Chapter 11, Problem 20P

a.

To determine

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.

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
	Accumulated depreciation			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:

$\begin{array}{c}\text{Depreciation}=\frac{\text{Cost}-\text{Residual}\text{value}}{\text{Useful}\text{life}}\\ =\frac{30,000,000-0}{4\text{years}}\\ =750,000\end{array}$

b.

To determine

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.

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
Retained earnings on 01/01/2017	$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)