Reference no: EM133162930

Question - Depreciation and revaluation of assets - In the 30 June 2022 annual report of Wombat Ltd, the equipment was reported as follows:

Equipment (at cost) $250,000

Accumulated depreciation 75,000

175,000

The equipment consisted of two machines, Machine A and Machine B. Machine A had cost $150 000 and had a carrying amount of $90 000 at 30 June 2022. Machine B had cost $100 000 and had a carrying amount of $85 000. Both machines are measured using the cost model and depreciated on a straight-line basis over a 10-year period.

On 31 December 2022, the directors of Wombat Ltd decided to change the basis of measuring the equipment from the cost model to the revaluation model. Machine A was revalued to $90 000 with an expected useful life of 6 years, and Machine B was revalued to $77 500 with an expected useful life of 5 years.

At 1 July 2023, Machine A was assessed to have a fair value of $81 500 with an expected useful life of 5 years, and Machine B's fair value was $68 250 with an expected useful life of 4 years.

Required -

1. Prepare journal entries to record depreciation during the year ended 30 June 2023, assuming there was no revaluation.

2. Prepare the journal entries for Machine A for the period 1 July 2022 to 30 June 2023 on the basis that it was revalued on 31 December 2022.

3. Prepare the journal entries for Machine B for the period 1 July 2022 to 30 June 2023 on the basis that it was revalued on 31 December 2022.

4. Prepare the revaluation journal entries required for 1 July 2023.

5. According to accounting standards, on what basis may management change the method of asset measurement, for example from cost to fair value?