Part A

Serene Ltd’s financial year ends on June 30. The company is using the Fair Value basis to value the company assets in accordance with AASB 116 Property, Plant and Equipment.

Serene Ltd acquires a machine at a cost of $2,805,000 for cash on July 1, 2013 The estimated residual value of the machine at the end of its useful life is $5,000. Serene Ltd depreciates its non-current assets using the straight-line method at 10% per annum.

These are the estimates of the following values as at June 30, 2020:

      $

Fair value                                                                     850,000

Cost to sell                                                                   25,000

Value in use                                                                820,000

The residual value of the machine is at $4,000 after the revaluation.

Required:

1. Prepare the necessary journal entries of Serene Ltd for financial year 2020 including annual depreciation using the Fair Value basis.

Include narrations and show all your workings clearly.  

8. marks)

2.         Compute the depreciation charge for the machine for the financial year 2021. Show your workings.

2. marks)

Question 1 (con’t)

3. The accountant, Mr Gorgeous wishes to change to Cost basis to value the company asset but he is not certain. You are an advocate of Cost basis and suggest him to change.

Give a reason to support your suggestion.

    

2. marks)

Part B

Holiday Ltd is a trading company and its financial year ends on June 30.

Holiday Ltd sold a company van at $34,000 on July 1, 2019 that was purchased on July 1, 2016. The van had a cost of $80,000 with a useful life of 5 years and no residual value.

Required:

Prepare the necessary journal entries for financial year 2020. Include narrations and show all your workings clearly.

(4 marks)