Question

Question 3 28 marks 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 ($) Expected Useful Life Machine A 100,000 5 years Machine B 60,000 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 (S) 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 (S) 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. [15 marks] b) Prepare journal entries to record the events for the year ended 30 June 2019. [13 marks]

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 (Being Assets purchased) 2 30-Jun-18 Depreciation A/c 40000 To Provision for Depreciation A/c 40000 (Being Depreciation provided) 3 30-Jun-18 Profit and Loss A/c 40000 To Depreciation A/c 40000 (Being Depreciation carried to Profit and Loss A/c) 4 30-Jun-18 Machine A A/c 4000 TO    Revaluation reserve 4000 (Being Revaluation done for Machine ) 5 30-Jun-18 Profit and Loss A/c 2000 To Machine B A/c 2000 (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 (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 (Being revaluation loss accounted)