PART 1-
On 1 July 2013 Moon Ltd purchased a piece of machinery for plastic manufacturing for $500,000.
Additionally, Moon incurred the following expenses:
$ 10,000 for transportation to the site;
$ 40,000 for installation;
$ 5,000 for first year maintenance;
The machine is carried at cost and has 10 years of useful life and no residual value.
1) Determine the cost of acquisition of the machine.
2) Provide journal entries to account for the machine on 1 July 2013 (acquisition) and on 30 June 2014 (end of the first year of useful life).
On 30 June 2015 (2 years after the purchase), Moon needs to perform the impairment test on the machine. As Moon's accountant, provide correct information to the company on how to proceed with the test according to AASB136 Impairment test. You can rely on the following information:
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Value in use of the machine
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$ 420,000
|
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Net selling price
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$ 400,000
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3) Show all the workings for the impairment test and determine if any impairment loss has to be recognized on 30 June 2015 by Moon Ltd and its amount (if any).
4) Account for the impairment loss, if any, for the year ending 30 June 2015. If no impairment loss is to be recognized, prepare journal entries assuming an impairment loss amount of $1,000.
Part 2-
Moon also owns some land, which was purchased at a cost of $5,000,000 on 30 June 2012. After carrying the land at cost, on 30 June 2015 Mood decides to use revaluation model, as the area has strongly increased in market value. After one year, on 30 June 2016, due to a flood, the attractiveness of the area has dropped.
As the accountant of Moon, please support the company in the decisions and accounting of the revaluation of the land on 30 June 2015 and 30 June 2016, using the following information:
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|
Net selling price
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Value in use
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Fair value
|
|
30 June 2015
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5,200,000
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5,300,000
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6,000,000
|
|
30 June 2016
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4,200,000
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4,400,000
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4,500,000
|
1) Determine which one among the three values provided is the value to be used on 30 June 2015 and 2016 to carry the land according to revaluation model.
2) After the acquisition in 2012, on 30 June 2015, how much is the carrying amount of the land?
3) Account for the land on 30 June 2016, showing all workings necessary and the previous calculations to derive your answer.
4) Assume that the managers of Moon in 2015 were trying to obtain a relevant loan from ANZ Bank and the Bank was mainly checking on the solvability of the company through the Debt/Assets ratio. Can you critically link the adoption of the revaluation model by the company and this potential loan agreement?