Exercise 8-23B Depreciable assets under IFRS

Accounting for Long-Term Operational Assets

Exercise 8-23B Depreciable assets under IFRS

The Transnational Business Inc. (TBI) purchased an asset that cost $60,000 on January 1, Year 1. The asset had a four-year useful life and a $10,000 salvage value.

Required

a. Determine the amount of expense recognized on the Year 1 income statement, assuming TBI uses U.S. GAAP.
b. Determine the amount of expense or gain recognized on the income statement, assuming TBI uses the IFRS revaluation model and the asset is determined to have a fair value of $55,000 as of December 31, Year 1.
c. Determine the amount of expense or gain recognized on the income statement, assuming TBI uses the IFRS revaluation model and the asset is determined to have a fair value of $65,000 as of December 31, Year 1.

Exercise 8-24B Accounting for land and buildings under IFRS

Assume the following. Madrid Company purchased a parcel of land on January 1, Year 1, for $600,000. It constructed a building on the land at a cost of $3,000,000. The building was occupied on January 1, Year 4, and is expected to have a useful life of 40 years and an estimated salvage value of $1,000,000. As of December 31, Year 5 and Year 6, the fair value of the land had not been formally revalued because the real estate market had not changed significantly. Due to a jump in real estate prices, during Year 7 the value of the land had increased to $650,000, and the fair value of the building was $3,000,000. The salvage value of the building is still estimated at $1,000,000. The land and the building were reevaluated by the company in Year 7.

Required

a. Under U.S. accounting rules, what amount would be reported on the company’s Year 6 and Year 7 balance sheets for the land and for the building? Show any necessary computations.
b. Under U.S. accounting rules, what amount of depreciation expense would be reported in Year 7 for the building? Show any necessary computations.
c. Under the IFRS revaluation model, what amount would be reported on the company’s Year 6 and Year 7 balance sheets for the land and for the building? Show any necessary computations.
d. Under the IFRS revaluation model, what amount of depreciation expense would be reported in Year 7 for the building? Show any necessary computations.