Question

Bracy Company acquired a new piece of construction equipment on January 1, 2015, at a cost of $92,300. The equipment was expected to have a useful life of 7 years and a residual value of $16,000 and is being depreciated on a straight-line basis.

On January 1, 2016, the equipment was appraised and determine to have a fair value of $92,920, a salvage value of $16,000, and a remaining useful life of six years.

a. Determine the amount of depreciation expense that Bracy should recognize in determining net income in 2015, 2016, and 2017 and the amount at which equipment should be carried on December 31, 2015, 2016, and 2017 balance sheets using (1) U.S. GAAP and (2) IFRS. In measuring property, plant, and equipment subsequent to the acquisition, Bracy used the revaluation model in IAS16.

b. Determine the adjustments that Bracy would make in 2015, 2016, and 2017 to reconcile net income and stockholders' equity under U.S. GAAP to IFRS.

Answer 1

a. Computation of Depreciation
U.S. GAAP Depreciation	($92300 - $16000)/7	$10900
IFRS Depreciation for 2015	($92300 - $16000)/7	$10900
IFRS Depreciation for 2016 & 2017	($92920 - $16000)/6	$12820
As per IAS 16 on Jan 1, 2015 revaluation of equipment to  fair value of $92920	Amount	Amount	Amount
Depreciation	2015	2016	2017
IFRS	$10900	$12820	$12820
U.S. GAAP	$10900	$10900	$10900
Difference	$0.00	$1920	$1920
Book value of equipment	12/31/2015	12/31/2016	12/31/2017
IFRS	$92300-$10900=$81400	$92920-$12820=$80100	$80100-$12820=$67280
U.S. GAAP	$92300-$10900=$81400	$81400-$10900=$70500	$70500-$10900=$59600
Difference	$0.00	$9600	$7680
b.
No difference in net income between IFRS and U.S. GAAP in 2015, Therefore no adjustments are required in 2015	No Adjustments
2016 Adjustments
deductible amount from U.S. GAAP Net income	$1920
The amount required to be added to U.S. GAAP stock-holders' equity	$9600
2017 Adjustments
Amount added to U.S. GAAP Net income	$1920
Amount deducted from U.S. GAAP stock holders' equity	$7680