Question

On April 1, 2017, Lombardi Corp. was awarded $460,000 cash as compensation for the forced sale of its land and building, which were directly in the path of a new highway. The land and building cost $60,000 and $280,000, respectively, when they were acquired. At April 1, 2017, the accumulated depreciation for the building amounted to $165,000. On August 1, 2017, Lombardi purchased a piece of replacement property for cash.

The new land cost $160,000 and the new building cost $410,000. The new building is estimated to have a useful life of 20 years, physical life of 30 years, residual value of $230,000, and salvage value of $75,000. Lombardi prepares financial statements in accordance with IFRS.

Instructions

(a) Prepare the journal entries to record the transactions on April 1 and August 1, 2017.

(b) How would the transactions on April 1 and August 1, 2017, affect the income statement for 2017? Would the effect

be different if Lombardi prepared financial statements in accordance with ASPE?

(c) Prepare the journal entries required at December 31, 2017, under (1) IFRS and (2) ASPE.

Answer 1

a)

Journal Entries in the Books of Lombardi Corp

Date	Particulars		Debit ( $ )	Credit ( $ )
01-04-2017	Cash A/c	Dr	4,60,000
	To Land A/C			65,000
	To Building A/C			1,15,000
	To Profit on Sale			2,80,000
01-08-2017	Land A/C	Dr	1,60,000
	Building A/c	Dr	4,10,000
	To Cash A/C			5,70,000

b)

Journal Entries in the Books of Lombardi Corp ( IFRS )
Date	Particulars		Debit ( $ )	Credit ( $ )
31-12-2017	Profit on Sale A/C	Dr	2,80,000
	To Profit and Loss A/C			2,80,000
Therefore Profit will increase by $ 280000

c) (i)

Journal Entries in the Books of Lombardi Corp ( IFRS )
Date	Particulars		Debit ( $ )	Credit ( $ )
31-12-2017	Depreciation A/C	Dr	9,000
	To Buildig A/C			9,000
31-12-2017	Profit and Loss A/C	Dr	9,000
	To Depreciation A/C			9,000

(ii)

Journal Entries in the Books of Lombardi Corp ( ASPE )
Date	Particulars		Debit ( $ )	Credit ( $ )
31-12-2017	Depreciation A/C	Dr	11,167
	To Buildig A/C			11,167
31-12-2017	Profit and Loss A/C	Dr	11,167
	To Depreciation A/C			11,167

Working Note on Depreciation :