATE
2012
1 July

5 July

2013
30 June

2014
30 June

30 June

DETAILS

Dr

Equipment
Cash

39 800

Equipment
Cash

4 200

Depreciation – Equipment
Accumulated depreciation - Equipment
($44 000 – $1 800/10 = $4 220)

4 220

Cr

39 800

4 200

4 220

Depreciation – Equipment
Accumulated depreciation - Equipment
($44 000 – $1 200/5 = $8 560
+ adjustment for change in estimates [$8 560 – 4 220]
= $4 340) Alternatively, and in line with AASB108 not covered in ACCY200, there should be no retrospective adjustment for a change in estimate. What should have been done was to use CA @ 1 July 2013 deducting new
RV and spread over remaining new useful life, ie 397801200/4 = 9645) This issue of a change in estimate will not be examined as we have not covered AASB108.

12 900

Accumulated depreciation – Equipment
Equipment
(Write down to carrying amount)

17 120

12 900

17 120

3

Equipment
Gain on revaluation of equipment (OCI)
(Fair value $30 000; Carrying amount $26 880;
Revaluation increase $3 120)
Income tax expense (OCI)
Deferred tax liability
(Tax-effect of revaluation increment)

2015
30 June

3 120
3 120

936
936

Gain on revaluation of equipment (OCI)
Income tax expense (OCI)
Asset revaluation surplus
(Transfer to accumulated equity subsequent to revaluation of asset)

3 120

Depreciation – Equipment
Accumulated depreciation – Equipment
($30 000 – $1 200/3 = $9 600)

9 600

Accumulated depreciation – Equipment
Equipment
(Write down to carrying amount)

9 600

Loss on revaluation of plant (OCI)
Loss on revaluation of plant (P&L)
Plant
(Fair value $16 000; Carrying amount $20 400;
Revaluation decrease $4 400)

3120
1280

Deferred tax liability
Income tax expense (OCI)
(Tax effect on decrement relating to prior increment)
Asset revaluation surplus
Income tax expense (OCI)
Loss on revaluation of plant (OCI)