Reference no: EM132598661

Question - On 1 July 2018, Adat Ltd. purchased land for $1,200,000 and buildings for $500,000 paying cash. The estimated useful life of the buildings was 40 years, with $20,000 residual value.

On 1 October 2018 machinery was purchased for cash at a total cost of $117,000. Installation costs of $3,000 were also paid. The estimated useful life of the machinery was 4 years with an estimated residual value of $8,000. Adat Ltd. uses straight line depreciation. The entity's balance date is 30 June.

Required -

1. Prepare journal entries to record the purchase of assets and the depreciation expense for the year ended 30 June 2019.

2. On 30 June 2019 the entity conducted an impairment test on the buildings. The fair value was assessed at $460,000 with estimated costs to sell of $20,000. The value in use was estimated at $450,000. Determine if the asset is impaired and prepare the impairment journal entries if required.

3. On 1 July 2019 Adat decided to revalue the land to $1,400,000. Prepare the journal entry for the revaluation.

4. On 31 December 2019, owing to a change of product mix the machinery was sold for $80,000. Prepare the journal entry(ies) to dispose of the machinery.

If Adat had to revalue the land downwards by $300,000 one year later, explain how you would account for this revaluation?