Concept explainers
a.
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.
a.
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:
Computation of value of equipment as on December 31, 2018:
(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 | 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.
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.
b.
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 | 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 | ||
| $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)
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