On 1 July 2017, Guinness Ltd acquired two assets within the same class of plant and equipment for cash. Information on these assets is as follows. Cost ($) Expected Useful Life Machine A 100,000 5 years Machine B 60,000 3 years The machines are expected to generate benefits evenly over their useful lives. The class of plant and equipment is accounted for subsequent to acquisition using the revaluation model. At 30 June 2018, information about the assets is as follows. Fair Value ($) Machine A 84,000 Machine B 38,000 On 1 January 2019, Machine B was sold for $29 000 cash. At 30 June 2019, information on the machines is as follows. Fair Value ($) Expected Useful Life Machine A 58,000 3 years Required: a) Prepare the journal entries in the records of Guinness Ltd to record the events for the year ended 30 June 2018.  b) Prepare journal entries to record the events for the year ended 30 June 2019.

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Asked Nov 10, 2019
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On 1 July 2017, Guinness Ltd acquired two assets within the same class of plant and equipment for cash. Information on these assets is as follows. Cost ($) Expected Useful Life Machine A 100,000 5 years Machine B 60,000 3 years

The machines are expected to generate benefits evenly over their useful lives. The class of plant and equipment is accounted for subsequent to acquisition using the revaluation model. At 30 June 2018, information about the assets is as follows. Fair Value ($) Machine A 84,000 Machine B 38,000 On 1 January 2019, Machine B was sold for $29 000 cash. At 30 June 2019, information on the machines is as follows. Fair Value ($) Expected Useful Life
Machine A 58,000 3 years
Required: a) Prepare the journal entries in the records of Guinness Ltd to record the events for the year ended 30 June 2018.  

b) Prepare journal entries to record the events for the year ended 30 June 2019. 

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Expert Answer

Step 1

Calculate depreciation expense for both the machines:

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Depreciation expense Workings $20,000 ($100,000 *1(1/5)) $20,000 ($60,000 *1(1/3)) Asset Machine A Machine B

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Step 2

Calculate revaluation gain or loss for both the assets:

 

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Particulars Workings Amount $84,000 Fair market value of Machine A $80,000 ($100,000 - $20,000) Less: Book value of Machine $4,000 Gain on revaluation $38,000 Fair market value of Machine $40,000 ($60,000- $20,000) ($2,000) Less: Book value of Machine Loss on revaluation

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Step 3

(a)

Prepare the journal entries in the records of Guinness Ltd to reco...

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Account titles and Explanation Debit Credit Date June 30, 2018 Machine A $4,000 Revaluation reserve (gain) (To record gain on revaluation) $4,000 Revaluation reserve (loss) $2,000 $2,000 Machine B (To record loss on revaluation)

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