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Chapter 11: Q20-5IFRS (page 607)

At the end of the current year, Joshua Co. has a defined benefit obligation of \(335,000 and pension plan assets with a fair value of \)345,000. The amount of the vested benefits for the plan is \(225,000. Joshua has a liability gain of \)8,300 (beginning accumulated OCI is zero). What amount and account(s) related to its pension plan will be reported on the company鈥檚 statement of financial position?

Short Answer

Expert verified

Answer

The company should report $8,300 as other comprehensive gains.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Equity

In accounting, equity refers to the amount which belongs to the shareholders of the company. Equity reflects the amount payable to thecommon stockholdersafter settling all the liabilities and dues of preference stockholders.

02

Reporting on financial statements

According to the above-given information, Joshua Company would report$10,000as a pension asset, i.e., the difference between the defined benefit obligation and plan assets鈥� fair value.

In addition, $8,300 should be reported in the equity section of the company asother comprehensive gains.

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Most popular questions from this chapter

Walkin Inc. is considering the write-down of its long-term plant because of a lack of profitability. Explain to the management of Walkin how to determine whether a write-down is permitted.

Jurassic Company owns equipment that cost \(900,000 and has accumulated depreciation of \)380,000. The expected future net cash flows from the use of the asset are expected to be \(500,000. The fair value of the equipment is \)400,000. Prepare the journal entry, if any, to record the impairment loss.

Companies following international accounting standards can revalue fixed assets above the assets鈥� historical costs. Such revaluations are allowed under various countries鈥� standards and the standards issued by the IASB. Liberty International, a real estate company headquartered in the United Kingdom (U.K.), follows U.K. standards. In a recent year, Liberty disclosed the following information on revaluations of its tangible fixed assets. The revaluation reserve measures the amount by which tangible fixed assets are recorded above historical cost and is reported in Liberty鈥檚 stockholders鈥� equity.

Liberty International

Completed Investment Properties

Completed investment properties are professionally valued on a market value basis by external valuers at the balance sheet date. Surpluses and deficits arising during the year are reflected in the revalution reserve.

Liberty reported the following additional data. Amounts for Kimco Realty (which follows GAAP) in the same year are provided for comparison.

Liberty

(pounds sterling, in thousands)

Kimco

(dollars, in millions)

Total revenues

拢 741

$ 517

Average total assets

5,577

4,696

Net income

125

297

Instructions

  1. Compute the following ratios for Liberty and Kimco.
    1. Return on assets.
    2. Profit margin on sales.
    3. Asset turnover.

How do these companies compare on these performance measures?

  1. Liberty reports a revaluation surplus of 拢1,952. Assume that 拢1,550 of this amount arose from an increase in the net replacement value of investment properties during the year. Prepare the journal entry to record this increase.
  2. Under U.K. (and IASB) standards, are Liberty鈥檚 assets and equity overstated? If so, why? When comparing Liberty to U.S. companies, like Kimco, what adjustments would you need to make in order to have valid comparisons of ratios such as those computed in (a) above?

(Depreciation Computations鈥擲YD, DDB鈥擯artial Periods) Judds Company purchased a new plant asset on April 1, 2017, at a cost of \(711,000. It was estimated to have a service life of 20 years and a salvage value of \)60,000. Judds鈥� accounting period is the calendar year.

Instructions

  1. Compute the depreciation for this asset for 2017 and 2018 using the sum-of-the-years鈥�-digits method.
  2. Compute the depreciation for this asset for 2017 and 2018 using the double-declining-balance method.

Use the information for Lockard Company given in BE11-2. (a) Compute 2017 depreciation expense using the double-declining-balance method. (b) Compute 2017 depreciation expense using the double-declining-balance method, assuming the machinery was purchased on October 1, 2017.
See all solutions

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