On 1 July 2021, Mozart Ltd purchased three machines each used in a different production process in the factory. On 30 June 2022, there was an indication that the machines could be impaired due to a new competitor entering the market so Mozart Ltd determined the recoverable amounts of the machines. Information concerning the machines is summarised in the table below. Mozart Ltd uses straight-line depreciation over a 5 year period for all machinery. Assume that all three machines had nil residual values at the end of their useful lives. Machine Cost 1/7/21 Value in Use 30/6/22 Net Selling price 30/6/22 1 $10,000 $7,500 $9,000 2 $25,000 $13,000 $12,000 3 $15,000 $8,000 $9,500 50,000 Required: 1) Record any depreciation for the year ended 30 June 2022. 2) Record any asset impairment at 30 June 2022.
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.
a) On 1 July 2021, Mozart Ltd purchased three machines each used in a different production process in the factory. On 30 June 2022, there was an indication that the machines could be impaired due to a new competitor entering the market so Mozart Ltd determined the recoverable amounts of the machines. Information concerning the machines is summarised in the table below. Mozart Ltd uses straight-line
|
Machine |
Cost 1/7/21 |
Value in Use 30/6/22 |
Net Selling price 30/6/22 |
|
1 |
$10,000 |
$7,500 |
$9,000 |
|
2 |
$25,000 |
$13,000 |
$12,000 |
|
3 |
$15,000 |
$8,000 |
$9,500 |
|
|
50,000 |
|
|
Required:
1) Record any depreciation for the year ended 30 June 2022.
2) Record any asset impairment at 30 June 2022.
b) Vivaldi had the following non-current asset balances in their general ledger at 31 December 2021.
Motor Vehicle at cost $33 000
Land at cost 150 000
The following transactions occurred during 2022.
|
June 30 |
Sold the motor vehicle that was purchased on 1 January 2019 for $33,000. It has a useful life of 6 years with no residual value. The vehicle was sold for $15,000 cash. |
|
July 1 |
Revalued land held at cost of $150,000 to its fair value of $170,000. |
|
Dec 31 |
The fair value of the land $170,000 has fallen due to a re-zoning of the area. Vivaldi Ltd decides to revalue the land to its revised fair value of $135,000. |
Required:
Prepare the general
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