Question

In: Accounting

Caley Inc. owns a building with a carrying amount of $1.5 million, as at January 1,...

Caley Inc. owns a building with a carrying amount of $1.5 million, as at January 1, 2017. On that date, Caley s management determined that the building s location is no longer suitable for the company s operations and decided to dispose of the building by sale. Caley is preparing financial statements for the fiscal year ending December 31, 2017. As at that date, management had an authorized plan in place to sell the building, the building met all criteria for classification as held for sale, and the building s estimated fair value less costs to sell was $1 million. The building s depreciation expense for 2017 would amount to $200,000. (a) Prepare the journal entry(ies) required on December 31, 2017, if any. (b) Discuss how the building would be classified on the December 31, 2017 statement of financial position if Caley prepared financial statements in accordance with IFRS. (c) Discuss how the building would be classified on the December 31, 2017 statement of financial position if Caley prepared financial statements in accordance with ASPE.

Solutions

Expert Solution

Held for assets are basically long lived assets for which an entity has decided to dispose of the asset by sale and the entity does not have any intention to use the asset in its business operations. If carrying value is higher than Fair Value less sale proceeds, then the excess is shown as an impairment loss in income statement.

Answer to point a.

Before classifying the old building as held for sale, depreciation expense has to be provided to update the carrying amount of the asset.

Following journal entry has to be passed as on 31 December 2017 :

1. Depreciation Expense $0.2 Million

Old Building - Held for sale $1 Million

Loss on held for sale assets $ 0.3 Million

Old Building $1.5 Million

( Being depreciation provided and loss accounted for at the time of transferring Old Building into held for sale asset)

Answer to point b

An entity is required to present non-current asset as asset held for sale separately from other assets in the statement of financial position as on 31 December 2017 as per IFRS 5 if the following criteria is met:

1. Management must have a concrete plan to dispose off the asset at a price.

2. Asset must be available for sale if the deal is finalized to dispose it off.

3. Management is actively participating in searching for the buyer and probable that it will be disposed off within next 12 months.

Answer to point c

An entity shall require to present old building under long lived asset held for sale separately in the balance sheet if the entity (here Caley ltd) presents financial statements as per ASPE.


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