A company sells a building to a bank in 2011 at a gain of $100,000 and immediately leases the building back for period of five years. The lease is accounted for as an operating lease. The building was originally purchased for $200,000 and currently had a book value of $50,000 at the date of the sale.
-Assume the seller of the building is a U.S. company that is preparing to convert from U.S. GAAP to IFRS. At December 31, 2012, with regard to the sale and leaseback accounting, what amount would reconcile stockholders' equity from U.S. GAAP to IFRS at December 31, 2012?

Question

Quizplus · Accepted Answer

Under US GAAP, the gain on sale and leaseback of the building is recognized immediately. Therefore, the company recognized a gain of $100,000 in 2011. However, under IFRS, the gain on sale and leaseback is deferred and recognized over the leaseback period. Therefore, at the end of 2012, only one-fifth of the gain ($20,000) would have been recognized under IFRS, whereas under US GAAP the full $100,000 gain would have been recognized. The reconciliation would require an increase in equity of $60,000 ($100,000 - $40,000) to reflect the IFRS treatment of the gain. Therefore, the correct answer is D, Increase $60,000.

A Company Sells a Building to a Bank in 2011