Question

Assume a client uses IFRS reporting and has a machine that costs $100,000 on 1/1/2021. Depreciation is 10% per year with no salvage value.

The fair value is:
$180,000 on 1/1/2022
$60,000 on 1/1/2023
$77,000 on 1/1/2024
$120,000 on 1/1/2025
The company’s policy is to transfer the realized portion of the revaluation surplus to retained earnings as the asset is used.

Prepare a schedule that shows the statement of financial position and ledger accounts for each year ending December 31, 2021 to 2025. Prepare the asset’s account as a net carrying amount (do not separate cost and accumulated depreciation accounts).

Answer 1

To account for the revaluation of the machine and its impact on the statement of financial position and ledger accounts for each year from 2021 to 2025 under IFRS, we need to consider the following:

1. Initial cost of the machine: $100,000

2. Annual depreciation: 10% of the carrying amount at the beginning of the year

3. Fair values as of the beginning of each year: $180,000 (2022), $60,000 (2023), $77,000 (2024), $120,000 (2025)

Let's prepare a schedule for the statement of financial position and ledger accounts for each year:

Year 2021 (Starting Point):

• Machine's carrying amount: $100,000 (Cost - No depreciation yet)

• Revaluation surplus: $0 (Since there's no revaluation yet)

• Retained earnings: $0 (Starting point)

Year 2022:

• Revaluation surplus: $80,000 (Fair value $180,000 - Carrying amount $100,000)

• Machine's carrying amount: $180,000 (Revalued amount, as it increases due to revaluation)

• Retained earnings: $80,000 (Transfer of revaluation surplus)

Year 2023:

• Revaluation surplus: $20,000 (Fair value $60,000 - Carrying amount $80,000)

• Machine's carrying amount: $60,000 (Revalued amount - Depreciation)

• Retained earnings: $20,000 (Transfer of revaluation surplus)

Year 2024:

• Revaluation surplus: $17,000 (Fair value $77,000 - Carrying amount $60,000)

• Machine's carrying amount: $77,000 (Revalued amount - Depreciation)

• Retained earnings: $17,000 (Transfer of revaluation surplus)

Year 2025:

• Revaluation surplus: $43,000 (Fair value $120,000 - Carrying amount $77,000)

• Machine's carrying amount: $120,000 (Revalued amount - Depreciation)

• Retained earnings: $43,000 (Transfer of revaluation surplus)

Here's the schedule that shows the statement of financial position (Machine's carrying amount) and the ledger accounts for each year ending December 31, from 2021 to 2025:

Year, Machine's Carrying Amount, Revaluation Surplus, Retained Earnings.

2021 $100,000 $0 $0

2022 $180,000 $80,000 $80,000

2023 $60,000 $20,000 $20,000

2024 $77,000 $17,000 $17,000

2025 $120,000 $43,000 $43,000

This schedule reflects the changes in the machine's carrying amount, revaluation surplus, and retained earnings each year based on the fair value and depreciation.

Step-by-step explanation: