Chapter 11, Problem 25P

a.

To determine

Determine the appropriate accounting for this equipment for the years ending December 31, 2017, and December 31, 2018, under (1) IFRS and (2) U.S. GAAP.

Explanation of Solution

(1)

U.S. GAAP:

The entry to record equipment under U.S. GAAP:

The equipment is not recorded under U.S. GAAP as the revaluation model is not used under same.

Computation of value of equipment as on December 31, 2017:

$\begin{array}{c}\text{Equipment}\text{=}\text{Carrying}\text{amount}-\text{Depreciation}\\ =500,000-\frac{500,000-0}{10\text{years}}\\ =450,000\text{pesos}\end{array}$

Computation of value of equipment as on December 31, 2018:

$\begin{array}{c}\text{Equipment}\text{=}\text{Carrying}\text{amount}-\text{Depreciation}\\ =450,000-50,000\\ =\$350,000\text{pesos}\end{array}$

(2)

IFRS:

The entry to record sale and leaseback under IFRS:

Date	Account Title and Explanation	Post ref.	Debit (pesos)	Credit (pesos)
1/1/2018	Accumulated Depreciation on equipment		50,000
	Equipment			50,000
	(being equipment reduced for accumulated depreciation)
1/1/2018	Equipment		90,000
	Revaluation surplus			90,000
	(being equipment revalued)
12/31/2018	Depreciation expense		60,000
	Accumulated Depreciation on equipment			60,000
	(being depreciation recorded after revaluation)

Table: (1)

b.

To determine

Prepare the entry 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.

Explanation of Solution

The entry that Company would make on December 31, 2017:

Date	Account Title and Explanation	Post ref.	Debit (pesos)	Credit (pesos)
12/31/2018	Revaluation surplus		90,000
	Accumulated Depreciation on equipment			40,000
	Equipment			40,000
	Depreciation expense			10,000
	(being revaluation surplus and depreciation recorded)

Table: (2)

Partial Conversion worksheet, December 31, 2017 (Revaluation of equipment)
Particulars	U.S. GAAP	Debit	Credit	IFRS
Depreciation expense	$60,000		$10,000	$50,000
Net income	$60,000			$50,000
Retained earnings on 01/01/2017	$50,000			$50,000
Retained earnings on 12/31/2017	$110,000			$100,000
Revaluation surplus	($90,000)	$90,000		$0
AOCI on 01/01/2017	$0			$0
AOCI on 12/31/2017	($90,000)			$0
Cash	($500,000)			($500,000)
Equipment	$540,000	$0	$40,000	$500,000
Accumulated Depreciation on equipment	($60,000)	$0	$40,000	($100,000)
Total assets	($20,000)			($100,000)
Total Liabilities	$0			$0
Retained earnings on 12/31/2017	$110,000			$0
AOCI, 31/12/2017	($90,000)			$0
Total liabilities and Equity	$20,000	$90,000	$90,000	$100,000

Table: (3)

Date	Account Title and Explanation	Post ref.	Debit (pesos)	Credit (pesos)
	AOCI as on 01/01/2018		90,000
	Equipment			40,000
	Accumulated Depreciation on equipment			30,000
	Retained Earnings as on 01/01/2018			20,000

Table: (4)

Partial Conversion worksheet, December 31, 2018 (Revaluation of equipment)
Particulars	U.S. GAAP	Debit	Credit	IFRS
Depreciation expense	$60,000		$10,000	$50,000
Net income	$60,000			$50,000
Retained earnings on 01/01/2017	$110,000		$10,000	$100,000
Retained earnings on 12/31/2017	$170,000			$150,000
AOCI on 01/01/2017	($90,000)	$90,000		$0
AOCI on 12/31/2017	($90,000)			$0
Cash	($500,000)			($500,000)
Equipment	$540,000		$40,000	$500,000
Accumulated Depreciation on equipment	($120,000)		$30,000	($150,000)
Total assets	($80,000)			($150,000)
Total Liabilities	$0			$0
Retained earnings on 12/31/2017	$170,000			$150,000
AOCI, 31/12/2017	($90,000)			$0
Total liabilities and Equity	$80,000	$90,000	$90,000	$150,000

Table: (5)