FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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On July 1, 2020, Sheffield Ltd., a publicly listed company, acquired assets from Bramble Ltd. On the transaction date, a reliable, independent valuator assessed the fair values of these assets as follows:
|
Manufacturing plant (building #1) |
$399,580 |
|
|
Storage warehouse (building #2) |
209,940 |
|
|
Machinery (in building #1) |
74,700 |
|
|
Machinery (in building #2) |
45,000 |
The buildings are owned by the company, and the land that the buildings are situated on is owned by the local municipality and is provided free of charge to the owner of the buildings to encourage local employment.
In exchange for the acquisition of these assets, Sheffield issued 145,750 common shares. Sheffield’s shares are thinly traded (that is, traded in relatively low volume leading to more volatile price changes than most public companies). In the most recent sale of Sheffield’s shares on the Toronto Stock Exchange, 510 shares were sold for $5 per share. At the time of acquisition, both buildings were considered to have an expected remaining useful life of 10 years, the machinery in building #1 was expected to have a remaining useful life of 3 years, and the machinery in building #2 was expected to have a useful life of 9 years. Sheffield uses straight-line
At December 31, 2020, Sheffield’s fiscal year end, Sheffield recorded the correct depreciation amounts for the six months that the assets were in use. An independent appraisal concluded that the assets had the following fair values:
|
Manufacturing plant (building #1) |
$387,600 |
|
|
Storage warehouse (building #2) |
178,600 |
At December 31, 2021, Sheffield once again retained an independent appraiser and determined that the fair value of the assets was:
|
Manufacturing plant (building #1) |
$339,780 |
|
|
Storage warehouse (building #2) |
160,900 |
- Prepare the
journal entries required for 2020 and 2021, assuming that the buildings are accounted for under the revaluation model (using the asset adjustment method), and that the machinery is accounted for under the cost model.
- Assume that the asset revaluation surplus for the buildings was prepared based on a class-by-class basis rather than on an individual asset basis as required by IAS 16. Prepare the journal entries for 2020 and 2021 that relate to the buildings. (Ignore the machinery accounts since they are accounted for using the cost model.)
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