Assume the following. Madrid Company purchased a parcel of land on January 1, Year 1, for $600,000.

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Assume the following. Madrid Company purchased a parcel of land on January 1, Year 1, for $600,000. It constructed a building on the land at a cost of $3,000,000. The building was occupied on January 1, Year 4, and is expected to have a useful life of 40 years and an estimated salvage value of $1,000,000. As of December 31, Year 5 and Year 6, the fair value of the land had not been formally revalued because the real estate market had not changed significantly. Due to a jump in real estate prices, during Year 7 the value of the land had increased to $650,000, and the fair value of the building was $3,000,000. The salvage value of the building is still estimated at $1,000,000. The land and the building were reevaluated by the company in Year 7.


Required
a. Under U.S. accounting rules, what amount would be reported on the company’s Year 6 and Year 7 balance sheets for the land and for the building? Show any necessary computations.
b. Under U.S. accounting rules, what amount of depreciation expense would be reported in Year 7 for the building? Show any necessary computations.
c. Under the IFRS revaluation model, what amount would be reported on the company’s Year 6 and Year 7 balance sheets for the land and for the building? Show any necessary computations.
d. Under the IFRS revaluation model, what amount of depreciation expense would be reported in Year 7 for the building? Show any necessary computations.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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Introductory Financial Accounting for Business

ISBN: 978-1260299441

1st edition

Authors: Thomas Edmonds, Christopher Edmonds

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