Question 3 (15 marks)

Lakeside Ltd bought high-tech robotic manufacturing equipment (robotic equipment) costing $100,000 on 1 July 2011. The useful life for the equipment is 5 years with no scrap value. Lakeside has adopted the revaluation method and reviews all plant and equipment annually. Lakeside Ltds financial year ends on 31 December. An independent valuation at the end of both 2011 and 2012 concluded the fair value of the equipment was approximate to its carrying value.

On 1 January 2013, due to its superior manufacturing capacity, the value of robotic equipment increased in the market. Management engaged an expert to revalue robotic equipment who determined the fair value of the equipment to be $130,000 with a useful life of 4 years and no change to the residual value.

On 1 January 2014, due to development of new technology in the manufacturing industry, competitors developed superior automated robotic equipment (automated robotic equipment) which led to decline in value of the robotic equipment to a fair value of $30,000, with no change to the useful life or residual value.

The Managing Director has been concerned and confused about the process of valuing equipment under revaluation method. Other entities within the group use the cost method to account the non-current assets. He believes the cost method is far simpler and less onerous to maintain.

Required:

1. Prepare journal entries to records purchase, depreciation and revaluation of robotic equipment from 1 July 2011 to 31 December 2014. (12 marks)
2. Briefly discuss the cost model versus the revaluation model of accounting for assets and identify when each method should be used. (3 marks)

(12 + 3 = 15 marks)