Reference no: EM132920648

On 1 July 2018, Camberwell Ltd acquired and installed an item of plant for use in its manufacturing business. When acquired, the item cost $2,250,000, had an estimated useful life of 10 years, and had an expected residual value of $75,000. Camberwell Ltd depreciates the manufacturing plant on a straight-line basis over its useful life. Camberwell Ltd measures property, plant and equipment at cost.

• At the end of the 2020 reporting period, the annual review of the manufacturing plant found that the item of plant had incurred significant damage. As a result of the damage, the engineering department estimated the fair value less costs of disposal of the plant at the end of the reporting period was $1,250,000. As the plant can operate in a limited capacity, and apart from the residual value of $25,000, it could be expected to provide annual net cash flows of $250,000 for the next eight years. The expected residual value will remain unchanged. The management of Camberwell Ltd uses a discount rate of 6 per cent for calculations of this kind.

(* Present value of an annuity of $1 per period for 8 periods at 6 per cent = 6.2098)
(** Present value of $1 in 8 periods at 6 per cent = 0.6274)

Required:

Problem 1: Provide the accounting journal entries (2018 ~ 2020) to record the change in the value of the asset