Question

On 1 July 2017, Guinness Ltd acquired two assets within the same class of plant and equipment for cash. Information on these assets is as follows.

Cost ($)

Machine A 100,000 Machine B 60,000

Expected Useful Life

5 years 3 years

The machines are expected to generate benefits evenly over their useful lives. The class of plant and equipment is accounted for subsequent to acquisition using the revaluation model. At 30 June 2018, information about the assets is as follows.

Fair Value ($)

Machine A 84,000 Machine B 38,000

On 1 January 2019, Machine B was sold for $29 000 cash.

At 30 June 2019, information on the machines is as follows.

Fair Value ($) Expected Useful Life

Machine A 58,000 3 years Required:

On 1 July 2017, Guinness Ltd acquired two assets within the same class of plant and equipment for cash. Information on these assets is as follows.

Cost ($)

Machine A 100,000 Machine B 60,000

Expected Useful Life

5 years 3 years

The machines are expected to generate benefits evenly over their useful lives. The class of plant and equipment is accounted for subsequent to acquisition using the revaluation model. At 30 June 2018, information about the assets is as follows.

Fair Value ($)

Machine A 84,000 Machine B 38,000

On 1 January 2019, Machine B was sold for $29 000 cash.

At 30 June 2019, information on the machines is as follows.

Fair Value ($) Expected Useful Life

Machine A 58,000 3 years Required:

a) Prepare the journal entries in the records of Guinness Ltd to record the events for the year ended 30 June 2018.

b) Prepare journal entries to record the events for the year ended 30 June 2019

Answer 1

Depreciation Computation
Equal benefits all over the year hence straight line method of depreciation
	Particulars	Machine A	Machine B
a	Useful life	5	3
b	Cost	100,000	60000
c	Depreciation per year b/a	20000	20000
d	Carrying value after depreciation (b-c)	80,000	40000
e	Revalued amount	84000	38000
f	Revaluation profit/loss	4,000	-2000
S.l No.	Date	Particulars	Debit	Credit
1	1-Jul-17	Machine A A/C	100,000
		Machine B A/C	60000
		To   Bank A/C		160000
	Narration	Being Assets purchased
2	30-Jun-18	Depreciation A/c	40000
		To Provision for Depreciation A/c		40000
	Narration	Being Depreciation provided
3	30-Jun-18	Profit and Loss A/c	40000
		To Depreciation A/c		40000
	Narration	Being Depreciation carried to Profir and Loss A/c
4	30-Jun-18	Machine A A/c	4000
		TO    Revaluation reserve		4000
	Narration	Being Revaluation done for Machine
5	30-Jun-18	Profit and Loss A/c	2000
		To Machine B A/c		2000
	Narration	Being Revaluation done for Machine B and revaluation loss recognized in Profit and Loss A/c
6	1-Jan-19	Bank A/c	29000
		Provision for depreciation A/c	20000
		Profit and Loss A/c (loss on sale of asset)	9000
		TO Machine B A/c		58000
		Being machine sold and loss on sale accounted
7	30-Jun-19	Depreciation A/c (84000/4)	21000
		To Provision for depreciation A/c		21000
	Narration	Being Depreciation provided
	Notes	Asset carrying value (84000-21000	63000
		Revalued amount	58000
		Revaluation loss	-5000
8	30-Jun-19	Revaluation reserve A/c	4000
		Profit and Loss A/c (Exces of revaluation loss over reserve)	1000
		To Machine A A/c		5000
	Narration	Being revaluation loss accounted