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)
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.)
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)
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)
