Question

Problem 2      (6 marks)       (11 minutes)

During 20x4, an entity exchanged a hotel in exchange for an office building. Data on the hotel is as follows:

Original cost $6,700,000 Accumulated depreciation 3,800,000 Fair value 3,500,000

The fair value of the office building is $3,400,000.

1.                Assuming that the entity is a publicly accountable entity, prepare the journal entry    to record the asset exchange.

2.                What would be the sole difference in the accounting treatment of the exchange if the entity was a private company subject to ASPE?

Answer 1

Treatment of exchange of non-monetary assets under IFRS Vs. ASPE:

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1. As it is assumed that the entity is a publicly accountable entity, the same shall be following IFRS for recordding of this exchange. According to Para 16.24 of IAS 16, the asset which is acquired through exchange shall be initially recognized at it's fair value.

Any difference between the Carrying cost of an old asset and fair value of incoming asset shall be charged to statement of profit and loss.

Carrying Cost of Hotel = Original Cost - Depreciation

= $6,700,000 - $3,800,000

= $2,900,000

Gain on exchange of asset = Fair Value of Office Building - Carrying Cost of Hotel

= $3,400,000 - $2,900,000

= $500,000

Following journal entry shall be passed in books of entity:

2. According to section 3831 for non-monetary transactions, When an entity can reliably determine the fair value of both the asset received and the asset given up, the fair value of the asset given up is used to measure the asset received.

Credit Journal Entries in Books of The Entity Date Particulars XX-XX-20x4 Office Building $ Accumulated Depreciation - Hotel $ Hotel Gain on disposal of Hotel (Exchanged hotel against new office building) $ Debit 3,400,000 3,800,000 $ $ 7,200,000 $ 6,700,000 500,000 7,200,000

Hence, sole difference that shall arise here is that, in the case of IFRS, the entity was using the carrying cost of the outgoing asset i.e Hotel. While in ASPE compliance it shall be using the fair value of the hotel to recognize the incoming asset of office building. Entity shall recognize office building at $3,500,00 in such case.