Question 1

An asset having a cost of $200 000 and accumulated depreciation of $40 000 is revalued to $240 000 at the beginning of the year. Depreciation for the year is based on the revalued amount and the remaining useful life of eight years. Shareholders equity, before adjusting for the above revaluation and subsequent depreciation, is as follows:

Share capital	600 000
Revaluation surplus	90 000
Capital profits reserve	170 000
Retained earnings	140 000
Total	1 000 000

Required:

Prepare journal entries to reflect the revaluation of the asset and the subsequent depreciation of the revalued asset. Which of the equity accounts would be affected directly or indirectly by the revaluation?

Question 2

ABC Ltd acquires 100 per cent of RedCarpet Ltd on 1 July 2021. ABC Ltd pays the shareholders of RedCarpet Ltd the following consideration:

Cash	35 000
Plant and equipment	fair value $125 000; carrying amount in the books of ABC Ltd $85 000
Land	fair value $150 000; carrying amount in the books of ABC Ltd $100 000

There are also legal fees of $95 000 involved in acquiring RedCarpet Ltd.

On 1 July 2021 RedCarpet Ltds statement of financial position shows total assets of $300 000 and liabilities of $150 000. The fair value of the assets is $400 000.

Required:

Has any goodwill been acquired and, if so, how much? And discuss the potential for including associated legal fees into the cost of acquiring RedCarpet using appropriate accounting standards.