Question

Surat Limited paid cash to acquire an aircraft on January 1, 2017, at a cost of 31,640,000 rupees. The aircraft has an estimated useful life of 40 years and no salvage value. The company has determined that the aircraft is composed of three significant components with the following original costs (in rupees) and estimated useful lives:

Component	Cost	Useful Life
Fuselage	10,100,000	40	years
Engines	16,500,000	30	years
Interior	5,040,000	20	years
	31,640,000

The U.S. parent of Surat does not depreciate assets on a component basis, but instead depreciates assets over their estimated useful life as a whole.

Assume that a foreign company using IFRS is owned by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare consolidated financial statements. Ignore income taxes.

Required:

1. a. Prepare journal entries for this aircraft for the years ending December 31, 2017, and December 31, 2018, under (1) IFRS and (2) U.S. GAAP.

2. b. Prepare the entry(ies) that the U.S. parent would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert IFRS balances to U.S. GAAP.

Answer 1

Anxxr- working Note. Component cost cay use teel Limo Dept. IFRS al Depr. GAAP 252,500 Fuselage Engines Interior 10,100,000 16.500.000 50,40000 40 30 20 550.000 252.000 1054.500 31, 640,000 1 791,000 3,640.000 Haut a) Journal ontries: LE Debit credit Date particulars 2017 Aircraft Alc DY $31,640,000 31,040,000 1. To cash purchant Aircraft as per IFBB Dec-al Depreciation expense Ale or $1,054,500 To Accumulated depreciation $1054,500 Airera.pt Being Depreciation of Aircraft as per IFR5] a-2) Journal entries. credit Date - TIF Debit particulars 2017 Aircraft Ale or $31,640,000 Jand $31,640 poo 2. To cash Being purchased Aircraft as per vs GAAP pec-31 Depreciation capouk Ale DV $791,000 TO Accumulated depreciation - Aircraft $ 791,000 Being Depreciation of Aircraft as per US GAAP] Depreciation expoure Ale Ar 2018 1.054 500! TO Accumulated deprecialia. $1,054,500 A Aircraft firing Depreciation of aircraft as per IFR:] Depreciation on pense Ale or $791,000 TO ACcumulated deprecialo |$791.000 Being Depreciation of - Aircraft as peruscom Aircraft Credit Date 2017 Dec-2/ bebit 4263500 263,500 particulary T Accumulalat depreciatou - Aireraet Ale or To Depreciation expenfes SH 1054,500-$ 791,000] Accumulated depreciation - Aircraft we o TO Deprecaton expert To Retained Earnings pec3 14527,000| $ 262,500 $263,500