Farida Ltd acquired a machine on 1 July 2012 at a cost of 100 000. The machine has an expected useful life of 5 years, and the company adopts the straight-line basis of depreciation. The tax depreciation rate for this type of machine is 12.5% p.a. The company tax rate is 30%.

Farida Ltd measures this asset at fair value. Movements in fair values are as follows:

30 June 2013 30 June 2014 30 June 2015

$85 000 60 000 45 000

Remaining useful life: 4 years Remaining useful life: 3 years

Owing to a change in economic conditions, Farida Ltd sold the machine for 45000 on 30 June 2015. The asset was revalued to fair value immediately before the sale.

Required

1. Provide the journal entries used to account for this machine over the period 2012 to 2015. 2. For each of the 3 years ended 30 June 2013, 2014 and 2015, calculate the carrying amount and the tax base

of the asset, and determine the appropriate tax-effect entry in relation to the machine. Explain your answer.