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Ifrs Usgaap Notes
Ifrs Usgaap Notes
Ifrs Usgaap Notes
Comparisons of IFRS and US-GAAP: Using Health Products & Services Company ‘A’ as an Example
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I. Valuation of Inventories
IFRS: IAS 2 U.S. GAAP: ARB 43
Inventories are recognized at the lower of cost or net realizable value, Inventories are recognized at the “lower of cost or market”. In the
which is the estimated selling price less any costs of completion and phrase “lower of cost or market”, the term “market” means current
disposal. (IAS 2.9) replacement cost, whether by purchase or by reproduction, but is
Company Policy: limited to the following maximum and minimum amounts:
The FS-item “Allowances on inventories” (FS-items: 11342101,
11353101) includes write-downs to replacement cost as well as write - Maximum: the estimated selling price less any costs of completion
downs due to obsolete or damaged product. Please contact the and disposal, referred to as net realizable value.
consolidation department if the part of the reserves that refers to write- - Minimum: net realizable value less an allowance for “normal”
downs to replacement costs is above 200,000 US-$. profit. Normal is based on the amount of work necessary to
complete the product.
Write-downs on inventories must be reversed, if the net realizable value The write-down of inventories may not be reversed.
has increased, but the reversal is limited to the amount of the original
write-down.
Cost formulas for inventory costs: LIFO (Last in first out) is prohibited. Cost formulas for inventory costs: LIFO (Last in first out) is permitted.
(IAS 2.25). This formula assumes that the inventories that were purchased or
produced last are sold first.
Company Policy:
For Health Products & Services Company A, this difference is not
relevant, as inventory costs are determined by using the average or the
first in, first out method (inventories that were purchased or produced
first are sold first).
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Demo: Inventory
ABC Inc. has the following inventory item on hand at 12/31/Y1. Record the entry on 12/31 for Y1 &Y2 to reflect the price adjustment.
12/31/Y1 IFRS US
Historical cost 1,000 Cost Cost
Replacement cost 800 Replacement cost
Estimated selling price 880
Estimated costs to complete and sell 50
Net realizable value 830 NRV Ceiling
Normal profit margin— 15% 124.50
Net realizable value less normal profit margin 705.50 Floor
Designated Market Value
Valuation basis
Adjustment, See T-Account Analysis below
12/31/Y2 IFRS US
*New Cost (see notes below) Cost Cost
Replacement cost 900 Replacement cost
Estimated selling price 980
Estimated costs to complete and sell 50
Net realizable value 930 NRV Ceiling
Normal profit margin— 15% 139.50
Net realizable value less normal profit margin 790.50 Floor
Designated Market Value
Valuation basis
Adjustment
12/31/Y2-IFRS
Inventory Inventory
The entire inventory of Product Z that was on hand at 12/31/Y1 was completed in Year 2 at a cost of $ 1,800 and sold at a price of $ 17,150.
Required:
a. Use the information provided in this chapter related to the accounting for inventories to determine the impact on Year 1 and Year 2 income related to
Product Z (1) under IFRS and (2) under U. S. GAAP.
b. Summarize the difference in income, total assets, and total stockholders’ equity using the two different sets of accounting rules over the two-year
period.
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a. How much Inventory Loss is in Y1 and COGS in Y2.
IFRS U.S. GAAP
Historical cost Historical cost
Estimated selling price Replacement cost
Costs to complete and sell
Net realizable value Net realizable value
Inventory loss (gain) 5,000 Normal profit margin 20%
NRV - profit margin
Market value
Inventory loss (gain) 6,000
Example 1: (See Figure I and II, next page) A corporation elected LIFO inventory accounting in 1975. From 1975 to 2008 the company
experienced inflation in its inventory equal to CPI of 224%. Because the company did not have to pay current taxes on the inventory holding
profits, it was able to use the cash profits to maintain its unit investment in inventory and invest in other income producing assets while
maintaining status quo terms with its vendors and static borrowings from its lenders. If the company were forced to recapture the inventory profits,
it would have a current federal and state tax bill of approximately $10.6 million, more than ten times the equity value of the company. In
order to satisfy the tax liability, the company would need to borrow money from its lenders if it could, infuse more cash equity capital if the owners
had it to invest, sell productive assets and cut expenses or some combination of the above. In this example, the value of the tax liability is ten times
the total equity value of the company. Even if the tax burden would be spread over a limited number of future years this transfer of capital from the
private sector to the government would contract or prevent growth in these companies.
Example 2: A $35 million privately-owned manufacturing company in New Jersey employs 150 people to design, manufacture and
distribute its products world-wide. This company has consistently used the LIFO method of inventory accounting for over 35 years.
The nature of this business requires keeping approximately $8 million of inventory on hand at all times, due to the replacement or “spare parts”
needed to satisfy the multi-year nature of its customers’ contracts. They manufacture a highly engineered, technical array of products that are
customer and application specific. The products are of a very durable nature and can be found in some of the most extreme environments in the
universe, literally. Nevertheless, customers regularly request replacement units or outright rebuilding of previously sold units. Maintaining the
LIFO based inventory values more closely matches the timing of production with the ultimate shipping point in time. LIFO in this way helps to
better match current selling prices with current inventory costs, since the bulk of purchases and manufacturing in any current period do not end up
“on the shelf” but instead, are shipped according to current customer specific requirements. LIFO positively impacts that process on several levels.
If LIFO were repealed today, this New Jersey Company would be required to pay retroactive taxes on inventory held since 1973, creating a tax
bill of approximately $1 million. Since this is a small, privately held company, the only way to pay this tax bill would be to borrow capital or cut
business investment. Either alternative would severely impact the company’s ability to continue operating at current levels, ultimately requiring a
reduction in employment levels.
It should also be noted that this current LIFO vs. FIFO adjustment has slowly built up over the last 35 years. Hence the impact on any one year’s
tax bill was relatively nominal. And at times, this impact has resulted in an increase in taxable income , with the most recent such increase taking
place just two years ago. The perception that LIFO is a one-way tax “loophole” is inaccurate.
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• Capitalization of the development costs under certain conditions is • Capitalization of the development costs is
Deferred development costs are accounted for using the same rules as any other intangible. They must be
amortized over their useful life using a method that best reflects the pattern in which the asset’s economic
benefits are consumed.
Declining-balance, units-of-production, and straight-line methods are among the acceptable methods.
Amortization begins when the intangible asset is available for sale or use.
Company policy
When we take the example of the development of a new PRODUCT, the required condition can be
demonstrated as following:
The technical feasibility can be proven when approximately 2,500 treatments have been successfully
accomplished.
The intention can be demonstrated within the scope of an approval of test samples (which is defined in SOP).
3. + 4. To demonstrate these requirements, business cases can be used, especially the part concerning the
market assessments. These business cases are presented and authorized in management meetings.
5. The availability of adequate financial resources is demonstrated by the existence of the R&D budget. The
other resources are proved by the existence of the know-how experts and the R&D locations.
6. The project related costs are collected and analyzed via SAP or via achievement descriptions prepared by all
employees involved in the development project.
A documentation file is available in order to fulfill the recognition criteria.
The differentiation between the research and the development phase is often not clear or especially the technical
and commercial feasibility of e.g. a new PRODUCT can be established only in a very late phase: but no
retroactive capitalization of development expenditures initially recognized as an expense is possible.
As soon as a product becomes available for use (e.g. by a market launch) no additional development costs will
be recognized.
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Demo: Development Costs
• Assume that Szabo Company Inc. incurred costs to develop a specific product for a customer in Year 1, amounting to $300,000. Of that amount,
$250,000 was incurred up to the point at which the technical feasibility of the product could be demonstrated. In Year 2, Szabo Company incurred
an additional $300,000 in costs in the development of the product.
• The product was available for sale on January 2, Year 3, with the first shipment to the customer occurring in mid- February, Year 3.
• Sales of the product are expected to continue for four years, at which time it is expected that a replacement product will need to be developed.
• The total number of units expected to be produced over the product’s four-year economic life is 2,000,000.
• The number of units produced in Year 3 is 800,000. Residual value is zero.
Discussion
In Year 1, $250,000 of development costs is an Asset or Expense?
$50,000 is recognized as an Asset or Expense?
To record development expense and deferred development costs: Dr. Cr.
Development expense
Deferred development costs ( intangible asset)
Cash, payables, etc
In Year 2, $ 300,000 of development costs is recognized as an Asset or Expense?
To record deferred development costs: Dr. Cr.
Deferred development costs ( asset)
Cash, payables, etc.
Amortization of development costs begins on January 2, Year 3, when the product becomes available for sale. Szabo Company determines that the
units-of- production method best reflects the pattern in which the asset’s economic benefits are consumed. Amortization expense for Year 3 is calculated
as follows:
Carrying amount of deferred development cost $350,000
Units produced in Year 3 800,000
Total number of units to be produced over economic life 2,000,000
% of total units produced in Year 3?
Amortization expense in Year 3?
Required:
a. Use the information provided in this chapter related to the accounting for internally generated intangible assets to determine the impact on Year 1 and
Year 2 income related to research and development costs (1) under IFRS and (2) under U. S. GAAP.
b. Summarize the difference in income, total assets, and total stockholders’ equity related to Product X over its five- year life under the two different
sets of accounting rules.
U.S. GAAP
Research and development
b. F/S impact
Ignoring income taxes, the following amounts on total assets and total stockholders’ equity under IFRS are higher or lower?
By the amounts below:
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
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Treatment 1:
RESTATE both the buildings account and accumulated depreciation on buildings such that the ratio of net carrying amount to gross carrying amount
(or ratio of carrying value to cost) is 40 percent ($400,000/$1,000,000) and the net carrying amount is $750,000.
Original $ % Total/Balance Revaluation
Cost or $1,000,000 100%
Gross carrying amount
Accumulated depreciation 600,000 60%
Net carrying amount $400,000 40% $750,000
(net CA/cost ratio)
Summary of Treatment 1:
Buildings, Net
Revaluation surplus
Treatment 2:
ELIMINATE accumulated depreciation on buildings to be revalued.
S1. To eliminate accumulated depreciation on building to be evaluated Balance
Buildings
Accumulated depreciation
S2. To reevaluate building
Buildings
Revaluation surplus
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Treatment of Revaluation Surplus/Loss
On the first revaluation after initial recording: (very straightforward)
• Increases are credited directly to a revaluation surplus in the
• Decreases are charged as an
At subsequent revaluations, the following rules apply:
• To the extent that there is a previous revaluation surplus with respect to an asset, a decrease first should be charged against it and any excess of
deficit over that previous surplus should be expensed.
• To the extent that a previous revaluation resulted in a charge to expense, a sub-sequent upward revaluation first should be recognized as income
to the extent of the previous expense and any excess should be credited to other comprehensive income in equity.
Required:
a. Determine the impact the equipment has on Jefferson Company’s income in Years 1–5 (1) using IFRS, assuming that the revaluation model allowed
by IAS 16 is used for measurement subsequent to initial recognition, and (2) using U. S. GAAP.
b. Summarize the difference in income, total assets, and total stockholders’ equity using the two different sets of accounting rules over the period Year
1–Year 5.
Disclosure: Disclosure:
Additional disclosures concerning PPE in general are necessary:
• Reconciliation of the carrying amount at the beginning and the end of the period. For this reconciliation no comparative
information is required.
• Amount of expenditures on account of property, plant and equipment in the course of construction during the period.
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IV-1. Impairment of Assets (Other than Goodwill and Intangible Assets with indefinite useful life)
3.1 Impairment of Assets (Other than Goodwill and Intangible Impairment of Long-lived Assets: SFAS 144
Assets with indefinite useful life): IAS 36
IFRS
In applying IAS36, asset’s recoverable amount would be determined as follows:
Net selling price
Value in use
Recoverable amount
The following journal entry would be made to reflect the impairment of this asset under IFRS:
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E4 Impairment of an depreciable asset
Madison Company acquired a depreciable asset on 1/1/Y1 at a cost of $12 million.
At 12/31/Y1, Madison gathered the following information related to this asset:
Carrying amount (net of accumulated depreciation) $10 million
Fair value of the asset (net selling price) $7.5 million
Sum of future cash flows from use of the asset $10 million
Present value of future cash flows from use of the asset $8 million
Remaining useful life of the asset 5 years
Required:
a. Use the information provided in this chapter related to the impairment of assets to determine the impact in Year 2 and Year 3 income from the
depreciation and possible impairment of this equipment (1) under IFRS and (2) under U. S. GAAP.
b. Determine the difference in income, total assets, and total stockholders’ equity for the period Year 1– Year 6 under the two different sets of
accounting rules. Note: If the asset is determined to be impaired, there would be no adjustment to Year 1 depreciation expense of $2 million.
a. Determine Impairment Loss in Year 1
IFRS U.S. GAAP
Carrying amount Carrying amount
Net selling price Future cash flows
Discounted future cash flows
Value in use
Impairment loss Impairment loss
Depreciation expense for Y2-6
b. F/S Impact
U.S. GAAP
Carrying value (at 1/1)
Depreciation expense
Carrying value (at 12/31)
Diff. (IFRS-U.S.GAAP)
U.S. GAAP
Beginning balance
Depreciation expense
Ending balance
Diff. (IFRS-U.S.GAAP)
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Required:
a. Explain why U. S. GAAP adjustment (a) results in an addition to net income. Explain why U. S. GAAP adjustment (a) results in an addition to
shareholders’ equity that is greater than the addition to net income. What is the share-holders’ equity account affected by adjustment (a)?
b. Explain why U. S. GAAP adjustment (b) results in a subtraction from share-holders’ equity but does not affect net income. What is the shareholders’
equity account affected by adjustment (b)?
a. + U. S. GAAP adjustment
Adjustment (a) relates to of the revaluation amount on fixed assets.
Adjustment (a) results in an addition to net income because the additional depreciation taken on the revaluation amount under U.S. GAAP.
The addition to net income pertains to the current year only.
The addition to net income in the current year plus the addition to net income in previous years is the cumulative effect on retained earnings, which is
the shareholders’ equity account affected by adjustment (a).
The addition to shareholders’ equity is greater than the addition to net income because of this cumulative effect.
b. - U. S. GAAP adjustment
Adjustment (b) relates to the revaluation surplus (increase in shareholders’ equity) that is recorded when fixed assets are revalued.
This increase under U.S. GAAP and shareholders’ equity must be reduced accordingly.
In this case, the shareholders’ equity account affected is Revaluation Surplus.
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At December 31, Year 3, the company develops the following estimates related to Machine Z:
Expected future cash flows $75,000
Present value of expected future cash flows 55,000
Selling price 70,000
Costs of disposal 7,000
At the end of Year 5, Buch’s management determines that there has been a substantial improvement in economic conditions resulting in a strengthening
of demand for Product Z. The following estimates related to Machine Z are developed at December 31, Year 5:
Expected future cash flows $70,000
Present value of expected future cash flows 53,000
Selling price 50,000
Costs of disposal 7,000
The impairment loss of ? would be recognized in income on December 31, Year 3 with an offsetting reduction in the asset’s carrying value.
As a result, the asset will be reported at on the 12/31/Y3 balance sheet at a carrying value of ? .
This amount will be depreciated over the remaining useful life of ? years on a straight-line basis or ? for remaining years.
b. Up to Year 5 economy
Review for reversal of impairment loss at December 31, Year 5:
Carrying value
Net selling price
Value in use
Recoverable amount (greater of the two)
Impairment loss
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• IAS 36 requires an impairment loss to be reversed if the recoverable amount of an asset is determined to exceed its new carrying amount, but only if there are
changes in the estimates used to determine the original impairment loss or there is a change in the basis for determining the recoverable amount (from value in
use to net selling price or vice versa).
• Because recoverable amount has changed from net selling price at the end of Year 3 to value in use at the end of Year 5, and the recoverable amount is greater
than the carrying value at the end of Year 5, the impairment loss recognized in Year 3 should be reversed.
• However, the carrying value of the asset after reversal of the impairment loss should not exceed what it would have been if no impairment loss had been
recognized.
• The carrying value of Machine Z at December 31, Year 5 would have been $50,000 if no impairment loss had been recognized in Year 3 ($100,000 original
cost less $10,000 annual depreciation for five years).
• Thus, an increase in the carrying value of the asset of $5,000 should be recognized at December 31, Year 5 with a reversal of impairment loss in an equal
amount.
• The asset’s carrying value on the December 31, Year 5 balance sheet will be $50,000 ($45,000 + $5,000).
• This amount will be depreciated over the remaining useful life of 5 years on a straight-line basis.
• Summary of amounts to be reported on the balance sheet and income statement in Years 1 – 5:
Year 1 Year 2 Year 3 Year 4 Year 5
Carrying value (at 1/1)
Income Statement
Depreciation expense
Impairment loss
Reversal of impairment loss
Carrying value (at 12/31)
IV-2. Impairment: Impairment of Goodwill and Intangible Assets with Indefinite Useful Life
IAS 36 SFAS 142
The requirements for the impairment test of goodwill and The requirements for the impairment test of goodwill and
intangible assets with indefinite useful life correspond generally intangible assets with indefinite useful life are different from the
with the IFRS-requirements for the impairment testing of assets or requirements for impairment of long-lived assets (see section 3.1 of
asset groups (see section 3.1 of this manual). this manual).
Whereas the impairment of goodwill and intangible assets with Whereas the impairment of goodwill and intangible assets with
indefinite useful life is included in the “general” standard (IAS 36) indefinite useful life is included in the “general” standard for
for impairment of assets under IFRS, these issues are covered by a impairment of assets under IFRS, these issues are covered by a
separate standard under US-GAAP. separate standard under US-GAAP.
Key Points Key Points
• The impairment test of goodwill and intangible assets with • The impairment test of goodwill and intangible assets with
indefinite useful life is required at least once a year, or if a indefinite useful life is required at least once a year, or if a
triggering event occurs. This impairment test is performed by triggering event occurs. This impairment test is performed by
the consolidation department. the consolidation department.
• Generally the procedure is the same under IFRS and US-GAAP • Generally the procedure is the same under IFRS and US-
for the impairment test of intangible assets with indefinite useful GAAP for the impairment test of intangible assets with
life (a comparison of the recoverable amount with its carrying indefinite useful life (a comparison of the fair value with its
amount – see section 3.1 of this manual). carrying amount; fair value is determined by using a
discounted cash flow approach).
• The carrying amount of the CGU does generally not include the
carrying amount of any recognized liability. (IAS 36.76(b)). At • The carrying amount of the reporting unit includes the
the most the carrying amount of the CGU may include carrying amount of all recognized liabilities.
operational liabilities (IAS 36.78)
• Two-step approach for the impairment test of goodwill
• One-step approach for the impairment test of goodwill
• The impairment loss is the excess of the carrying amount of the
• The impairment loss is the excess of the carrying amount of the reporting unit’s goodwill over the implied fair value
CGU over its recoverable amount
• The impairment loss cannot exceed goodwill
• If the impairment loss exceeds goodwill, the remaining loss is
allocated to the other assets of the CGU on a pro rata basis • Subsequent reversal of a previously recognized impairment loss
• The reversal of an impairment loss is required with the is prohibited.
exception an impairment loss for goodwill.
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Disclosure:
o In addition to the disclosure requirements listed in section 3.1 of this
manual, it is necessary to complete a checklist “Estimates used to
measure recoverable amounts of CGU containing GW or intangible
assets with indefinite useful lives” (available on request)
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V. Leases
Leases: IAS 17 Accounting for Leases: SFAS 13, SFAS 28
If a sale-and-leaseback transaction results in an operating lease, In general immediate gain or loss recognition on the sale in a sale-
situations may arise in which profit or loss is ? and-leaseback transaction is not allowed – i.e. gain or loss is ?
o Application at Health Products & Services Company A: Sale-and- o Under sale-and-lease-back transactions resulting in operating lease,
lease-back transactions resulting in operating lease are among others any profit or loss from the initial sale should be deferred by the
under the lease agreements with region X and under machine lease seller-lessee and amortized in proportion to the rental payments
agreements in region Y. In the course of these transactions the over the period of time the assets are expected to be used.
dialysis machines are sold and simultaneously leased back. Then
these machines are available for the final customers (hospitals or
doctors) either under rental or package agreement.
Company Policy: If the necessary criteria are satisfied under IFRS (the
sale price is below the fair value), the deferred income recorded from
such sale-and-lease-back transactions under US-GAAP has to be
released within the first adoption of IFRS. In the subsequent periods for
IFRS purposes it is necessary to reverse the released deferred income
under US-GAAP.
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Required: Calculate the following for Quantacc Company using U. S. GAAP (ignore income taxes):
a. Net income for Year 5.
b. Stockholders’ equity at 12/31/Y5
Stockholders’ equity under IFRS $500,000
Adjustments: Item No. Explanations
Reversal of revaluation of fixed assets
Reversal of accumulated depreciation on revaluation of fixed assets
Reversal of deferred development costs
Reversal of accumulated amortization on deferred development costs
Reversal of gain on sale and leaseback
Accumulated amortization of gain on sale and leaseback
Stockholders’ equity under U.S. GAAP
Reconciliation of net income from IFRS to U. S. GAAP The following schedule illustrates the significant adjustments to
reconcile net income in accordance with IFRS to the amounts determined in accordance with U. S. GAAP for each of the three
years ended December 31.
l) Sale and leaseback transaction In March 2001 Swisscom entered into two master agreements for the sale of real estate. At
the same time Swisscom entered into agreements to lease back part of the sold property space. The gain on the sale of the
properties after transaction costs of CHF 105 million and including the reversal of environmental provisions, was CHF 807
million under IFRS. A number of the leaseback agreements are accounted for as finance leases under IFRS and the gain on the
sale of these properties of CHF 129 million is deferred and released to income over the individual lease terms. The remaining
gain of CHF 678 million represents the gain on the sale of buildings which were sold outright and the gain on the sale of land
and buildings which qualify as operating leases under IFRS. Under IFRS, the gain on a leaseback accounted for as an operating
lease is recognized immediately. Under U. S. GAAP, in general the gain is deferred and amortized over the lease term. If the
leaseback was minor, the gain was immediately recognized. In addition, certain of the agreements did not qualify as sale and
leaseback accounting under U. S. GAAP because of continuing involvement in the form of purchase options. These
transactions are accounted for under the finance method and the sales proceeds are reported as a financing obligation and the
properties remain on the balance sheet and continue to be depreciated as in the past. The lease payments are split between
interest and amortization of the obligation.
1
This would be acceptable under IAS 17 if 80% of the life of the lease is not viewed as the “major part” of the lease.
2
Neither IFRS nor U.S. GAAP allows capitalization of research costs.
3
Past service cost arises when an employer improves the benefits to be paid employees in conjunction with a defined benefit plan.
IAS 19 provides the following rules related to past service cost:
• Past service cost related to retirees and vested active employees is expensed immediately.
• Past service cost related to non-vested employees is recognized on a straight-line basis over the remaining vesting period.
In comparison, U. S. GAAP requires that the past service cost related to retirees be amortized over their remaining expected life, and the past service
cost to active employees be amortized over their remaining service period.
4
IAS 7 allows dividends paid to be classified as either an operating or a financing cash flow, whereas U. S. GAAP classifies dividends paid as a
financing activity.
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Comprehensive Example:
Bessrawl Corporation is a U. S.- based company that prepares its consolidated financial statements in accordance with U. S. GAAP. The company
reported income in 20X8 of $1,000,000 and stockholders’ equity at December 31, 20X8, of $8,000,000. The CFO of Bessrawl has learned that the U. S.
Securities and Exchange Commission is considering giving U. S. companies the option of using either U. S. GAAP or IFRS in preparing consolidated
financial statements. The company wishes to determine the impact that a switch to IFRS would have on its financial statements and has engaged you to
prepare a reconciliation of income and stockholders’ equity from U. S. GAAP to IFRS. You have identified the following six areas in which Bessrawl’s
accounting principles based on U. S. GAAP differ from IFRS. 1. Inventory 2. Property, plant and equipment 3. Intangible assets 4. Research and
development costs 5. Sale and leaseback transaction 6. Pension plan Bessrawl provides the following information with respect to each of these
accounting differences.
Inventory At year- end 20X8, inventory had a historical cost of $250,000, a replacement cost of $180,000, a net realizable value of
$190,000, and the normal profit margin was 20 percent.
Property, Plant, and The company acquired a building at the beginning of 20X7 at a cost of $2,750,000. The building has an estimated useful life
Equipment of 25 years, an estimated residual value of $250,000, and is being depreciated on a straight- line basis. At the beginning of
20X8, the building was appraised and determined to have a fair value of $3,250,000. There is no change in estimated useful
life or residual value. In a switch to IFRS, the company would use the revaluation model in IAS 16 to determine the carrying
value of property, plant, and equipment subsequent to acquisition.
Intangible Assets As part of a business combination in 20X5, the company acquired a brand with a fair value of $40,000. The brand is
classified as an intangible asset with an indefinite life. At year- end 20X8, the brand is determined to have a selling price of
$35,000 with zero cost to sell. Expected future cash flows from continued use of the brand are $42,000 and the present value
of the expected future cash flows is $34,000.
Research and The company incurred research and development costs of $200,000 in 20X8. Of this amount, 40 percent related to
Development Costs development activities subsequent to the point at which criteria had been met indicating that an intangible asset existed. As
of the end of the 20X8, development of the new product had not been completed.
Sale and Leaseback In January 20X6, the company realized a gain on the sale and leaseback of an office building in the amount of $150,000. The
lease is accounted for as an operating lease and the term of the lease is 5 years.
Pension Plan Pension Plan In 20X7, the company amended its pension plan creating a past service cost of $60,000. Half of the past service
cost was attributable to already vested employees who had an average remaining service life of 15 years, and half of the past
service cost was attributable to nonvested employees who on average had two more years until vesting. The company has no
retired employees.
Required
Prepare a reconciliation schedule to convert 20X8 income and December 31, 20X8, stockholders’ equity from a U. S. GAAP basis to IFRS. Ignore
income taxes. Pre-pare a note to explain each adjustment made in the reconciliation schedule.
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Intangible Assets.