Concept explainers
a.
Determine the appropriate accounting for this aircraft for the years ending December 31, 2017, and December 31, 2018, under (1) IFRS and (2) U.S. GAAP.
a.
Explanation of Solution
(1)
IFRS:
The entry to be recorded under IFRS:
Date | Account Title and Explanation | Post ref. | Debit (Rupees) | Credit (Rupees) |
1/1/2017 | Aircraft | 30,000,000 | ||
Cash | 30,000,000 | |||
(being aircraft purchased) | ||||
12/31/2017 | Depreciation expense | 1,000,000 | ||
1,000,000 | ||||
(being depreciation expense recorded using component method) |
Table: (1)
(2)
U.S. GAAP:
The entry to record equipment under U.S. GAAP:
Date | Account Title and Explanation | Post ref. | Debit (Rupees) | Credit (Rupees) |
01/01/2017 | Aircraft | 30,000,000 | ||
Cash | 30,000,000 | |||
(being aircraft purchased) | ||||
12/31/2017 | Depreciation expense | 750,000 | ||
Accumulated depreciation | 750,000 | |||
(being depreciation expense recorded using component method) |
Table: (2)
Working note:
Computation of Depreciation expense:
IFRS:
Component | Cost | Useful Life | Depreciation |
Fuselage | 10,000,000 | 40 years | 250,000 |
Engines | 15,000,000 | 30 years | 500,000 |
Interiors | 5,000,000 | 20 years | 250,000 |
Total | 30,000,000 | 1,000,000 |
Table: (3)
Computation of Depreciation expense:
U.S. GAAP:
b.
Prepare the entry 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.
b.
Explanation of Solution
The entry that the U.S. parent would make on the December 31, 2017:
Date | Account Title and Explanation | Post ref. | Debit (Rupees) | Credit (Rupees) |
12/31/2017 | Accumulated Depreciation on Aircraft | 250,000 | ||
Depreciation expense | 250,000 | |||
(being IFRS balance converted to U.S. GAAP) |
Table: (4)
Partial Conversion worksheet, December 31, 2017 (Component Depreciation) | ||||
Particulars | IFRS | Debit | Credit | U.S. GAAP |
Depreciation expense | $1,000,000 | $250,000 | $750,000 | |
Net income | $1,000,000 | $750,000 | ||
| $0 | $0 | ||
Retained earnings on 12/31/2017 | $1,000,000 | $750,000 | ||
Cash | ($30,000,000) | ($30,000,000) | ||
Aircraft | $30,000,000 | $0 | $30,000,000 | |
Accumulated Depreciation on equipment | ($1,000,000) | $250,000 | ($750,000) | |
Total assets | ($1,000,000) | ($750,000) | ||
Total Liabilities | $0 | $0 | ||
Retained earnings on 12/31/2017 | $1,000,000 | $750,000 | ||
Total liabilities and Equity | $1,000,000 | $250,000 | $250,000 | $750,000 |
Table: (5)
The entry that the U.S. parent would make on the December 31, 2018:
Date | Account Title and Explanation | Post ref. | Debit (Rupees) | Credit (Rupees) |
12/31/2018 | Accumulated Depreciation on Aircraft | 500,000 | ||
Depreciation expense | 250,000 | |||
Retained Earnings | 250,000 | |||
(being IFRS balance converted to U.S. GAAP) |
Table: (6)
Partial Conversion worksheet, December 31, 2018 (Component depreciation) | ||||
Particulars | IFRS | Debit | Credit | U.S. GAAP |
Depreciation expense | $1,000,000 | $250,000 | $750,000 | |
Net income | $1,000,000 | $750,000 | ||
Retained earnings on 01/01/2018 | $1,000,000 | $250,000 | $750,000 | |
Retained earnings on 12/31/2018 | $2,000,000 | $1,500,000 | ||
Cash | ($30,000,000) | ($30,000,000) | ||
Aircraft | $30,000,000 | $0 | $30,000,000 | |
Accumulated Depreciation on equipment | ($2,000,000) | $500,000 | ($1,500,000) | |
Total assets | ($2,000,000) | ($1,500,000) | ||
Total Liabilities | $0 | $0 | ||
Retained earnings on 12/31/2018 | $2,000,000 | $1,500,000 | ||
Total liabilities and Equity | $2,000,000 | $500,000 | $500,000 | $1,500,000 |
Table: (7)
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