Carnelian Ltd is a business that cuts large geode crystals from Brazil in order to be sold to retailers. Carnelian Ltd purchased a cutting machine for this purpose on 1 July 2020 for an amount of $80,000. The machine is expected to have a useful life of 8 years, and no residual value. After this time it is envisaged that the machine will be donated to a metal recycler. Carnelian Ltd uses the straight line method of depreciation for it's non current assets. On 1 July 2022, the machine was revalued to $100,000. The purchase of crystals has become very popular since the pandemic and this brand of machine in particular is now very much sought after as a result. Based on this valuation, the machine now has a remaining useful life of 6 years. On 31 December 2022, Carnelian Ltd after much consideration has decided to sell their business whilst it has been generating significant profits during this time. They subsequently sold the machine to an outside party for $110,000 The company uses the revaluation model to record it's non current assets. The tax rate is 30% Required: (a) Prepare the relevant journal entries to record the transactions for the machine for the years 2019, 2020 and 2021 financial years. Ensure that you include all relevant narrations and tax effect entries where required. (b) If a company chooses to use the cost method or the fair value method in order to measure the property, plant or equipment that it holds, can the company change the method that it uses after it has already implemented a method? Explain Carnelian Ltd is a business that cuts large geode crystals from Brazil in order to be sold to retailers. Carnelian Ltd purchased a cutting machine for this purpose on 1 July 2020 for an amount of $80,000. The machine is expected to have a useful life of 8 years, and no residual value. After this time it is envisaged that the machine will be donated to a metal recycler. Carnelian Ltd uses the straight line method of depreciation for it's non current assets. On 1 July 2022, the machine was revalued to $100,000. The purchase of crystals has become very popular since the pandemic and this brand of machine in particular is now very much sought after as a result. Based on this valuation, the machine now has a remaining useful life of 6 years. On 31 December 2022, Carnelian Ltd after much consideration has decided to sell their business whilst it has been generating significant profits during this time. They subsequently sold the machine to an outside party for $110,000 The company uses the revaluation model to record it's non current assets. The tax rate is 30% Required: (a) Prepare the relevant journal entries to record the transactions for the machine for the years 2019, 2020 and 2021 financial years. Ensure that you include all relevant narrations and tax effect entries where required. (b) If a company chooses to use the cost method or the fair value method in order to measure the property, plant or equipment that it holds, can the company change the method that it uses after it has already implemented a method? Explain
