Sorocaba Ltda. sold a building to Banco Janeiro on January 1, 2017, for 224,000

Question

Sorocaba Ltda. sold a building to Banco Janeiro on January 1, 2017, for 224,000 reais and then leased it back under a 10-year lease agreement, which is accounted for as an operating lease. The building had a carrying amount of 183,100 reais and a fair value of 224,000 reais on the date of sale.

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 sale and leaseback for the years ending December 31, 2017, and December 31, 2018, under (1) IFRS and (2) U.S. GAAP.

(1) Record the entry for the gain on sale of building as per IFRS

(2) Record the entry for the gain on sale of building as per U.S. GAAP

(3) Record the entry for recognizing amortized deferred gain on sale of building in Profit and Loss account under U.S. GAAP

(4) Record the entry for the gain on sale of building as per IFRS

(5) Record the entry for recognizing amortized deferred gain on sale of building in Profit and Loss account under 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.

(1) Record the conversion entry needed for 12/31/17

(2) Record the conversion entry needed for 12/31/18

Explanation / Answer

A) Journal Entries under IFRS

For the Year Ended 31st December 2017

Books of Sorocaba Ltd

Sale of Building:(All Values in Reais)

1) & 4)

Bank A/c Dr 224000

To Buidling Cr 183100

To gain on sale Cr 40900(224000-183100)

Leased Back the Building

Journal Entry for Lease Rentals

Lease Rent A/c Dr 22400(224000/10)

To Bank/Cash Cr 22400

Journal Entry for the Year Ended 31st December 2018

Lease Rent A/c Dr 22400(224000/10)

To Bank/Cash Cr 22400

In the Books of Banco Janeiro

For the Year Ended 31st December 2017

For buying building

Building A/c Dr 224000

To Bank/Cash Cr 224000

For Depreciation on Building

Depreciation on Building A/c Dr 22400(224000/10)

To Building A/c Cr 22400(Purchase Price/Life= Depreciation Amount)

For the Year Ended 31st December 2018

For Depreciation on Building

Depreciation on Building A/c Dr 22400(224000/10)

To Building A/c Cr 22400(Purchase Price/Life= Depreciation Amount)

Entries Under US GAAP ASC 840-40-25-3

For the Year Ended 31st December 2017

Books of Sorocaba Ltd

Sale of Building:(All Values in Reais)

2)

Bank A/c Dr 224000

To Buidling Cr 183100

To Deferred gain on sale Cr 40900(224000-183100)

5) Amortisation of Deferred Gain to P&L A/c under US GAAP

Deferred Gain on sale Dr4090(40900/10 Years)

To gain on sale of building Cr 4090

Journal Entry for the Year Ended 31st Dec 2018

3)

Deferred Gain on sale Dr4090(40900/10 Years)

To gain on sale of building Cr 4090

Bank/Cash A/ Dr 22400(224000/10)

To Lease Rental Cr 22400

In the Books of Banco Janeiro

For the Year Ended 31st December 2017

For buying building

Building A/c Dr 224000

To Bank/Cash Cr 224000

For Depreciation on Building

Depreciation on Building A/c Dr 22400(224000/10)

To Building A/c Cr 22400(Purchase Price/Life= Depreciation Amount)

For the Year Ended 31st December 2018

For Depreciation on Building

Depreciation on Building A/c Dr 22400(224000/10)

To Building A/c Cr 22400(Purchase Price/Life= Depreciation Amount)

ASC 840-40-25-3

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