Final answer:
To record an increase in the fair value of equipment, a debit is made to the equipment asset account, and a credit is made to the revaluation surplus equity account, following International Financial Reporting Standards (IFRS). The specific journal entry depends on the difference between the new fair value and the previous book value.
Step-by-step explanation:
To address the question of recording an increase in the fair value of equipment, we first need to understand that such adjustments are typically relevant for companies following International Financial Reporting Standards (IFRS) rather than U.S. Generally Accepted Accounting Principles (GAAP). Under IFRS, revaluations of property, plant, and equipment to fair value are permitted. If the fair value of equipment increases, the journal entry would be a debit to the equipment asset account and a credit to a revaluation surplus account within equity. However, this revaluation does not affect the income statement.
If the fair value of the equipment increased to $285,300, and this is above the equipment's previous book value, you would calculate the difference and make the following entry:
- Debit Equipment (Asset account) for the amount of the increase
- Credit Revaluation Surplus (Equity account) for the same amount
The specific amounts depend on what the book value was prior to revaluation. This accounting treatment aligns with the goal of reflecting an asset's current value on the balance sheet.