Question

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.

Answer 1

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