On 1/1/2016 KTA Inc. purchased a building at a cost of $2,000,000. The building
ID: 2530730 • Letter: O
Question
On 1/1/2016 KTA Inc. purchased a building at a cost of $2,000,000. The building had an estimated useful life of 25 years; a residual value of 400,000 and is depreciated on a straight line basis. On January 1, 2017 the building was determined to have a fair value of $2,200,000. There is no change in useful life or residual value.
What depreciation expense would KTA Inc. record under G.A.A.P in 2017?
What revaluation gain would KTA Inc. record under IFRS. in 2017?
What depreciation expense would KTA Inc. record under IFRS in 2017?
As a result of building valuation what is the difference in income between reporting using U.S. GAAP and IFRS in 2017?
As a result of the buidling valuation what is the difference in Stockholder's Equity between reporting using U.S. G.A.A.P. and IFRS in 2017?
Explanation / Answer
The Depreciation for the Year 2016 is (2,000,000 - 400,000)/25 = 64,000
On Revaluation the Value of the Building becomes $2,200,000
Question 1
Under US GAAP, upward revaluation of assets is not allowed. Hence the depreciation for 2017 would be on the original value of $2,000,000
Hence $64,000
Question 2
IFRS allows revaluation. The Revaluation Gain to be recorded would be:
(Revalued Amount - (Original Value - Accumulated Deprciation) = (2,200,000 - (2,000,000 - 64,000) = $264,000
Question 3
The Depreciation for 2017 would be (2,200,000 - 400,000)/24 = $72,000
Question 4
Under US GAAP, the only expense is depreciation = $64,000
Under IFRS, the depreciation would be $72,000.
Hence under IFRS, the income would be lower by $72,000 - $64,000 = $8,000
Other Comprehensive income would include the gain on revaluation under IFRS and hence it would be $264,000 more.
Total Income under IFRS would be higher by $264,000 - $8,000 = $256,000
Question 5
Under IFRS gain from revaluation would result in the Stockholders Equity would be higher by $256,000
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