CQUniversity ACCT20073: Company Accounting - Asset Valuation Methods

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Homework Assignment
AI Summary
This assignment solution for ACCT20073 Company Accounting comprehensively addresses various aspects of asset valuation, depreciation, and journal entries. It includes the determination of the carrying value of property, plant, and equipment using the cost model, explains the concept of fair value, and rectifies incorrect journal entries related to accumulated depreciation and revaluation loss. The solution also calculates revised depreciation amounts, revaluation gains, and provides correct journal entries for asset revaluation. Furthermore, it addresses impairment loss scenarios, calculates recoverable amounts, and presents appropriate journal entries for recording impairment losses and depreciation. The assignment concludes by demonstrating the accounting treatment for revaluation gains, including their transfer to the revaluation reserve account and presentation in the income statement. Desklib offers a wide range of solved assignments and past papers to aid students in their studies.
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Running head: COMPANY ACCOUNTING ACCT20073
Company accounting ACCT20073
Name of the student
Name of the university
Student ID
Author note
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COMPANY ACCOUNTING ACCT20073
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
Student name
Student ID
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COMPANY ACCOUNTING ACCT20073
Table of Contents
Answer 1....................................................................................................................................3
Answer 2....................................................................................................................................3
Answer 3....................................................................................................................................3
Answer 4....................................................................................................................................4
Answer 5....................................................................................................................................4
Answer 6....................................................................................................................................5
References..................................................................................................................................6
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COMPANY ACCOUNTING ACCT20073
Answer 1
Determination of carrying value of property, plant and equipment as per cost model
As per cost model the carrying value of property, plant and equipment in the financial
statement is recorded at cost reduced by accumulated impairment loss and accumulated
depreciation (Liang & Riedl, 2013).
Answer 2
Fair value of asset
Fair value of asset is the price that is received from selling of an asset or the amount
paid for transferring the liability with respect to orderly transaction among market
participants on specific date, particularly for using under financial statements over the period
of time (Altamuro & Zhang, 2013).
Answer 3
Journal entries provided in books by Valdivia Company were not correct and
therefore required to be rectified. Amount of accumulated depreciation will be as follows –
Accumulated depreciation =
Original cost- Residual Value = 55000-5000 = 10000 * 3 = $ 30000
Useful life of the asset 5
Further, the revaluation loss will be = $ 55,000 - $ 30,000 - $ 16,000 = $ 9,000
Therefore, the 1st entry as instead of $ 33,000, the equipment shall be debited with $
30,000 and accumulated depreciation shall be credited with the same amount for cancelling
the effect. Further, for the year ended July, 2018 no depreciation will be provided. Therefore,
for cancelling the effect depreciation amounting to $ 8,000 shall be credited. The 2nd entry
shall be debiting revaluation loss by $ 9,000 and accumulated depreciation by $ 30,000.
Finally, equipment will be credited by $ 9,000 + $ 30,000 = $ 39,000.
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COMPANY ACCOUNTING ACCT20073
Answer 4
As per the above calculation, on 1st July 2018 the revalued amount of machine is $
16,000. Revised amount of depreciation will be = ($ 16,000 - $ 5000) / 2 = $ 5,500. Hence,
the written down value of the machine as on 1st July 2019 will be = $ 16,000 – $ 5,500 = $
10,500. However the machine has been revalued at $ 13,000. Therefore, the revaluation gain
will be ($ 13,000 - $ 10,500) = $ 2,500.
Journal entries will be as follows –
Date Particulars Debit Credit
01.07.2019
30.06.2020
Equipment A/c
Revaluation Surplus A/c
(to record the revaluation of $13,000 - $10,500)
Depreciation A/c Dr
To Equipment A/c
(To record the depreciation of $ 13,000 - $
10,000)
$ 2,500
10000
$ 2,500
10000
Answer 5
For recording the entries correctly the impairment loss amounted to $ 30,000 shall be
credited with debiting the accumulated depreciation with the same amount. Carrying amount
given as $ 240,000. Further, the recoverable amount of the asset will be higher among value
in use and fair value reduced by disposal cost costs. Value in use of the asset is $ 225,000 and
fair value reduced by disposal cost is $ 210,000. Hence, the recoverable amount will be $
225,000. As the carrying amount is $ 240,000 and recoverable amount is $ 225,000, the
amount of impairment loss will be ($ 240,000 - $ 225,000) = $ 15,000.
Carrying amount of asset as on 1st July 2018= $ 240,000
Depreciation for the year ended 30.06.2018= $ 2,40,000 /10 = $ 24000
Journal entries will be as follows –
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COMPANY ACCOUNTING ACCT20073
Date Particulars Debit Credit
1.7.2017
30.6.2018
Loss on impairment
Accumulated Impairment Losses
(To record the impairment loss)
Depreciation
Accumulated Depreciation
(To record the depreciation)
$ 15,000
$ 24,000
$ 15,000
$ 24,000
Answer 6
Carrying value of asset as on 1st July 2018 = $ 240,000 - $ 24,000 = $ 216,000
Revalued amount of the asset is $ 240,000
Therefore, revaluation gain = ( $ 240,000 - $ 216,000) = $ 24,000 and it is to be transferred
into the revaluation reserve account and shall be recorded in income statement.
Journal entries will be as follows –
Date Particulars Debit Credit
1.7.2018 Plant
Revaluation Reserve A/c
(To record the revaluation gain)
$ 24000
$ 24000
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COMPANY ACCOUNTING ACCT20073
References
Altamuro, J., & Zhang, H. (2013). The financial reporting of fair value based on managerial
inputs versus market inputs: evidence from mortgage servicing rights. Review of
Accounting Studies, 18(3), 833-858.
Liang, L., & Riedl, E. J. (2013). The effect of fair value versus historical cost reporting model
on analyst forecast accuracy. The Accounting Review, 89(3), 1151-1177.
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