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Topic 5 Tutorial Questions Sem 22018

This document provides review and practice questions related to accounting for property, plant, and equipment using the revaluation model. It includes questions about which assets are considered PPE, recognition criteria for PPE, revaluation increases and decreases, and journal entries for revaluations of equipment over multiple years for two different companies.

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Ahsan Masood
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49 views

Topic 5 Tutorial Questions Sem 22018

This document provides review and practice questions related to accounting for property, plant, and equipment using the revaluation model. It includes questions about which assets are considered PPE, recognition criteria for PPE, revaluation increases and decreases, and journal entries for revaluations of equipment over multiple years for two different companies.

Uploaded by

Ahsan Masood
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ACW2491 Financial Accounting

Tutorial Questions
Semester 2 2018
Topic 5: Property, Plant and Equipment- Revaluation

REVIEW QUESTIONS
1. What assets constitute property, plant and equipment?

2. What are the recognition criteria for property, plant and equipment?

10. How does an entity choose between depreciation methods, for example, straight-line versus reducing-
balance models?

12. Under the revaluation model, how is a revaluation increase accounted for?

13. Under the revaluation model, how is a revaluation decrease accounted for?

PRACTICE QUESTION
Question 9.2 Application of revaluation model
At 1 July 2014, Twister Ltd acquired the following non-current assets:

Equipment $100 000
Vehicles    80 000

They are in different classes of non-current assets and are to be measured at fair value. The expected useful lives
of vehicles and equipment are 5 years and 10 years, respectively.
At 30 June 2015, the fair values of both assets were assessed. The equipment had a fair value of $82 000, and the
vehicles, $70 000. The remaining useful lives were assessed to be 8 years for equipment and 7 years for vehicles.
At 30 June 2016, the fair value of equipment was assessed to be $81 750 and the fair value of vehicles was
$55 000.

Required
Prepare the journal entries for Twister Ltd for the years ending 30 June 2015 and 2016.

Question 9.6 Acquisition of assets, depreciation and change to revaluation model


Robert Niro commenced operations on 30 March 2012 in the rubbish and recycling industry, trading as Midnight
Run Services Ltd. The end of the reporting period is 31 December, and the company depreciates all depreciable
assets using the straight-line method.
The following events occurred during 2015 and 2016:
2015
April 0 Paid $140 000 cash for a second-hand truck (Truck A). Robert estimated the truck’s useful
1 life and residual value at 5 years and $20 000.
Paid $1500 cash to recondition Truck A’s engine.
June 3 Paid $32 000 cash for equipment. Robert estimated the equipment’s useful life and
0 residual value at 10 years and $1500.
Aug. 3 Paid $600 cash for Truck A’s transmission repairs and oil change.
1
Dec. 3 Recorded depreciation on Truck A and equipment.
1

2016
March 1 Paid $290 cash to replace a damaged bumper bar on Truck A.

1
ACW2491 Financial Accounting
Tutorial Questions
Semester 2 2018
Topic 5: Property, Plant and Equipment- Revaluation

3
Aug. 0 Traded in Truck A for a new truck (Truck B) that cost $240 000. The dealer granted a
1 trade-in allowance of $90 000 on the Truck A, and the balance was paid in cash. Robert
estimated Truck B’s useful life and residual value at 7 years and $30 000.
Dec. 3 Recorded depreciation on Truck B and the equipment. Robert decided to change the basis
1 of measuring equipment to the revaluation model. He assessed the equipment’s fair
value at 31 December 2016 at $29 000.
Required
Prepare general journal entries to record the above events.

Question 9.11* Revaluation of assets


On 1 July 2016, Kingdom Ltd acquired two assets within the same class of plant and equipment. 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
measured using fair value.
At 30 June 2017, information about the assets is as follows:

Fair value Expected useful life


Machine A $84 000 4 years
Machine B 38 000 2 years

On 1 January 2018, Machine B was sold for $29 000 cash. On the same day, Kingdom Ltd acquired Machine C for
$80 000 cash. Machine C has an expected useful life of 4 years. Kingdom Ltd also made a bonus issue of 10  000
shares at $1 per share, using $8000 from the general reserve and $2000 from the asset revaluation surplus created
as a result of measuring Machine A at fair value.
At 30 June 2018, information on the machines is as follows:

Fair value Expected useful life


Machine A $61 000 3 years
Machine C 68 500 1.5 years

The income tax rate is 30%.

Required
Prepare the journal entries in the records of Kingdom Ltd to record the described events over the period 1 July
2016 to 30 June 2018, assuming the ends of the reporting periods are 30 June 2017 and 30 June 2018.

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