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Dear guys, I am sorry for tying in English but my computer was fixing in Amsterdam without Vietkey.
The following is exercise 11.17 of Book "Applying IFRS", 3e.
Please help me to find out which entries are right!
Exercise 11.17: Meerbeck Ltd purchased equipment on 1 July 2013 for $39,800 cash. Transport and installation costs of $4,200 were paid on 5 July 2013. Useful life and residual value were estimated to be 10 years and $1,800 respectively. Meerbeck Ltd depreciated equipment using straight line method to the nearest month, and reports annually on 30 June. The company tax rate is 30%.
In June 2015, changes in technology caused the company to revise the estimated total life from 10 years to 5 years, and the residual value from $1,800 to 1,200. This revised estimate was made before recording the depreciation for the financial year ended 30 June 2015.
On 30 June 2015, the company adopted the revaluation model to account for equipment. An expert valuation was obtained showing that the equipment had a FV of $30,000 at that date.
On 30 June 2016, the depreciation for the year was charged and the equipment's CA was remeasured to its FV of $16,000.
On 30 September 2016, the equipment was sold for $8,400 cash.
Required: Prepare general journal entries to record the transactions and events for the period 1 July 2013 to 30 September 2016.
Solution:
My solution: In June 2015: Change in accounting estimates (useful life and residual value) --> Prospectively current period and future periods. I.e. do not touch the previous period of 2013-2014 --> Entries:
1. 1-7-2013: Dr Equipment Cr Cash 39,800
2. 5-7-2013: Dr Equipment Cr Cash 4,200
3. 30-6-2014: Dr Depreciation Cr Acc. Depreciation: 4,220
{(39;800+4;200 - 1,800):10 = 4,220}
CA of Equipment at 1-7-2015 is 39,780 (=44,000 - 4,220), the remaining useful life is 4 years (5 years in total - 1 year used)--> Revised depreciation in current period is 9,645 (=(39,780 -1,200):4 years):
4. 30-6-2015: Dr Depreciation Cr Acc. Depreciation: 9,645
5. 30-6-2015: Dr Acc. Depreciation Cr Equipment: 13,865
Write down the equipment to its CA before adoption of revaluation model.
The initial adoption of revaluation model is not change in accounting policy, therefore, no retrospective.
6. 30-6-2015: Dr Revaluation of Equipment (P/L) Cr Equipment: 135
Solution of someone (as the book does not have solution):
1. 2. 3.: The same as above
4. 30-6-2015: Dr Depreciation Cr Acc. Depreciation: 12,900
(44,000 - 1,200):5 years = 8,560
(8,560 - 4,220) = 4,340
Therefore, the next entries are affected by the entry 4.
In short, please help me to finalize which solution is right and reason?
Many thanks in advance
The following is exercise 11.17 of Book "Applying IFRS", 3e.
Please help me to find out which entries are right!
Exercise 11.17: Meerbeck Ltd purchased equipment on 1 July 2013 for $39,800 cash. Transport and installation costs of $4,200 were paid on 5 July 2013. Useful life and residual value were estimated to be 10 years and $1,800 respectively. Meerbeck Ltd depreciated equipment using straight line method to the nearest month, and reports annually on 30 June. The company tax rate is 30%.
In June 2015, changes in technology caused the company to revise the estimated total life from 10 years to 5 years, and the residual value from $1,800 to 1,200. This revised estimate was made before recording the depreciation for the financial year ended 30 June 2015.
On 30 June 2015, the company adopted the revaluation model to account for equipment. An expert valuation was obtained showing that the equipment had a FV of $30,000 at that date.
On 30 June 2016, the depreciation for the year was charged and the equipment's CA was remeasured to its FV of $16,000.
On 30 September 2016, the equipment was sold for $8,400 cash.
Required: Prepare general journal entries to record the transactions and events for the period 1 July 2013 to 30 September 2016.
Solution:
My solution: In June 2015: Change in accounting estimates (useful life and residual value) --> Prospectively current period and future periods. I.e. do not touch the previous period of 2013-2014 --> Entries:
1. 1-7-2013: Dr Equipment Cr Cash 39,800
2. 5-7-2013: Dr Equipment Cr Cash 4,200
3. 30-6-2014: Dr Depreciation Cr Acc. Depreciation: 4,220
{(39;800+4;200 - 1,800):10 = 4,220}
CA of Equipment at 1-7-2015 is 39,780 (=44,000 - 4,220), the remaining useful life is 4 years (5 years in total - 1 year used)--> Revised depreciation in current period is 9,645 (=(39,780 -1,200):4 years):
4. 30-6-2015: Dr Depreciation Cr Acc. Depreciation: 9,645
5. 30-6-2015: Dr Acc. Depreciation Cr Equipment: 13,865
Write down the equipment to its CA before adoption of revaluation model.
The initial adoption of revaluation model is not change in accounting policy, therefore, no retrospective.
6. 30-6-2015: Dr Revaluation of Equipment (P/L) Cr Equipment: 135
Solution of someone (as the book does not have solution):
1. 2. 3.: The same as above
4. 30-6-2015: Dr Depreciation Cr Acc. Depreciation: 12,900
(44,000 - 1,200):5 years = 8,560
(8,560 - 4,220) = 4,340
Therefore, the next entries are affected by the entry 4.
In short, please help me to finalize which solution is right and reason?
Many thanks in advance
