Reference no: EM133011633
Question -
Q1) An asset having a cost of $200 000 and accumulated depreciation of $40 000 is revalued to $240 000 at the beginning of the year. Depreciation for the year is based on the revalued amount and the remaining useful life of eight years. Shareholders' equity, before adjusting for the above revaluation and subsequent depreciation, is as follows:
Share capital = 600,000
Revaluation surplus = 90,000
Capital profits reserve = 170,000
Retained earnings = 140,000
Total = 1,000,000
Required - Prepare journal entries to reflect the revaluation of the asset and the subsequent depreciation of the revalued asset. Which of the equity accounts would be affected directly or indirectly by the revaluation?
Q2) ABC Ltd acquires 100 per cent of RedCarpet Ltd on 1 July 2021. ABC Ltd pays the shareholders of RedCarpet Ltd the following consideration:
- Cash = 35 000
- Plant and equipment = fair value $125 000; carrying amount in the books of ABC Ltd $85 000
- Land = fair value $150 000; carrying amount in the books of ABC Ltd $100 000
There are also legal fees of $95 000 involved in acquiring RedCarpet Ltd.
On 1 July 2021 RedCarpet Ltd's statement of financial position shows total assets of $300 000 and liabilities of $150 000. The fair value of the assets is $400 000.
Required - Has any goodwill been acquired and, if so, how much? And discuss the potential for including associated legal fees into the cost of acquiring RedCarpet using appropriate accounting standard.
Q3) Discuss and explain If an entity is considering revaluing its exploration and evaluation assets, would the revaluation increase the 'relevance' of the information from the perspective of the readers of the financial statements? Further, provide explanation for capitalising the expenses at evaluation and exploration stage also restoration of a oil extraction project.