Reference no: EM132690868
On 1 July 2019, Argentina Ltd reported the following information in its statement of financial position:
$ $
Land (at cost) 900,000
Buildings (at cost) 500,000
Less: Accumulated depreciation (12,000) 488,000
Machinery 120,000
Less: Accumulated depreciation (35,000) 85,000
Argentina Ltd. uses the straight-line method of depreciation. The estimated useful life of the buildings is 40 years, with an estimated residual value of $20,000. The estimated useful life of the machinery is 4 years with an estimated residual value of $8,000. The entity's balance date is 30 June.
Required:
Problem 1: Prepare general journal entries to record the following events. Ignore narrations. Remember to prepare all the journal entries required to correctly record these events.
1. On 30 June 2020 the directors of Argentina Ltd decided to switch the valuation method from the cost model to the revaluation model for their land. The land was revalued to its fair value of $1,200,000.
2. On 30 June 2020 the entity conducted an impairment test on the buildings. The fair value was assessed at $460,000 with further costs to sell the building determined to be $30,000 and value in use estimated at $450,000.
3. On 31 December 2020, owing to a change of product mix the machinery was sold for $50,000.
4. If Argentina Ltd had to revalue the land downwards by $400,000 on 30 June 2021, explain how you would account for this downward revaluation.