Question

In: Accounting

Surat Limited paid cash to acquire an aircraft on January 1, 2017, at a cost of...

Surat Limited paid cash to acquire an aircraft on January 1, 2017, at a cost of 31,480,000 rupees. The aircraft has an estimated useful life of 50 years and no salvage value. The company has determined that the aircraft is composed of three significant components with the following original costs (in rupees) and estimated useful lives:

Component Cost Useful Life
Fuselage 10,100,000 50 years
Engines 16,100,000 40 years
Interior 5,280,000 30 years
31,480,000

The U.S. parent of Surat does not depreciate assets on a component basis, but instead depreciates assets over their estimated useful life as a whole.

Assume that a foreign company using IFRS is owned by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare consolidated financial statements. Ignore income taxes.

Required:

  1. a. Prepare journal entries for this aircraft for the years ending December 31, 2017, and December 31, 2018, under (1) IFRS and (2) U.S. GAAP.

  2. b. Prepare the entry(ies) 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.

Solutions

Expert Solution

Answer:

Component Cost (a) Useful Life (b) Depr. IFRS (a/b) Depr. GAAP
Fuselage 10,100,000 50 202,000
Engines 16,100,000 40 402,500
Interior 5,280,000 30 176,000
31,480,000 780,500 629,600 =[31,480,000 / 50 years]

a.)

Date Particulars Debit ($) Credit ($)
01-01-17 Aircraft $31,480,000
Cash $31,480,000
(To record the purchase of aircraft as per IFRS)
31-12-17 Depreciation expense $780,500
Accumulated depreciation - Aircraft $780,500
(To record depreciation of aircraft as per IFRS)
01-01-17 Aircraft $31,480,000
Cash $31,480,000
(To record the purchase of aircraft as per US GAAP)
31-12-17 Depreciation expense $629,600
Accumulated depreciation - Aircraft $629,600
(To record depreciation of aircraft as per US GAAP)
31-12-18 Depreciation expense $780,500
Accumulated depreciation - Aircraft $780,500
(To record depreciation of aircraft as per IFRS)
31-12-18 Depreciation expense $629,600
Accumulated depreciation - Aircraft $629,600
(To record depreciation of aircraft as per US GAAP)

b.)

Date Particulars Debit ($) Credit ($)
31-12-17 Accumulated depreciation - Aircraft $150,900
Depreciation expense $150,900
31-12-18 Accumulated depreciation - Aircraft $301,800
Depreciation expense $150,900
Retained Earnings $150,900

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