Question

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $75,100. The equipment was expected to have a useful life of five years and a residual value of $14,000 and is being depreciated on a straight-line basis. On January 1, 2018, the equipment was appraised and determined to have a fair value of $71,500, a salvage value of $14,000, and a remaining useful life of four years. In measuring property, plant, and equipment subsequent to acquisition under IFRS, Parnell would opt to use the revaluation model in IAS 16.

Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes.

Required:

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

2. Prepare the entry(ies) that Parnell would make on the December 31, 2018 conversion worksheet to convert U.S. GAAP balances to IFRS.

Answer 1

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			1/1/17	1/1/18
Cost/Fair Value			$ 75,100	$ 71,500
Residual Value			$ 14,000	$ 14,000
Life			5	4
Annual Dep	($75,100-$14,000)/5		$ 12,220	$ 14,375
	($71,500-$14,000)/4
Part 1
US GAAP
Date	Account	Debit	Credit
1/1/17	Equipment	$ 75,100
	Cash		$ 75,100
	(To record purchase of Equipment)
12/31/17	Depreciation Expense	$ 12,220
	Accumulated Depreciation		$ 12,220
	(To record Deprecaition Expense)
12/31/18	Depreciation Expense	$ 12,220
	Accumulated Depreciation		$ 12,220
	(To record Deprecaition Expense)
IFRS
Date	Account	Debit	Credit
1/1/17	Equipment	$ 75,100
	Cash		$ 75,100
	(To record purchase of Equipment)
12/31/17	Depreciation Expense	$ 12,220
	Accumulated Depreciation		$ 12,220
	(To record Deprecaition Expense)
1/1/18	Accumulated Depreciation	$ 12,220
	Equipment ($75,100-$71,500)		$    3,600
	Revaluation Surplus (AOCI)		$    8,620	Plug in
	(To record revaluation)
12/31/18	Depreciation Expense	$ 14,375
	Accumulated Depreciation		$ 14,375
	(To record Deprecaition Expense)
				Conversion Entry
Part 2	21/31/2018		US GAAP	Debit	Credit	IFRS
	Depreciation Expense		$ 12,220	$    2,155		$    14,375
	Net Income 2018		$ 12,220			$    14,375
	Retained Earning, 1/1/18		$ 12,220			$    12,220
	Retained Earning, 12/31/18		$ 24,440			$    26,595
	Revaluation Surplus		$          -		$    8,620	$    -8,620
	AOCI, 1/1/18		$          -			$            -
	AOCI, 31/12/18		$          -			$    -8,620
	Cash		$ -75,100			$ -75,100
	Equipment		$ 75,100		$    3,600	$    71,500
	Accumulated Depreciation		$ -24,440	$ 12,220	$    2,155	$ -14,375
	Total Assets		$ -24,440			$ -17,975
	Total Liabilities		$          -			$            -
	AOCI, 31/12/18		$          -			$    -8,620
	Retained Earning, 12/31/18		$ 24,440			$    26,595
	Total Liabilities and Equity		$ 24,440			$    17,975
				$ 14,375	$ 14,375