Question

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $72,700. 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 $67,800, 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.

- Record the entry for depreciation expense as per U.S. GAAP.

- Record the entry for depreciation expense as per IFRS.

- Record the entry for the revaluation of equipment as per U.S. GAAP.

- Record the entry for the revaluation of equipment as per IFRS.

- Record the entry for depreciation expense as per U.S. GAAP.

- Record the entry for depreciation expense as per 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.

- Record the entry for recording profit on revaluation of equipment due to conversion from U.S. GAAP to IFRS.

- Record the entry for additional depreciation expense on revaluation of equipment due to conversion from U.S. GAAP to IFRS.

Answer 1

1. Depreciation as per US GAAP

Date	Particulars	Dr. Amount (In $)	Cr. Amount (In $)
Dec 31 2017	Depreciation Expense TO Accumulated Depreciation (72,700 – 12,000) / 5	12,140	12,140

2. Depreciation as per IFRS

Date	Particulars	Dr. Amount (In $)	Cr. Amount (In $)
Dec 31 2017	Depreciation Expense TO Accumulated Depreciation (72,700 – 12,000) / 5	12,140	12,140

3. Revaluation of Equipment as per US GAAP

Under US GAAP, revaluation of fixed assets at their fair market value which is greater than the historical value is not allowed. Under US GAAP, only impairment loss (i.e fair value less than book vallue) can be recorded by the entities in the books of accounts. No journal entry for revaluation as per US GAAP.

4. Revaluation of equipment as per IFRS

Revaluation as per IFRS

Date	Particulars	Dr. Amount (In $)	Cr. Amount (In $)
01- Jan-2018	Equipment TO Revaluation Reserve (Being equipment revalued at fair value)	7,240	7,240

NOTE: Calculation of revaluation amount

Net Book value as on 31^st Dec 2017 = $72,700 – 12,140 = 60,560

Fair Value = $67,800

Revaluation Amount = $67,800 – 60,560 = $7,240

5. Depreciation expense as per US GAAP

Depreciation as per US GAAP

Date	Particulars	Dr. Amount (In $)	Cr. Amount (In $)
Dec 31 2018	Depreciation Expense TO Accumulated Depreciation (72,700 – 12,000) / 5	12,140	12,140

6. Depreciation expense as per IFRS.

Date	Particulars	Dr. Amount (In $)	Cr. Amount (In $)
Dec 31 2018	Depreciation Expense TO Accumulated Depreciation (67,800 – 12,000) / 4	13,950	13,950