On 1 July 2017, Entity A purchased a property (Land and Building) for $5,000,000. The value of the land and building are $600,000 and $4,400,000 respectively. The expected useful life of the building is 50 years with a residual value of $100,000. Entity A paid 60% by a cheque on 1 July 2017 and the balance was settled on 1 August 2017 through a bank transfer. On 30 June 2019, the property was revalued to $7,562,224 (land $980,224 and buildings $6,582,000) with a new estimated residual value of $120,000. On 30 June 2021, the property was sold to Entity B for $8,600,000. Entity A received 70% on the same date and the balance was settled on 1 August 2021. Entity A opts for annual transfer of the revaluation reserve. REQUIRED: According to relevant accounting standards, prepare journal entries to record the transactions of Entity A from 1 July 2017 to 1 August 2022. ACCOUNTS FOR INPUT: | Machine | Land | Building | Bank | Payable | Receivable | Retained earnings | Share capital | No entry | | Other income | Other expense | Interest expense | Interest revenue | Depreciation | Accum. depreciation | | Restoration liability | Loss on disposal | Gain on disposal | Revaluation surplus | Revaluation deficit |
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On 1 July 2017, Entity A purchased a property (Land and Building) for $5,000,000. The value of the land and building are $600,000 and $4,400,000 respectively. The expected useful life of the building is 50 years with a residual value of $100,000.
Entity A paid 60% by a cheque on 1 July 2017 and the balance was settled on 1 August 2017 through a bank transfer.
On 30 June 2019, the property was revalued to $7,562,224 (land $980,224 and buildings $6,582,000) with a new estimated residual value of $120,000.
On 30 June 2021, the property was sold to Entity B for $8,600,000. Entity A received 70% on the same date and the balance was settled on 1 August 2021.
Entity A opts for annual transfer of the revaluation reserve.
REQUIRED:
According to relevant accounting standards, prepare
ACCOUNTS FOR INPUT:
| Machine | Land | Building | Bank | Payable | Receivable |
| Other income | Other expense | Interest expense | Interest revenue | Depreciation | Accum. depreciation |
| Restoration liability | Loss on disposal | Gain on disposal | Revaluation surplus | Revaluation deficit |
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