Question 1 Topic: Property, plant and equipment.
Answer both parts independently of each other.
PART A On 1 July 2018, ABC Ltd purchased and recordedequipment at its cost of acquisition of $320 000. The equipment isexpected to have a useful life for seven years and an estimatedresidual value of $10 000. ABC Ltd depreciates the asset using thestraight-line method. ABC Ltd uses the revaluation model toequipment and records accumulated depreciation using the netmethod. The reporting period end of ABC Ltd is 30 June. ABC Ltdrevalued the equipment on 30 June 2020, when the fair value of theequipment was $250 000. On 1 July 2020, the useful life of theequipment is reassessed: it is expected to have a remaining usefullife of 6 years. The estimated residual value remains unchanged.ABC Ltd revalued the equipment on 30 June 2021, when the fair valueof the equipment was $180 000. On 30 June 2022 the equipment wassold for $200 000.
REQUIRED: (1) Prepare journal entries to account for therevaluation of the equipment of 30 June 2020. Show all workingsteps.
(2) Prepare journal entries to account for the revaluation ofthe equipment of 30 June 2021. Show all working steps.
(3) Prepare journal entries to account for the sale of theequipment of 30 June 2022. Show all working steps.
PART B
ABC Ltd acquired a machine for $750 000 on 1 July 2018. Themachine had a useful life of five years and was depreciated on astraight-line basis with no disposal value. ABC Ltd adopts the costmodel for accounting for assets in this class. ABC Ltd makes thefollowing estimates of the value of the machine: Date Net sellingprice Value in use Fair Value 30 June 2019 $550 000 520 000 590 00030 June 2020 $460 000 420 000 490 000 Indicators of impairment wereidentified on 30 June 2019, while indicators of a reversal ofimpairment were found on 30 June 2020.
REQUIRED: Prepare journal entries relating to this asset from 30June 2019 to 30 June 2020. Show the steps of impairment (orreversal of impairment) tests. Show all working (step by step)
