QUESTION 1
On 1 July 2011, Hawks Ltd acquired land for $1 500 000 and machinery for $ 1 000 000. Hawks Ltd uses cost model to account land and revaluation model to account for machinery. Hawks Ltd depreciated the machinery over its useful life of four years, using straight-line method. Disposal value at the end of useful lifetime was assessed as Zero.
The following information concerning the asset measurement was available.
Detail Fair Value Cost of Diposal Value in Use
30 June 2012
Land
Machinery $ 1 250 000
1 100 000 $100 000
Nil $1 200 000
Nil
30 June 2013
Land
Machinery $ 1 200 000
700 000 $75 000
Nil $1 200 000
Nil
30 June 2014
Land
Machinery $ 1 400 000
300 000 $100 000
Nil $1 500 000
Nil
Indicators of impairment and/ or reversal of impairment existed at relevant dates for land only.
Required:
a) Prepare general journal entries in the books of Hawks Ltd over the period from, 1 July 2011 to 30 June 2014, in accordance with the requirements of AASB 116 " Property plant and Machinery and AASB 136 " Impairment of Assets" (Ignore the tax effect).
b) Comment on the effects on the comprehensive income statement in relation to the revaluation method adopted for machinery from 30 June 2012 to 30 June 2014.
c) What could be the possible reasons for impairment of land if there is any; you need to refer to AASB 136 " impairment of assets" when explaining your answer.
Provide all workings necessary to derive your answer.