Question

On 1/1/2016 KTA Inc. purchased a building at a cost of $2,000,000. The building had an estimated useful life of 25 years; a residual value of 400,000 and is depreciated on a straight line basis. On January 1, 2017 the building was determined to have a fair value of $2,200,000. There is no change in useful life or residual value.

What depreciation expense would KTA Inc. record under G.A.A.P in 2017?

What revaluation gain would KTA Inc. record under IFRS. in 2017?

What depreciation expense would KTA Inc. record under IFRS in 2017?

As a result of building valuation what is the difference in income between reporting using U.S. GAAP and IFRS in 2017?

As a result of the buidling valuation what is the difference in Stockholder's Equity between reporting using U.S. G.A.A.P. and IFRS in 2017?

Answer 1

The Depreciation for the Year 2016 is (2,000,000 - 400,000)/25 = 64,000

On Revaluation the Value of the Building becomes $2,200,000

Question 1

Under US GAAP, upward revaluation of assets is not allowed. Hence the depreciation for 2017 would be on the original value of $2,000,000

Hence $64,000

Question 2

IFRS allows revaluation. The Revaluation Gain to be recorded would be:

(Revalued Amount - (Original Value - Accumulated Deprciation) = (2,200,000 - (2,000,000 - 64,000) = $264,000

Question 3

The Depreciation for 2017 would be (2,200,000 - 400,000)/24 = $72,000

Question 4

Under US GAAP, the only expense is depreciation = $64,000

Under IFRS, the depreciation would be $72,000.

Hence under IFRS, the income would be lower by $72,000 - $64,000 = $8,000

Other Comprehensive income would include the gain on revaluation under IFRS and hence it would be $264,000 more.

Total Income under IFRS would be higher by $264,000 - $8,000 = $256,000

Question 5

Under IFRS gain from revaluation would result in the Stockholders Equity would be higher by $256,000