Exercise $14-12$ IFRS vs$.$ U$.$S$.$ GAAP tax entries $($L$014-9,$ LO$14-12)$

Melissa Corporation is domiciled in Germany and is listed on both the Frankfurt and New York Stock Exchanges. Melissa has chosen to prepare consolidated financial statements in accordance with U$.$S$.$ GAAP for filing with the U$.$S$.$ Securities and Exchange Commission but must also prepare consolidated financial statements in accordance with IFRS in accordance with European Union regulations.

On December $31,20$X$0,$ Melissa Corporation purchased a small office building for $$1,380,000.$ For tax and financial reporting purposes, Melissa estimates that the building has a useful life of $40$ years with an estimated residual value of $$100,000.$ Melissa uses straight$-$line depreciation for financial reporting. Assume that, for tax purposes, Melissa is permitted to deduct $5\%$ of an asset's depreciable base in $20$X$1.$ This is the only building that Melissa owns.

At the end of $20$X$1,$ Melissa had the building appraised by a qualified real estate appraiser, who estimated the fair value of the building to be $$1,172,500.$ Melissa intends to occupy the building itself, and, therefore, the building is classified as property, plant, and equipment under both US$.$ GAAP and IFRS. After being revalued under IFRS, the Building account has a balance of $$1,172,500$ and the Accumulated depreciation account has a balance of zero. Assume Melissa will have sufficient income in the future to recover any deferred tax assets that might be recognized.

Model used for subsequent measurement

Pre$-$tax income before depreciation and revaluation charge

Enacted tax rate

$\backslash$table$[[$U$.$S$.$ GAAP,IFRS$],[$Cost$,\backslash$table$[[$Revalued at$],[$fair value$]]],[$$$500,000,$$$500,000$