Accounting Practical Questions
Part A
On 1 July 2011, Kookaburra Ltd acquired an item of plant at a cost of $200 000. The plant has an expected useful life of eight years, and Kookaburra Ltd adopts the straight-line method of deprecation. The tax depreciation rate for this type of plant is 25%. The company tax rate is
30%. Kookaburra Ltd measures plant at fair value. At 30 June 2012, Kookaburra Ltd determines the fair value of the plant to be $186 000. Due to recent developments in plant technology, the remaining useful life of the plant is revised down to three years. At 30 June 2013, the fair value of the plant is determined to be $112 000, with a remaining useful life of two years.
Required
1. For the year ending 30 June 2012:
a) Prepare the necessary journal entries to account for the revaluation of plant.
Journal Entry 1-Recording Depreciation for the year
Depreciation expense – Plant* Dr 25 000 Accumulated Depreciation Cr 25 000 (Depreciation expense for the year ending 30 June 2012)
*(Depreciation per annum: 200 000/8= $25 000)
b) Determine the carrying amount and tax base of the plant at year end. Prepare the necessary journal entries to account for any deferred tax effect relating to the plant.
Journal Entry 2-Recording Gain/Loss on revaluation for the year
Plant* Dr 11 000 Gain on Revaluation of Machinery (OCI) Cr 11 000 (Gain on revaluation to fair value)
*Plant Revaluation Cost 200 000 Accumulated Depreciation 25 000 Carrying Amount 175 000
Fair Value 186 000 Increment 11 000
Journal Entry 3-Accounting the tax effect on revaluation
Income Tax Expense – gain on revaluation of asset(OCI)* Dr 3 300 Deferred Tax Liability Cr 3 300 (Tax-effect of revaluation) *(Gain × Tax Rate: 11 000 × 30%=$3 300)
Journal Entry 4-Accumulation of net revaluation gain in equity Gain on revaluation of machinery (OCI) Dr 11 000 Income
On 1 July 2011, Kookaburra Ltd acquired an item of plant at a cost of $200 000. The plant has an expected useful life of eight years, and Kookaburra Ltd adopts the straight-line method of deprecation. The tax depreciation rate for this type of plant is 25%. The company tax rate is
30%. Kookaburra Ltd measures plant at fair value. At 30 June 2012, Kookaburra Ltd determines the fair value of the plant to be $186 000. Due to recent developments in plant technology, the remaining useful life of the plant is revised down to three years. At 30 June 2013, the fair value of the plant is determined to be $112 000, with a remaining useful life of two years.
Required
1. For the year ending 30 June 2012:
a) Prepare the necessary journal entries to account for the revaluation of plant.
Journal Entry 1-Recording Depreciation for the year
Depreciation expense – Plant* Dr 25 000 Accumulated Depreciation Cr 25 000 (Depreciation expense for the year ending 30 June 2012)
*(Depreciation per annum: 200 000/8= $25 000)
b) Determine the carrying amount and tax base of the plant at year end. Prepare the necessary journal entries to account for any deferred tax effect relating to the plant.
Journal Entry 2-Recording Gain/Loss on revaluation for the year
Plant* Dr 11 000 Gain on Revaluation of Machinery (OCI) Cr 11 000 (Gain on revaluation to fair value)
*Plant Revaluation Cost 200 000 Accumulated Depreciation 25 000 Carrying Amount 175 000
Fair Value 186 000 Increment 11 000
Journal Entry 3-Accounting the tax effect on revaluation
Income Tax Expense – gain on revaluation of asset(OCI)* Dr 3 300 Deferred Tax Liability Cr 3 300 (Tax-effect of revaluation) *(Gain × Tax Rate: 11 000 × 30%=$3 300)
Journal Entry 4-Accumulation of net revaluation gain in equity Gain on revaluation of machinery (OCI) Dr 11 000 Income