Alibaba is a leading on-line retailer

Accounting Oct 22, 2020

Alibaba is a leading on-line retailer. It has various non-current assets, including Buildings and Equipment. The Buildings purchased on 1 July 2012, have an anticipated residual value of $1,600,000 and an expected useful life of 20 years. Alibaba uses the fair value model for Buildings (AASB 116). The Equipment purchased on 1 July 2016, has an anticipated residual value of $320,000 and an expected useful life of 15 years. Alibaba uses the cost model for Equipment (AASB 136). Both assets are being depreciated using the straight-line method. An extract of the Balance Sheet at 30 June 2019 after the annual depreciation is provided below: Non-current Assets Buildings 3,000,000 Less Accumulated Depreciation (490,000) 2,510,000
Less Accumulated Depreciation (490,000) 2,510,000 920,000 Equipment Less Accumulated Depreciation (120,000) 800,000 Information relating to the Equipment at 30 June 2019 is: Equipment Value in Use $788,000 Equipment Fair Value $792,000 Costs to sell Equipment $8,000 Information relating to the Buildings is:
Information relating to the Buildings is: 4016 at 30 June 2019 $2.848,000 at 30 June 2020 $2,028,000 Building fair value Building value in use Costs to sell buildings $2,852,000 $40,000 $2,036,000 $40,000 The remaining useful life of the Buildings at 1 July 2019 is 13 years. Required: a) Prepare the general journal entries at 30 June 2019 for the Equipment, taking into account the information provided. Justify your answer and show all workings. (4 marks) b) Briefly explain why the fair value model is appropriate for the Buildings of Alibaba (3 marks)
The remaining useful life of the Buildings at 1 July 2019 is 13 years. Required: a) Prepare the general journal entries at 30 June 2019 for the Equipment, taking into account the information provided. Justify your answer and show all workings. (4 marks) b) Briefly explain why the fair value model is appropriate for the Buildings of Alibaba (3 marks) c) Prepare the general journal entries at 30 June 2019 for the Buildings, taking into account the information provided. Justify your answer and show all workings. (4 marks) d) Prepare all the general journal entries for the year ended 30 June 2020 for the Buildings. Justify your answer and show all workings.

Expert Solution

a	Costs	920000
	Accumulated depreciation	120000
	Carrying amount	800000

	Recoverable amount	788000
	Value in use	788000
	Fair value less costs to sell	784000

	Impairment loss	=800000-788000
		12000

	Journal entry	Dr	Cr

a	Impairment loss	12000
	To equipment		12000

b. Fair value represents the potential price or value assigned to a good or service based on its utility, supply and demand for it. It gives accurate valuation and the total asset value reflectdbthe actual income of a company and helps business survive during difficult times

As the fair value of building looking to surroundings and locality could be measured reliably it is advisable to measure at fair value

c	2019
	Buildings	3000000
	Depreciation	490000
		2510000

	Fair value	2848000
	Difference	338000

	Journal entry	Dr	Cr
	Buildings	338000
	To revlaution reserve/other comprehensive income		338000

d	2020
	Openin value	2848000
	Depreciation	96000	=(2848000-1600000)/13
	Carrying amount	2752000

	Fair value	2028000
	Costs to sell	40000
	Value in use	2036000

	Difference	716000

	Journal entry	Dr	Cr
	Revalutaion reserve/other comprehensive income	338000
	Impairment loss	378000
	To Buildings		716000

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