Question

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $71,600. The equipment was expected to have a useful life of five years and a residual value of $12,000 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 $66,700, a salvage value of $12,000, and a remaining useful life of four 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:

1. 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.

2. Prepare the entry(ies) that Parnell would make on the December 31, 2018 conversion worksheet to convert U.S. GAAP balances to IFRS.

Answer 1

Answer:

Required 1:

No.	Date	General Journal	Debit	Credit
1	12/31/2017	Depreciation Expense	11,920
		Accumulated Depreciation - Equipment		11,920
	To record entry for depreciation expense as per U.S GAAP
2	12/31/2017	Depreciation Expense	11,920
		Accumulated Depreciation - Equipment		11,920
To record entry for depreciation expense as per IFRS
3	No entry
	Revaluation of equipment as per US GAAP
4	01-01-18	Accumulated Depreciation - Equipment	11,920
		Revaluation Surplus		7,020
		Equipment		4,900
	To record revaluation of Equipment as per IFRS
5	12/31/2018	Depreciation Expense	11,920
		Accumulated Depreciation - Equipment		11,920
	To record depreciation of Equipment as per US GAAP
6	12/31/2018	Depreciation Expense	13,675
		Accumulated Depreciation - Equipment		13,675
	To record depreciation of Equipment as per IFRS

Required: 2

1	Accumulated Depreciation - Equipment	11,920
	Equipment		4,900
	Revaluation Surplus		7,020
To record profit on revaluation of Equipment due to conversion from US GAAP to IFRS
2	Depreciation Expense	1,755
	Accumulated Depreciation- Equipment		1,755
To record additional depreciation expense of Equipment due to conversion from US GAAP to IFRS

Calculation

Depreciation : US GAAP

Cost (a)	71,600
Useful Life (b)	5
Residual Value (c )	12,000
Depreciation (d) = (a)-(c )/(b)	11,920

Value of Equipment: US GAAP

Particulars	12/31/2017	12/31/2018
Book value at the beginning	71,600	59,680
Less Depreciation	11,920	11,920
Book value at the end of year	59,680	47,760

Value of Equipment: IFRS

Particulars	Amount
Book value as on 1/1/2017	71,600
Less: Depreciation	11,920
Book value as on 31/1/2017	59,680
Revalued value as on 1/1/2018	66,700
Gain on Revaluation (a)	7,020
Remaining useful life (b)	4
Salvage Value (c )	12,000
Depreciation 2018 (d) = (a)-(c )/(b)	13,675
Value of equipment on 12/31/2018	53,025

Net Effect of Conversion from US GAAP to IFRS

2017
Particulars	As per GAAP	As per IFRS	Effect
Value of equipment 12/31/2017	59,680	59,680	-
Depreciation 2017	11,920	11,920	-

2018
Particulars	As per GAAP	As per IFRS	Effecr
Value of equipment 12/31/2018	47,760	53,025	5,265
Depreciation 2018	11,920	13,675	1,755
			7,020