Rawl Corporation sold a building to a bank at the beginning of 2017 at a gain of
ID: 2572061 • Letter: R
Question
Rawl Corporation sold a building to a bank at the beginning of 2017 at a gain of $82,500 and immediately leased the building back for a period of four years. The lease is accounted for as an operating lease. The book value of building (net) is $507,000.
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:
a. Prepare journal entries for this sale and leaseback for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.
b. Prepare the entry(ies) that Rawl would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS.
Explanation / Answer
Journal Entry - Books of Rawl Corp. - US GAAP Sl. No. Date Particulars Debit Credit A. 1st January, 2017 Sale of Building Cash 589500 Building 507000 Gain on sale of Building 82500 (On sale of Asset) B. 31st December 2017 Lease Rental Profit & Loss 147375 Lease Rent 147375 (For recording of lease rent expense in books, assuming 4 years life of building) Lease Rent 147375 Cash 147375 (For payment of lease rentals) Gain on sale of Building 20625 Lease Rent 20625 (Amortization of Gain over lease Period) C. 31st December 2018 Lease Rental Profit & Loss 147375 Lease Rent 147375 (For recording of lease rent expense in books) Lease Rent 147375 Cash 147375 (For payment of lease rentals) Gain on sale of Building 20625 Lease Rent 20625 (Amortization of Gain over lease Period) Journal Entry - Books of Rawl Corp. - IFRS Assumption Discount Rate of 5% Year>> Lease Rentals PVF @ 5% discount rate 1 147375 0.95 2 147375 0.91 3 147375 0.86 4 147375 0.82 Total PV 5,22,584 Sl. No. Date Particulars Debit Credit A. 1st January, 2017 Sale of Building Cash 589500 Building 507000 Gain on sale of Building 82500 (On sale of Asset) B. 31st December 2017 Right-of-use asset 5,22,584 Lease liability 5,22,584 (Leaseback of the land recognised using the market rates for the lease) Lease Rental Profit & Loss 147375 Lease Rent 147375 (For recording of lease rent expense in books, assuming 4 years life of building) Lease Rent 147375 Cash 147375 (For payment of lease rentals) C. 31st December 2018 Lease Rental Profit & Loss 147375 Lease Rent 147375 (For recording of lease rent expense in books) Lease Rent 147375 Cash 147375 (For payment of lease rentals) Gain on sale of Building 20625 Lease Rent 20625 (Amortization of Gain over lease Period)
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