On 1 July 2013, Weller Ltd paid $240,000 to acquire a machine that was to be used to manufacture steel cables. On this date, management of Weller Ltd estimated that the machine had a useful life of ten years and a residual value of $40,000. In accordance with AASB 116 Property, Plant and Equipment, Weller Ltd uses the revaluation model as its accounting policy to measure items of property, plant and equipment and the straight-line method of depreciation.
The fair values of the machine for the first three years were as follows:
· 30 June 2014: $237,000
· 30 June 2015: $224,000
· 30 June 2016: $204,000
In October 2016, two competitors started selling high quality steel cables at prices that were well below those charged by Weller Ltd. By January 2017, Weller Ltd’s sales of steel cables had significantly decreased and the output of the machine had dropped to nearly a quarter of its expected capacity. In February 2017, Weller Ltd engaged the services of a consultancy firm who were tasked with reviewing Weller Ltd’s operations and advising how Weller Ltd could reduce its manufacturing costs. The review is expected to be completed in late May 2017 and the consultants expect to deliver their final report in late July or early August 2017.
As at 30 June 2017, the fair value of the machine was $184,000 and the costs of disposal of the machine were estimated to be $200. As at this date, the value in use of the machine was determined to be $80,000.
(a) Based on the requirements of AASB 116 Property, Plant and Equipment, provide (where necessary) appropriate journal entries in relation to the measurement of the machine as at:
· 30 June 2014,
· 30 June 2015, and
· 30 June 2016. 3 marks
(b) Based on the requirements of AASB 116 Property, Plant and Equipment and AASB 136 Impairment of Assets, explain how Weller Ltd would account for the machine as at 30 June 2017 and provide (where necessary) appropriate journal entries. 3 Marks
(c) What other actions should Weller Ltd undertake on 30 June 2017? 2 Marks