Diamond Ltd acquired an item of polishing equipment on 1 July 2015 for $440,000. The equipment is expected to have a useful life of 10 years and the straight-line method of depreciation is to be used. It has salvage value of $40,000. On 1 July 2017, the equipment is deemed to have a fair value of $424,000 and revaluation is undertaken in accordance with the Diamond Ltd policy of measuring property, plant and equipment at fair value. The asset is still usable for next 8 years but the salvage value is determined to be zero. The asset is sold for $356,000 on 1 July 2019. Required: Provide the journal entries necessary at the following dates to account for the above transactions and events. (Ignore narrations). Show your working. (10 marks) • 01/07/2015 • 01/07/2017 • 01/07/2019
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Diamond Ltd acquired an item of polishing equipment on 1 July 2015 for $440,000. The equipment is expected to have a useful life of 10 years and the straight-line method of
$424,000 and revaluation is undertaken in accordance with the Diamond Ltd policy of measuring property, plant and equipment at fair value. The asset is still usable for next 8 years but the salvage value is determined to be zero. The asset is sold for $356,000 on 1 July 2019.
Required:
Provide the journal entries necessary at the following dates to account for the above transactions and events. (Ignore narrations). Show your working. (10 marks)
• 01/07/2015
• 01/07/2017
• 01/07/2019
Week 4
Snowy Ltd acquires Pax Ltd on 1 July 2018 for $5,000,000 being the fair value of the consideration
transferred. At that date, Pax Ltd’s net identifiable assets have a fair value of $4,400,000.
$600,000 is therefore the difference between the aggregate of the consideration transferred and the net identifiable assets acquired.
The fair value of the net identifiable assets of Pax Limited are determined as follows: ($000)
Patent rights 200
Machinery 1,000
Buildings 1,500
Land 2,300
5,000
Less: Bank loan 600
Net assets 4,400
At the end of the reporting period of 30 June 2019, the management of Snowy Ltd determines that the recoverable amount of the cash-generating unit, which is considered to be Pax Ltd, totals
$4,500,000. The carrying amount of the net identifiable assets of Pax Ltd, excluding goodwill, is unchanged and remains at $4,400,000.
Required:
a) Prepare the
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