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Prepare the journal entry to record the adjustment

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Question - Kennards Ltd commenced operations on 1 July 2011 as a long term self-storage facility for personal household belongings. The owner contributed Buildings of $2,000,000.

At the end of the financial year on 30 June 2019, the following items have yet to be included:

a) Equipment was purchased on 1 July 2017 at a cost of $560,000. The equipment had a useful life of 6 years and a $100,000 residual value. Kennards Ltd uses the reducing balance method of depreciation at 25% per annum.

Required - Prepare the journal entry to record the necessary adjustment on 30 June 2019. Explain the entry.

b) Kennards Ltd depreciates its buildings at 5% per year

Required - Prepare the journal entry to record the necessary adjustment on 30 June 2019. Explain the entry.

c) Kennards Ltd has received a professional valuation of its buildings with a fair value at 30 June 2019 of $1,800,000.

Required - i. Explain why depreciation of non-current assets must still be recorded independently of valuation adjustments.

ii. What basis of measurement is appropriate for the buildings at 30 June 2019 according to the 2020 Conceptual Framework.

Reference no: EM132918790

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