Company Accounting: Asset Impairment and Revaluation Strategies

This assignment solution provides a detailed analysis of company accounting principles, focusing on asset valuation, depreciation, and financial statement presentation. It includes corrections to journal entries related to asset revaluation, calculations of depreciation amounts, and the impact of revaluation on financial statements. The solution also addresses asset impairment, including the recognition and accounting for impairment losses. Furthermore, it discusses the appropriate accounting treatment for revaluation gains and losses, including their transfer to revaluation reserves and subsequent recognition in the statement of comprehensive income. The document references relevant academic sources to support its analysis. Desklib offers this and many other solved assignments to aid students in their studies.

Running head: COMPANY ACCOUNTING
Company Accounting
Name of the Student
Name of the University
Author Note

1COMPANY ACCOUNTING
Marking criteria sheet
Student name(s) Student ID(s)
Part B Marking Criteria Sheet Marks available Marks awarded
10 marks
Question 1 3
Question 2 5
Question 3 10
Question 4 7
Question 5 8
Question 6 4
Formatting, word count and marking criteria sheet 3
Part B Assignment Total 40 marks
Part B Assignment: 15% weighting 10 marks
Less: Late penalty (5% per day)
Part B Assignment: Final mark 10 marks
Additional comments from marker
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2COMPANY ACCOUNTING
Table of Contents
Answer 1..........................................................................................................................................3
Answer 2..........................................................................................................................................3
Answer 3..........................................................................................................................................3
Answer 4..........................................................................................................................................4
Answer 5..........................................................................................................................................5
Answer 6..........................................................................................................................................5
References........................................................................................................................................7
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3COMPANY ACCOUNTING
Answer 1
Once recognition of an asset is done , the corresponding asset is to be valued at cost which is to
be deducted by depreciation that has been accumulated and further deducted by losses that have
been accumulated from impairment of assets(Goh et al.,2015).
Answer 2
The term, fair value of an asset refers to the value that an exchange of assets could take place
between two parties.Under this method, both liabilities and assets are measured on a period basis
, enabling the reflection of value changes, which makes an impact on one of net income or
comprehensive income for the period(Bessembinder, Hao & Zheng, 2015). Consequently, the
statement of financial statements shows the reflection of current value of assets and liabilities.,
The entity assumes that the fair value of the asset or the liability under present market situation
would be used (Bessembinder, Hao & Zheng, 2015).This results in the entity’s intention in
holding an asset or settling a liability.
Answer 3
The above journal entries are not correct .The first journal entry recorded in the books of
Valdivia Company has to be rectified. Accumulated depreciation in this case is 30000. The
figure mentioned in this case is not right. Instead of 33000, it should be 30000.Accumulated
depreciation should be debited by 33000 to cancel its effect. Also no depreciation on revalued
asset would be provided in the year ending 1/7/2018.So the depreciation of 8000 should be
credited to cancel its effect. The correct journal entry should be debiting revaluation loss
9000,accumulated depreciation 30000 and crediting equipment a/c by 39000( refer working
notes).
Working Notes:
Accumulated Depreciation=Original cost- Residual Value = 55000-5000 = 10000 * 3= $30000
Useful Life of the Asset 5
Carrying value of the asset =Cost – Accumulated Depreciation= 55000-30000=$25000
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Student ID-

4COMPANY ACCOUNTING
Revaluation loss= Carrying value – Revalued Value= $25000- $16000= $9000
Answer 4
The revalued figure of the machine on 1st July 2018 is 16000(already calculated above).The
revised depreciation amount will be 16000-5000=11000/2=5500.Therefore WDV of the machine
on 1st July , 2019 is 16000-5500=10500.The revalued figure of equipment is 13000.Therefore the
gain on revaluation is 13000-10500=2500
Therefore the journal entry for the following is :
Date Particulars l/f Dr($) Cr($)
a) 01.07.2019
b) 30.06.2020
Equipment A/c Dr
To Revaluation Surplus A/c
(Being asset revalued from 10500 to 13000)
Depreciation A/c Dr
To Equipment A/c
(Being depreciation provided at year end)
2500
10000
2500
10000
Working Notes
Calculation of depreciation for the year ended 30.06.2020-
Value of the asset on 1st july, 2019-13000
Depreciation for the year ended= Original Cost- Residual Value =13000-3000=10000
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5COMPANY ACCOUNTING
Useful life of the asset 1
Answer 5
a) The above journal entry is not correct.Impairment loss of $ 30 000 is to be credited back and
and accumulated deprecation is to be debited back by $ 30000 to cancel its effect.The carrying
amount in this case is $ 240,000.The aount recoverable is greater of fair value less selling costs
and usage value.Fair value less costs to sell in this case is $ 210,000. Value in use is the present
value of future cash flows which amounts to $ 225000.Recoverable value is the higher of $
210000 and $ 225000.Carrying amount is $ 240000 while recoverable amount is $ 225000.An
impairment loss of $15000 is to be recognized.
Date Particulars l/f Dr($) Cr($)
b)1.7.2017
c) 30.6.2018
Impairment loss a/c Dr
To Accumulated Impairment Losses a/c
(Being impairment loss recognized)
Depreciation A/c Dr
To Accumulated Depreciation a/c
15000
24000
15000
24000
Working notes for part C
Carrying amount of the asset on 1.7.2018= $ 240000
Depreciation for the year ended 30.06.2018= 2,40,000/10= $ 24000
Answer 6
The revalued value of the plant is $240000. The carrying value of the asset in use on 1.7.2018
after deducting depreciation $ 24000 is $ 216000.The revalued figure is $ 240000. So there is a
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6COMPANY ACCOUNTING
revaluation gain of $ 24000( $ 240000- $ 216000).This amount is to be transferred to revaluation
reserve and then transferred to statement of comprehensive income account.
Date Particulars Dr Cr
1.7.2018 Plant A/c Dr
To Revaluation Reserve A/c
( Being asset revalued from $ 216000 to $
240000)
24000
24000
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7COMPANY ACCOUNTING
References:
Goh, B. W., Li, D., Ng, J., & Yong, K. O. (2015). Market pricing of banks’ fair value assets
reported under SFAS 157 since the 2008 financial crisis. Journal of Accounting and
Public Policy, 34(2), 129-145.
Bessembinder, H., Hao, J., & Zheng, K. (2015). Market making contracts, firm value, and the
IPO decision. The Journal of Finance, 70(5), 1997-2028.
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