In the 30 June 2009 annual report of Bruce Ltd. the equipment was reported as follows: Equipment (at cost) $500,000
Accumulated depreciation $150,000
= $350,000
The equipment consisted of two machine, Machine A and Machine B. Machine A had cost $300,000 and had a carrying amount of $180,000 at 30 June 2009, and Machine B had cost $200,000 and was carried at $170,000. Both machines are measure using the cost model, and depreciated on a straight-line basis over a 10-year period.
On 31 December 2009, the directors of Bruce Ltd decided to change the basis of measuring the equipment from the cost model to the revaluation model. Machine A was revalued to $180,000 with an expected useful life of 6 years, and Machine B was revalued $155,000 with an expected useful life of 5 years.
At 30 June 2010, Machine A was assessed to have a fair value of $163,000 with an expected useful life of 5 years, and Machine B's fair value was $136,500 with an expected useful life of 4 years. The tax rate is 30%
Required:
1. Prepare the journal entries during the period 1 July 2009 to 30 June 2010 in relation to the equipment.
2. According to accounting standards, on what basis may management change the method of asset measurement, for example from cost to fair value?