Bracy Company acquired a new piece of construction equipment on January 1, 2015,

Question

Bracy Company acquired a new piece of construction equipment on January 1, 2015, at a cost of $78,400. The equipment was expected to have a useful life of 6 years and a residual value of $10,000 and is being depreciated on a straight-line basis. On January 1, 2016, the equipment was appraised and determined to have a fair value of $74,500, a salvage value of $10,000, and a remaining useful life of five years. Show work.

a.

Determine the amount of depreciation expense that Bracy should recognize in determining net income in 2015, 2016, and 2017 and the amount at which equipment should be carried on the December 31, 2015, 2016, and 2017 balance sheets using (1) U.S. GAAP and (2) IFRS. In measuring property, plant, and equipment subsequent to acquisition, Bracy uses the revaluation model in IAS 16.

Depreciation Expense

2015

2016

2017

IFRS

U.S. GAAP

Difference

$

$

$

Book Value of equipment

12/31/2015

12/31/2016

12/31/2017

IFRS

U.S. GAAP

Difference

$

$

$

b.

Determine the adjustments that Bracy would make in 2015, 2016, and 2017 to reconcile net income and stockholders’ equity under U.S. GAAP to IFRS. (If there is no reconciliation adjustment select "No adjustment is required to". Input all values as positive numbers.)

2015 Adjustments

Amount deducted from

U.S. GAAP Net Income

$

Amount Added to

U.S. GAAP Stockholders equity

$

2016 Adjustments

Amount deducted from

U.S. GAAP Net Income

$

Amount Added to

U.S. GAAP Stockholders equity

$

2017 Adjustments

Amount deducted from

U.S. GAAP Net Income

$

Amount Added to

U.S. GAAP Stockholders equity

$

Depreciation Expense

2015

2016

2017

IFRS

U.S. GAAP

Difference

$

$

$

Explanation / Answer

A

DEPRICIATION

ANY UPWARD REVALUATION IN ASSET IS NOT ALLOWED AS PER US GAAP SO DEPRICIATION IS CALCULATED AS (78400-10000)/6 = 11400/- PER YEAR

ACCORDING TO IFRS EVERY YEAR ASSETS SHOULD BE REVALUED AND DEPRICIATION IS ALLOWED ON CARRYING AMOUNT.

BOOK VALUE OF EQUIPMENT

BOOK VALUE OF ASSET WIL INCREASE BY 3000/- BECAUSE OF DEPRICIATION DIFF OF 1500/- + 1500/-

B.

IN THE YEAR 2015 DEPRICIATION VALUE ARE SAME SO NO ADJUSTMENT NEEDED

IN YEAR 2016

DEDUCT AMOUNT 1500/- FROM US GAAP NET INCOME AND ADD 1500/- TO SHARE HOLDERS EQUITY. BECAUSE OF DEPRICIATION DIFF AS PER US GAAP AND IFRS.

IN YEAR 2017

DEDUCT AMOUNT 1500/- FROM US GAAP NET INCOME AND ADD 1500/- TO SHARE HOLDERS EQUITY. BECAUSE OF DEPRICIATION DIFF AS PER US GAAP AND IFRS.

2015 2016 2017 IFRS 11400 12900 12900 US GAAP 11400 11400 11400 DIFF 0 1500 1500

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