(SOLVED) Jivraj and Juma are accountants at Desktop

Computers Desktop Computers

Jivraj and Juma are accountants at Desktop Computers. Desktop Computers has not adopted
the revaluation model for accounting for its property, plant, and equipment. The
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desktop-computers-desktop-computers

Jivraj and Juma are accountants at Desktop Computers. Desktop Computers has not adopted
the revaluation model for accounting for its property, plant, and equipment. The accountants
disagree over the following transactions that occurred during the fiscal year ended December
31, 2017:

1. Desktop purchased equipment for $60,000 at a going-out-of-business sale. The equipment

was worth $75,000. Jivraj believes that the following entry should be made:

2. Land costing $90,000 was appraised at $215,000. Jivraj suggests the following journal entry:

3. Depreciation for the year was $18,000. Since the company's profit is expected to be lower
this year, Jivraj suggests deferring depreciation to a year when there is a higher profit.

4. Desktop bought a custom-made piece of equipment for $54,000. This equipment has a useful
life of six years. Desktop depreciates equipment using the straight-line method. "Since the
equipment is custom-made, it will have no resale value," Jivraj argues. "So, instead of
depreciating it, it should be expensed immediately." Jivraj suggests the following entry:

5. Jivraj suggests that the company building should be reported on the balance sheet at the
lower of cost and fair value. Fair value is $15,000 less than cost, although it is expected to
recover its value in the future.

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 6. On December 20, 2017, Desktop hired a marketing consultant to design and implement a
marketing plan in 2018. The plan will be designed and implemented in three stages. The
contract amount is $60,000, payable in three instalments in 2018 as each stage of the plan is
completed. Jivraj argues that the contract must be recorded in 2017 because there is a signed
contract. Jivraj suggests the following:

Instructions

(a) For each transaction, indicate why Juma disagrees. Support your answer with reference to
the conceptual framework (definition of elements, qualitative characteristics, assumptions,
constraints, and recognition and measurement criteria).

(b) Prepare the correct journal entry to record each transaction.

TAKING IT FURTHER

How would your response in part (a) differ if Desktop adopted the revaluation model of
accounting for its property, plant, and equipment?

Jivraj and Juma are accountants at Desktop Computers Desktop Computers

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