Question 3

Titanic Ltd acquired an item of equipment on 1 July 2018 at a cost of $850,000. The equipment is to be depreciated using the straight-line method, over its useful life of 5 years and estimated residual value of $50,000. For the financial year ended 30 June 2019, the directors decided to account for the equipment using the cost model.

From 1 July 2019, the directors elected to adopt the revaluation model for equipment. The fair value of this item of equipment on 1 July 2019 is $630,000. Immediately after the revaluation exercise on 1 July 2019, the remaining useful life and residual value of the equipment have been revised to 6 years and $60,000 respectively.

On 1 July 2020, the directors estimate that the fair value of the item of equipment does not differ materially from its carrying amount.

On 1 July 2021, Firefly’s directors estimate that the fair value of the item of equipment is $520,000.

The item of equipment is sold on 31 December 2021 for $480,000.

Required:

Prepare journal entries to account for all transactions that took place during the period 1 July 2018 to 31 December 2021, including entries for the acquisition of the equipment, depreciation, revaluations and its disposal. Show all relevant dates, narrations and workings. Note: you are not required to account for income tax associated with revaluations.