Question

The Waffle Corporation entered into two nonmonetary transactions during the current fiscal year. 1. Exchanged inventory having a cost of $2,500 and a retail price of $5,000 for the services of a painting company. The painting company invoice would have been $4,300 had cash been paid for their services. 2. Exchanged 8 inch steel rods with a competitor for 10 inch steel rods. The 8 inch steel rods have a retail price of $1,200 and a cost of $700. The competitor normally sells the steel rods for $680.

Required – Prepare the journal entry to record the above two transactions under (i) IFRS and (ii) ASPE. Waffle uses a perpetual inventory system.

Answer 1

Part1. As per IFRS inventories to be measured at the lower of cost and net realisable value (NRV).

Therefore inventory will be valued at cost, i.e. $2,500.

i) Entry under IFRS will be:

Inventory A/C.....................Dr $2,500 -

Loss on inventory A/C........Dr $1,800 -

To Painting Company A/C - $4,300   

(Being inventory exchanged for the services of a painting company)

ii.) Entry under ASPE will be:

Loss on inventory A/C........Dr $1,800 -

To Inventory A/C - $1,800

(Being loss on inventory due to exchange for services from a painting company for $4,300)   

Part 2

i) Entry under IFRS will be:

8 inch steel rods A/C.....................Dr $700 -

To 10 inch steel rods A/C - $680

To Profit on 8 inch steel rods A/C - $20

(Being 8 inch steel rods exchanged for 10 inch steel rods)

ii.) Entry under ASPE will be:

8 inch steel rods A/C....................................Dr $20 -

To Profit on 8 inch steel rods A/C - $20   

(Being 8 inch steel rods exchnaged for 10 inch steel rods)