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Hello, I have the following questions:
Nimoy purchased an item of heavy industrial machinery for $90,000 on 1 Oct X5. It had an estimated useful life of 10 years and a residual value of $5,000. Plant and machinery is depreciated on a straight-line basis.
On 30 Sep X8, Nimoy revalued the industrial machine to $75,000 in accordance with a change in policy for the measurement of tangible fixed assets. Nimoy decided to undertake the annual revaluation reserve transfer.
The tax authorities do not allow depreciation as a deductible expense. Instead, tax relief is granted based on an allowable deduction of 30% of the cost of the asset in the year in which the asset is acquired followed thereafter by an annual allowable deduction of 15% calculated on a reducing balance basis. Revaluations do not affect the tax base of the asset.
The appicable rate of income tax throughout is 20%.9. What is the value of the industrial machine and the associated revaluation surplus in the SOFP as at 30 Sep 20X9? (Ignore any deferred tax)
Machine carrying amount Revaluation surplusA 64,288 10,286
B 67,500 9,500
C 65,000 9,000
D 65,000 1,71410. What is the charge to PL for deferred tax in the year ended 30 Sep X7?
A. $190
B. $1,000
C. $3,700
D. $3,890
The answers are 9 C and 10 A, but I have no idea how to get those. Can anyone help me with the solution to these? Thanks!Hi,
I can’t go through and answer the entire question for you, sorry. You have the answer there, so what is it in there that you do not understand? Let me know and I can help.
Thanks
Hi, for me the first question I can understand why the revaluation surplus was 9000 after transferring 1500 to retained earnings, but to get 65000 as asset value after one year since since revaluation at 75000 is quite unexpecting for me. The second question I came up with D as the answer by multiplying 20% with the temporary difference 73000-53550. I am aware that my knowledge might be a bit lacking, so can you please explain where I have gone wrong? Thanks!
Hi
1. The initial revaluation gain is 10,500 as the carrying amount at the date of the revaluation is 64,500 (75,000 – 64,500). The new depreciation is 10,000 (75,000 – 5,000 / 7 years) which is 1,500 higher than the old depreciation charge of 8,500 (90,000 – 5,000 / 10 years). One year after the revaluation has taken place the revaluation reserve will therefore be 9,000 (10,500 – 1,500)
2. I agree with you on your answer, so we’re either making the same mistake or the answer is wrong.
Thanks
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