Surat Limited paid cash to acquire an aircraft on January 1, 2017, at a cost of
ID: 2572225 • Letter: S
Question
Surat Limited paid cash to acquire an aircraft on January 1, 2017, at a cost of 31,630,000 rupees. The aircraft has an estimated useful life of 50 years and no salvage value. The company has determined that the aircraft is composed of three significant components with the following original costs (in rupees) and estimated useful lives: Component Cost Useful Life Fuselage 11,300,000 50 years Engines 15,200,000 40 years Interior 5,130,000 30 years 31,630,000.
The U.S. parent of Surat does not depreciate assets on a component basis, but instead depreciates assets over their estimated useful life as a whole
. Assume that a foreign company using IFRS is owned by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare consolidated financial statements. Ignore income taxes. Required:
a. Prepare journal entries for this aircraft for the years ending December 31, 2017, and December 31, 2018, under (1) IFRS and (2) U.S. GAAP.
b. Prepare the entry(ies) 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.
Explanation / Answer
Journal entries for Air Craft purchase in Surat Limited books (under IFRS )on January 1, 2017
Fuselage - Debit 11,300,000
Engine Components - Debit 15,200,000
Interior - Debit 5,130,000
(Air Craft )
To Cash - Credit 316,30,000.00
(Being purchase of air craft for 316,30,000.00)
Components
Component Amount
Useful Life
Component Depreciation
Fuselage
113,00,000
50 years
2,26,000
Engine
152,00,000
40 years
3,80,000
Interior
51,30,000
30 years
1,71,000
316,30,000
7,77,000
a) Journal entries for Air Craft year ending December 2017 under IFRS
Depreciation expenses Fuselage - Debit 226,000
Depreciation expenses Engine - Debit 380,000
Depreciation expenses Interiors - Debit 171,000
To Accumulated Depreciation Fuselage - Credit 226,000
To Accumulated Depreciation Engine - Credit 380,000
To Accumulated Depreciation Interiors - Credit 171,000
(being depreciation entries accounted for 1st year under IFRS)
Journal entries for Air Craft year ending December 2017 under U.S GAAP
Depreciation expense Aircraft - Debit $632,600
To Accumulated Depreciation Aircraft - Credit $632,600
(being depreciation entries accounted for 1st year under US GAAP)
Journal entries for Air Craft year ending December 2018 under IFRS
Depreciation expenses Fuselage - Debit 226,000
Depreciation expenses Engine - Debit 380,000
Depreciation expenses Interiors - Debit 171,000
To Accumulated Depreciation Fuselage - Credit 226,000
To Accumulated Depreciation Engine - Credit 380,000
To Accumulated Depreciation Interiors - Credit 171,000
(being depreciation entries accounted for 2nd year under IFRS)
Journal entries for Air Craft year ending December 2018 under U.S GAAP
Depreciation expense Aircraft - Debit $632,600
( 316,30,000.00/50 years = $632,600)
To Accumulated Depreciation Aircraft - Credit $632,600
(being depreciation entries accounted for 2nd year under US GAAP)
b) Journal entries that the U.S. parent would make on the December 31, 2017
Impairment loss - Debit 144,000.00
To Accumulated Impairment Losses - Credit 144,000.00
(being adjusting entries has been booked to match the Net Book Value of air craft in parent company books under US GAAP)
Journal entries that the U.S. parent would make on the December 31, 2018
Impairment loss - Debit 144,000.00
To Accumulated Impairment Losses - Credit 144,000.00
(being adjusting entries has been booked to match the Net Book Value of air craft in parent company books under US GAAP)
Components
Component Amount
Useful Life
Component Depreciation
Fuselage
113,00,000
50 years
2,26,000
Engine
152,00,000
40 years
3,80,000
Interior
51,30,000
30 years
1,71,000
316,30,000
7,77,000
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