Hirsch Company acquired equipment at the beginning of 2017 at a cost of $123,000

Question

Hirsch Company acquired equipment at the beginning of 2017 at a cost of $123,000. The equipment has a five-year life with no expected salvage value and is depreciated on a straight-line basis. At December 31, 2017, Hirsch compiled the following information related to this equipment:

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:

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.

Prepare the entry(ies) that Hirsch would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS. Ignore the possibility of any additional impairment at the end of 2018.

Expected future cash flows from use of the equipment $ 105,800 Present value of expected future cash flows from use of the equipment 89,900 Fair value (selling price less costs to dispose) 86,670

Explanation / Answer

ANSWER:

JOURNAL ENTRY FOR IMPAIRMENT LOSS :

IMPAIRMENT LOSS 8500

FIXED ASSETS 8500

DEPRECIATION = COST - SALVAGE VALUE / NO.OF YEARS

= 123000/5

=24600

CARRYING AMOUNT = COST - DEPRECIATION

= 123000 - 24600

= 98400

IMPAIRMENT LOSS = CARRYING AMOUNT - (NET SELLING PRICE OR PESENT VALUE OF FUTURE CASH FLOWS) WHICHEVER IS HIGHER

=98400 - (86670 OR 89900)

= 98400 - 89900

=8500

PROFIT AND LOSS 8500

TO IMPAIRMENT LOSS 8500

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