On January 1, 2017, Easy Company acquired an equipment for P8,000,000. The equipment is depreciated using straight line method based on a useful life of 8 years with no residual value. On January 1, 2020, after 3 years, the equipment was revalued at a replacement cost of P12,000,000 with no change in the useful life. The pretax accounting income before depreciated for 2020 is P10,000,000. The income tax rate is 30% and there are no other temporary differences at the beginning of the year. Required: Prepare journal entry to record the revaluation on January 1, 2020. Prepare journal entry to record the deffered tax liability on January 1, 2020. Prepare journal entry to record the current tax expense for 2020.
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.
On January 1, 2017, Easy Company acquired an equipment for P8,000,000.
The equipment is
On January 1, 2020, after 3 years, the equipment was revalued at a replacement cost of P12,000,000 with no change in the useful life.
The pretax accounting income before depreciated for 2020 is P10,000,000.
The income tax rate is 30% and there are no other temporary differences at the beginning of the year.
Required:
- Prepare
journal entry to record the revaluation on January 1, 2020. - Prepare journal entry to record the deffered tax liability on January 1, 2020.
- Prepare journal entry to record the current tax expense for 2020.
- Prepare the adjusment of the deffered tax liability on December 31, 2020.
- Prepare the adjusment of the revaluation surplus on December 31, 2020.
- Present the income tax expense in the income statement for 2020.
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