Question 1

In the 30 June 2016 annual report of Cornet Ltd, the machinery was reported as follows:

Machinery (at cost)

$310,000

Accumulated depreciation

($130,000)

$180,000

The machinery is measured using the cost model and is depreciated on a straight-line basis over a 10-year period. The residual value is zero.

On 31 December 2016, the directors of Cornet Ltd decided to change the basis of measuring the equipment from the Cost model to the Revaluation model. The machine was revalued to $180,000 with an expected useful life of 6 years.

At 30 June 2017, the machinery was assessed to have a fair value of $163,000 with an expected useful life of 5 years.

Required:

Prepare the journal entries during the period 1 July 2016 to 30 June 2018 in relation to the machinery.

Question 2

Elusive Ltd acquired a machine for $260,000 on 1 July 2017.It depreciated the asset at 10% p.a. on a straight line basis.On 30 June 2019, Elusive Ltd conducted an impairment test on the asset.It determined that the asset could be sold to other entities for $184,000 with costs of disposal of $6,000. Management expects to use the machine for the next four years with expected cash flows from use of the machine being:

2017

$80,000

2018

$60,000

2020

$50,000

2021

$40,000

The rate of return expected by the market on this machine is 6%.

Assess whether the machine is impaired.If necessary, provide the appropriate journal entry to recognise any impairment loss.