Question

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $72,000. The equipment was expected to have a useful life of six years and a residual value of $15,000 and is being depreciated on a straight-line basis. On January 1, 2018, the equipment was appraised and determined to have a fair value of $65,100, a salvage value of $15,000, and a remaining useful life of five years. In measuring property, plant, and equipment subsequent to acquisition under IFRS, Parnell would opt to use the revaluation model in IAS 16.

Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes.

Required: Prepare journal entries for this equipment for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS. Prepare the entry(ies) that Parnell would make on the December 31, 2018 conversion worksheet to convert U.S. GAAP balances to IFRS.

Required A:

1. Record the entry for depreciation expense as per U.S. GAAP.

2. Record the entry for depreciation expense as per IFRS.

3. Record the entry for the revaluation of equipment as per U.S. GAAP.

4. Record the entry for the revaluation of equipment as per IFRS.

5. Record the entry for depreciation expense as per U.S. GAAP.

6. Record the entry for depreciation expense as per IFRS.

Required B:

1. Record the entry for recording profit on revaluation of equipment due to conversion from U.S. GAAP to IFRS.

2. Record the entry for additional depreciation expense on revaluation of equipment due to conversion from U.S. GAAP to IFRS.

Answer 1

Please find below table useful to compute desired results:-

=B6 F G H 1 Cost of Equipment(2017) 72000 Date General Journal Debit Credit 2 Expected Useful Life 12/31/2017 Depreciation Expense =B6 3 Residual Value 15000 Accumulated Depreciation - equipment =G2 4 Fair Value(in 2018) 65100 (Record the entry for depreciation expense as per 5 U.S. GAAP on 12/31/2017 on 12/31/2018 12/31/2017 Depreciation Expenses =B12 6 Depreciation Per year =(B1-B3)/B2 Accumulated Depreciation - equipment =G5 7 Book Value (beginning) =B1 =B9 (Record the entry for depreciation expense as per IFRS) 8 Less: - Depreciation =B6 43101 No Journal Entry Required 9 Book Value (Ending) =B7-B8 =C7-C8 (Record the entry for the revaluation of equipment as per 10 Under IFRS as per IAS 16: 43101 Equipment =B15 11 Book Value as on 1/1/17 =B1 Gain on Revaluation of equipment at fair value =G10 12 Less Depreciation =(B1-B3)/B2 (Record the entry for the revaluation of equipment as per 13 Book Value as on 31/12/17 =B11-B12 12/31/2018 Depreciation Expense =B6 14 Revalued figure as on 1/1/18 =B4 Accumulated Depreciation - equipment | =G13 | 15 Gain on Revaluation =B14-B13 (Record the entry for depreciation expense as per 16 Remaining Useful life =B2-1 12/31/2018 Depreciation Expense =B18 17 Residual Value =B3 Accumulated Depreciation - equipment =G16 18 Depreciation during the year 2018 =(B14-B17)/B16 | (Record the entry for depreciation expense as per IFRS) 19 Value of equipment as on 12/31/18 =B14-B18 20 Net Effect of Conversion from U.S.GAAP to IFRS: 21 Description As per GAAP As per IFRS Profit/(Expenses) Event General Journal Debit Credit 22 2017 Equipment =D26| 23 Value of equipment as on 12/31/17 1=B9 =B13 =B23-C23 Gain on revaluation of equipment =G22 24 Depreciation during the year =B6 =B12 =B24-C24 (Record the entry for recording profit on revaluation of 25 2018 Depreciation Expense I=D27 26 Value of equipment as on 12/31/18 =C9 =B19 =C26-B26 Accumulated Depreciation Equipment =G25 27 Depreciation during the year =B6 =B18 =B27-C27 (Record the entry for additional depreciation expense on

A C D F G H i Cost of Equipment(2017) $72,000.00 Date General Journal Debit Credit 2 Expected Useful Life 12/31/2017 Depreciation Expense $9,500 3 Residual Value $15,000.00 Accumulated Depreciation - equipment $9,500 4 Fair Value(in 2018) $65,100.00 (Record the entry for depreciation expense as per U.S.GAAP) 5 U.S. GAAP on 12/31/2017 on 12/31/2018 12/31/2017 Depreciation Expenses $9,500 6 Depreciation Per year $9,500.00 Accumulated Depreciation - equipment $9,500 7 Book Value (beginning) $72,000.00 $62,500.00 (Record the entry for depreciation expense as per IFRS) 8 Less: - Depreciation $9,500.00 $9,500.00 01-01-18 No Journal Entry Required 9 Book Value (Ending) $62,500.00 $53,000.00 (Record the entry for the revaluation of equipment as per 10 Under IFRS as per IAS 16: 01-01-18 Equipment $2,600 11 Book Value as on 1/1/17 $72.000 Gain on Revaluation of equipment at fair value fair vahie $2,600 12 Less Depreciation $9,500 (Record the entry for the revaluation of equipment as per IFRS) 13 Book Value as on 31/12/17 $62,500 12/31/2018 Depreciation Expense $9,500 14 Revalued figure as on 1/1/18 $65.100 Accumulated Depreciation - equipment $9.500 15 Gain on Revaluation $2.600 (Record the entry for depreciation expense as per U.S.GAAP) 16 Remaining Useful life 12/31/2018 Depreciation Expense $10,020 17 Residual Value $15.000 Accumulated Depreciation - equipment $10.020 18 Depreciation during the year 2018 | $10,020 | (Record the entry for depreciation expense as per IFRS) 19 Value of equipment as on 12/31/18 $55,080 20 Net Effect of Conversion from U.S.GAAP to IFRS: 21 Description As per GAAP As per IFRS Profit (Expenses) Event General Journal Debit Credit 22 2017 1 Equipment $2.080 23 Value of equipment as on 12/31/17 || $62,500 $62,500 Gain on revaluation of equipment $2.080 24 Depreciation during the year $9,500 $9,500 SO (Record the entry for recording profit on revaluation of equipment 2018 2 Depreciation Expense (5520) 26 Value of equipment as on 12/31/18 $53,000 $55,080 $2,080 Accumulated Depreciation- Equipment ($520) 27 Depreciation during the year $9,500 $10,020 (5520) (Record the entry for additional depreciation expense on revaluation 25