a) Amazon Ltd purchased factory premises on 1 July 2014 for a cost of $2,000,000 with an anticipated residual of $500,000 and useful life of 15 years. At 30 June 2019, the accumulated depreciation was $500,000.

The premises are being depreciated using the straight-line method and are recorded under the revaluation model (AASB 116).

There was a downward revaluation of the premises by $200,000 at the end of last year, 30 June 2019, to a fair value of $1,300,000.

The remaining useful life of the premises at the 30 June 2019 was 10 years.

At 30 June 2020, the fair value of the premises was estimated at $1,520,000

Required:

Prepare the general journal entries for the year ended 30 June 2020 for the factory premises, taking into account the information provided above. Justify your entries by reference to the appropriate accounting standard. 

b) Amazon Ltd has machinery it uses in its distribution center.

The machinery is being depreciated using the straight-line method and is being recorded under the cost model.

At 30 June 2019, the cost of the machinery was $110,000 and the accumulated depreciation was $10,000

At that time, the remaining useful life was estimated to be 5 years.

At 30 June 2020, the recoverable amount of the machinery was $76,000, the estimate of the best available price using the present value.

Required:

i) Prepare the general journal entries for the year ended 30 June 2020 for the machinery, taking into account the information provided above. Justify your entries by reference to the appropriate accounting standard. 

ii) From the following select any TWO reasons why you think that the cost model is the most appropriate method to value the machinery for Amazon Ltd. 

I. The nature of the business of Amazon Ltd is a warehouse distribution center, therefore it will be using the Machinery to assist managing its deliveries, so the Machinery is likely to be subject to wear and tear and the recoverable amount of the Machinery is likely to fall over time.
II. The nature of the business of Amazon Ltd is a warehouse distribution center and the Machinery is relatively new, therefore it indicates especially in the early period, that the value of the Machinery is likely to rise over the time.
III. Users are expecting up to date information in the financial reports and the cost model permits decrements in the valuation of Machinery as a result of impairments.

IV. Users are expecting up to date information in the financial reports and the cost model does not permit decrements in the valuation of Machinery as a result of impairments.

Answer rating: 100% (QA)

a General journal entries for the year ended 30 June 2020 for the factory premises Depreciation expense for the year 200000 cost of 2000000 residual v... View the full answer