Accumulated Depreciation and Revaluation Loss

The provided assignment content relates to the accounting treatment of accumulated depreciation and impairment loss on two machines (Machine G and Machine Q) over a period of three years from July 1, 2015, to June 30, 2017. It includes journal entries, calculations of carrying value, fair value, and depreciation expenses, as well as allocations of impairment losses to different assets.

Solution -1
MEMO
Date: 9th September, 2017
To: Jennifer
From: Chief Accountant
Subject: Key problems with the statement of financial position
This is in reference to the statement of financial position prepared by you. The following are
the key problems with the statement of financial position:
a. As per AASB 101, the balance sheet should contain sufficient disclosures as regards
to current and non-current classification. It means every asset or liability realizable or
payable within 12 months of reporting date should be classified as current and else
as non-current. Your statement of financial position does not give such classification.
The relevant text of AASB 101, para 51 is reproduced herein below:
“An entity shall present current and non-current assets, and current and non-current
liabilities, as separate classifications on the face of its balance sheet.”
b. Further, the given statement of financial position fails to meet the presentation
criteria and structure prescribed by AASB 101. As per the prescribed structure a
minimum of following items should be disclosed on the face of balance sheet. These
includes:
a. Property, Plant and Equipment
b. Investment Property
c. Intangible assets
d. Financial assets
e. Cash and cash equivalents
f. Trade receivable
g. Trade payable
h. Financial liabilities
i. Provisions
j. Reserves and Equity attributable to shareholders.
The revised statement of financial position is attached with this Memo for your
kind perusal.
c. Further the items should be properly categorized into assets and liabilities and should
be presented as per the given structure, i.e. firstly assets should be presented
followed by liabilities. The para 68A of AASB 101, requires the presentation of
financial position in a sequential manner as explained above. The relevant text is
reproduced below:
“68A. The face of the balance sheet shall also include line items that present the
following amounts:
(a) the total of assets classified as held for sale and assets included in disposal
groups classified as held for sale in accordance with AASB 5 Non-current Assets Held
for Sale and Discontinued Operations; and
(b) liabilities included in disposal groups classified as held for sale in accordance with
AASB 5.”

Enclosures:
1. Revised Statement of Financial Position
WESLEY LTD.
STATEMENT OF FINANCIAL POSITION
For the year ended on 30 June, 2017
(Amount in $)
Particulars As at
30 June, 2017
Current assets
Cash and cash equivalents 4,000
Trade and other receivables 160,000
Inventories 36,000
Other assets 10,000
Total current assets 210,000
Non-current assets
Property, plant and equipment 610,000
Investment Property 114,000
Intangible assets 94,000
Other assets 36,000
Total non-current assets 854,000
Total assets - (a) 1,064,000
Current liabilities
Trade and other payables 110,000
Short term borrowings 62,000
Current tax liabilities 8,000
Provisions 40,000
Financial liabilities 100,000
Total current liabilities 320,000
Non-current liabilities
Financial liabilities 500,000
Total non-current liabilities 500,000
Total liabilities - (b) 820,000
Net assets (a-b) 244,000
Equity
Ordinary share capital 200,000

Reserves 24,000
Retained earnings 20,000
Total equity 244,000
Solution-2
Journal Entries in the books of Ansett Ltd
Date Description Debit Credit
31-Jul-16 Bank (5,500,000*1.5) 8,250,000
Share Application Money 8,250,000
(To record share application money received on
5,500,000 shares)
12-Aug-16 Share Application Money 8,250,000
Share Capital (5,000,000*1.5) 7,500,000
Bank (500,000*1.5) 750,000
(To record allotment of shares and excess amount
returned)
12-Sep-16 Share Allotment (5,000,000*0.3) 1,500,000
Share Capital 1,500,000
(Share allotment due)
12-Sep-16 Bank 1,500,000
Share Allotment 1,500,000
(To record amount received on share allotment)
20-Mar-17 Share First Call (5,000,000*0.2) 1,000,000
Share Capital 1,000,000
(Share first call due)
30-Apr-17 Bank ((5,000,000-50,000)*0.2) 990,000
Share First Call 990,000
(To record amount received on first call except for
50,000 shares)
31-May-
17 Share Capital (50,000*2) 100,000
Share First Call (50,000*0.2) 10,000
Forfeited Shares A/c 90,000
(To record forfeiture of shares due to non-payment of
call money)
05-Jun-17 Bank (50,000*1.7) 85,000
Forfeited Shares A/c 15,000
Share Capital (50,000*2) 100,000
(To record reissue of shares at $1.70)
05-Jun-17 Forfeited Shares A/c 5,000

Bank 5,000
(To record cost of reissue)
05-Jun-17 Forfeited Shares A/c (90,000-15,000-5,000) 70,000
Bank 70,000
(Excess surplus on reissue paid back to shareholders
whose shares were forfeited)
Solution-3
Journal Entries in the books of Genesis Ltd
Date Description Debit Credit
01-Jul-
15 Machine G 400,000
Machine Q 300,000
Bank 700,000
(To record purchase of machines)
30-Jun-
16 Depreciation Exp 96,000
Accumulated Depreciation - Machine G 36,000
Accumulated Depreciation - Machine Q 60,000
(To record depreciation on machines)
30-Jun-
16 Machine G 16,000
Revaluation Loss (refer WN-1) 24,000
Accumulated Depreciation - Machine G 36,000
Accumulated Depreciation - Machine Q 60,000
Machine G 36,000
Machine Q 100,000
(To record revaluation loss on fair valuation)
30-Jun-
16 Deferred tax asset (24,000*30%) 7,200
Revaluation Loss 7,200
(To record tax impact on above revaluation
loss)
30-Jun-
17 Depreciation Exp 82,500
Accumulated Depreciation - Machine G 42,500
Accumulated Depreciation - Machine Q 40,000
(To record depreciation on machines)
30-Jun-
17 Revaluation Loss (refer WN-1) 37,500

Accumulated Depreciation - Machine G 42,500
Machine G 80,000
(To record revaluation loss on fair valuation)
30-Jun-
17 Deferred tax asset (37,500*30%) 11,250
Revaluation Loss 11,250
(To record tax impact on above revaluation
loss) `

WN-1 Calculation of Carrying Value and Depreciation
Particulars Machine G Machine Q
As on 1 July, 2015
Cost of Acquisition - (a)
400,00
0 300,000
Residual Value
40,00
0 -
Estimated Useful Life 10 5
Depreciation for the year (400000-40000)/10 (300000-0)/5
Depreciation for the year - (b)
36,00
0 60,000
As on 30 June, 2016
Carrying Value [c=(a-b)]
364,00
0 240,000
Fair Value - (d)
380,00
0 200,000
Revaluation Gain / (Loss)
16,00
0 (40,000)
Residual Value
40,00
0 -
Estimated Useful Life 8 5
Depreciation for the year (380000-40000)/8 (200000-0)/5
Depreciation for the year - (e)
42,50
0 40,000
As on 30 June, 2017
Carrying Value (d-e)
337,50
0 160,000
Fair Value
300,00
0 160,000
Revaluation Gain / (Loss)
(37,50
0) -

Solution-4
Journal Entries in the books of Big Friday Ltd
Date Description Debit Credit
Part (i)
30-Jun-17 Impairment Loss 130,200
Accumulated impairment loss – Patent (refer
WN-3) 15,000
Accumulated impairment loss – Machinery
(refer WN-3) 115,200
(To record impairment loss)
Part (ii)
30-Jun-17 Impairment Loss 130,200
Accumulated impairment loss – Patent (refer
WN-2) 26,040
Accumulated impairment loss – Machinery
(refer WN-2) 104,160
(To record impairment loss)
Explanation: Under part (i), the fair value less cost of sell of Patent was 135,000 and the
carrying amount of patent was 150,000, so an maximum of 15,000 (150,000-135,000) of
impairment loss can be allocated to Patent.
Whereas in part (ii) the fair value less cost of sell of Patent was 120,000 and the carrying
amount of patent was 150,000, so an maximum of 30,000 (150,000-120,000) of impairment
loss can be allocated to Patent.
When we allocate the impairment loss of $135,200 as per the carrying value of assets, the
portion of allocation to Patent comes at 26,040, so the entire cost can be allocated to Patent
in part (ii) whereas only 15,000 can be allocated to Patent in part (i).
WN-1: Calculation of Impairment Loss
Machinery 840,000
Accumulated depreciation - machinery (240,000)
Patent 150,000
Receivables 16,000
Inventory 87,000
Cash 20,000
Goodwill 15,000
Carrying amounts 888,000
Fair Value less costs to sell 742,800
Value in use 650,000
Recoverable amount (higher of fair value
and value in use) 742,800
Impairment Loss (888,000-742,800) 145,200

WN-2: Allocation of Impairment Loss
Impairment loss is firstly allocated to goodwill and the remaining portion is allocated to other
assets on the basis of their carrying amount. In the given case,
Impairment Loss 145,200
Allocated to Goodwill 15,000
Remaining impairment loss 130,200
Allocation of Impairment loss to other assets on the basis of carrying amounts.
Particulars Carrying amounts
Allocation of
impairment loss
Machinery 600,000 104,160
Patent 150,000 26,040
Carrying amounts 750,000 130,200
Note: Impairment loss is not allocated to receivables and inventory since, question states
that all receivables are collectible and inventory is recorded at lower of cost or NRV.
WN-3: Allocation of Impairment Loss as per Part (i)
Now, the question states that the fair value less costs to sell for the patent is determined at
$135,000. So, the revised allocation of impairment loss is as follows:
Particulars
Carrying
amounts
Allocation of
impairment loss
Machinery 600,000 115,200
Patent 150,000 15,000
Carrying amounts 750,000 130,200