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Question: On 1 July 2014, Capers Ltd purchased equipment with cash for a total cost of $217,800 including 10% GST. The estimated useful life of the equipment was 10 years, with an estimated residual value of $18,000. The entity’s reporting period ends on 30 June, and it uses straight-line depreciation. On 1 July 2016, the entity revalued the equipment upwards by $16,000 to reflect the fair value. The revised useful life was 8 years and residual value was estimated at $10,000. On 1 January 2018, Capers Ltd revalued the equipment downwards by $18,900 to reflect the fair value Prepare the journal entries in relation to the equipment from the date of acquisition. – Free Chegg Question Answer

On 1 July 2014, Capers Ltd purchased equipment with cash for a total cost of $217,800 including 10% GST. The estimated useful life of the equipment was 10 years, with an estimated residual value of $18,000. The entity’s reporting period ends on 30 June, and it uses straight-line depreciation. On 1 July 2016, the entity revalued the equipment upwards by $16,000 to reflect the fair value. The revised useful life was 8 years and residual value was estimated at $10,000. On 1 January 2018, Capers Ltd revalued the equipment downwards by $18,900 to reflect the fair value Prepare the journal entries in relation to the equipment from the date of acquisition.

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Working note 1: Calculation of cost of equipment

Purchase price including 10% GST is $217,800

If cost is $100, then 10% gst will be $10 and purchase price will be $110.

Hence,

Cost of equipment = $217,800 * 100/110 = $198,000

GST on equipment = $217,000 * 10/110 = $19,800

Working note 2: Calculation of SLM depreciation:

SLM depreciation = (Cost – Estimated residual value) / Estimated useful life

= ($198,000 – $18,000) / 10

= $18,000 per annum

Working note 3: Revaluation as on July 1, 2016

Book value as on July 1, 2016:

Cost of equipment as on Jul 1, 2014 $ 198,000 Less: Depreciation for year ending on Jun 30, 2015 $ (18,000) Less: Depreciatio

Value after revaluation:

Book value as on Jul 1, 2016 Add: Upward revaluation Revised value $ $ $ 162,000 16,000 178,000 $

Revised useful life = 8 years

Revised estimated useful life = $10,000

SLM depreciation = (Revised carrying value – Estimated residual value) / Estimated useful life

= ($178,000 – $10,000) / 8

= $21,000 per annum

Working note 4: Depreciation for half year Jul 1, 2017 to Jan 1, 2018

= Depreciation per annum * 6/12

= $21,000 * 6/12

= $10,500

Working note 5: Downward revaluation on Jan 1, 2018

Book value as on Jul 1, 2016 $ Less: Depreciation for year ending on Jun 30, 2017 $ Less: Depreciation for period ending on D

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