- This topic has 1 reply, 2 voices, and was last updated 8 years ago by
.
- Posts
Equipment Company started business on 1st January 2004. The company immediately acquired production equipment for $9,000,000. It was estimated that this equipment would have a useful life of 15 years and a salvage value of $0. On 1st January 2008 Equipment Company decided to re-value this equipment to fair value. At this time the fair value of the equipment was determined to be $8,000,000. On 1st January 2011 20% of the equipment was sold for $1,400,000. On 1 st January 2013 the remaining equipment was re-valued at $5,000,000. Equipment’s year end is 31st December. The estimated total useful life and salvage value made earlier (15 year total useful life and $0 salvage value) remained constant.
Prepare journal entry from 1st January 2008 to 1st January 2013
1 Jan 2008
Dr. Revaluation Deficit ($8,000,000 – ($9,000,000 – $818,182)) $181,818
Dr. Accumulated Depreciation ($9,000,000 / 11 years) $818,182
Cr. Equipment ($8,000,000 – ($9,000,000 – $818,182)) $1,000,0001 Jan 2011
Dr. Accumulated depreciation ($8,000,000 / 8 years) $1,000,000
Dr. Bank $1,400,000
Cr. Loss on disposal $800,000
Cr. Equipment – cost ($8,000,000 x 20%) $1,600,000Could you help me to check my answer and point out what I did wrong? I skip many journal entries from 1st January 2008 to 1st January 2013, because I really don’t know how to answer it. I hope you could answer this question in detail. Thank you.
I really weak on this topic, but It is hard to find similar questions to practise. Could you suggest me some similar question for me to practice? Thanks a lot!!!
1. 1.04 bought for 9,000,000
Depreciate over 15 years with zero residual value = 600,000 per annum depreciation
to 1. 1.08 is 4 years depreciation at 600,000 per annum = 2,400,000
This gives a carrying value as at 1. 1. 08 of 6,600,000 and it’s revalued to 8,000,000 so a transfer to revaluation reserve of 1,400,000
8,000,000 is now depreciated over the remaining 11 years with zero residual value = 727,273 per annum and 3 years to 1. 1.11 = 2,181,818
So carrying value as at 1. 1.11 is 5,818,182
On 1. 1.11 20% was sold so that’s assets with a carrying value of 20% x 5,818,182 sold = 1,163,636 leaving a carrying value of 4,654,545 as at 1. 1.11 to be depreciated over the remaining 8 years with zero residual value
The equates to 581,818 annual depreciation
2 years to 1. 1.13 means depreciation of 1,163,636 and leaves a carrying value of 3,490,909
On 1. 1.13 the asset is revalued to 5,000,000 involving a transfer to revaluation reserve of 1,509,091 and that leaves us with a carrying value as at 1. 1.13 of 5,000,000
Does that agree with the solution?
- The topic ‘PPE Questions, please help me’ is closed to new replies.