On 1 July 2018 Alto Ltd purchased land for $4 000 000, in cash. Alto Ltd uses the cost model
to account for land.
On 1 July 2018 Alto Ltd purchased equipment for $1 000 000, in cash. Alto Ltd uses the
revaluation model to account for equipment and depreciates the asset over its estimated
useful life of 5 years using the straight-line method. The disposal value at the end of 5 years
was assessed as zero.
The following information concerning asset measurement was available:
Indicators of impairment and/or reversal of impairment existed at relevant dates.
REQUIRED:
Prepare journal entries to account for Alto ’s land and equipment from 1 July 2018 to 30 June
2020. Journal entries must comply with AASB 116 ‘Property, Plant and Equipment’ and AASB
136 ‘Impairment of Assets’. Show all working and provide any explanations necessary to
support your answer.
Cost model account for land and revaluation model account for equipment
Journal entries to account for Alto ’s land and equipment from 1 July 2018 to 30 June
2020.
1/7/2018
Dr Land $4,000,000
Cr Cash $4,000,000
Dr Equipment $1,000,000
Cr Equipment $1,000,000
30/6/2019
Dr Depreciation $200,000
Cr Accum. Depreciation $200,000
($1,000,000 / 5years)
Equipment carrying amount = $800,000
FV = $700,000
Dr Revaluation expense $100,000
Cr Equipment $100,000
At this time Equipment CA = $700,000
Recoverable Amount is the higher of FV-cost to sell and Value in use = 1,000,000
As Recoverable Amount > CA, no impairment loss, but need a reverse
Ceiling is $ 800,000, but no impairment loss been recognised for the asset in prior years.
So the C.A at 30/6/2019 is $700,000
30/6/2019
Land
Recoverable Amount is the higher of FV-cost to sell and Value in use =3,600,000
C.A. = 4,000,000
As C.A. > Recoverable A. , recognise an impairment loss of $400,000
Dr Impairment Loss 400,000
Cr Accum. Impairment Loss 400,000
At this time, C.A. = $3,600,000
30/6/2020
Dr Depreciation $175,000
Cr Accum. Depreciation $175,000
($700,000 / 4years)
Equipment carrying amount = $525,000
FV = $700,000
Dr Equipment 175,000
Cr Revaluation expense 100,000
Cr Revaluation surplus 75,000
At this time Equipment CA = $700,000
Recoverable Amount is the higher of FV-cost to sell and Value in use = 750,000
As Recoverable Amount > CA, no impairment loss, but need a reverse, Ceiling is $ 600,000
No impairment loss been recognised for the asset in prior years.
So the C.A at 30/6/2020 is $700,000
30/6/2020
Land
Recoverable Amount is the higher of FV-cost to sell and Value in use =3,700,000
C.A. = $3,600,000
As C.A. < Recoverable A. , Need a reverse of impairment loss;
Dr Accum. Impairment Loss 100,000
Cr Reversal of Impairment Loss 100,000
At this time, C.A. = $3,600,000