Essay on Acc512 Unit2 Assign Case 4 1

837 Words Jul 3rd, 2015 4 Pages
ACC 512 – International Accounting

CASE 4-1 Bessrawl Corporation

Reconciliation from U.S. GAAP to IFRS

2014
Income under US GAAP $1,000,000
Adjustments:

Reversal of write-down of inventory to replacement cost
10,000
Additional depreciation on revaluation of equipment
(25,000)
Impairment loss on intangible asset
(5,000)
Recognition of deferred development costs
80,000
Reversal of amortization of deferred gain on sale and leaseback
(30,000)
Income under IFRS
$1,030,000

2014
Stockholders’ equity under US GAAP $8,000,000
Adjustments:

Reversal of write-down of inventory to replacement cost
10,000
Original revaluation surplus on equipment
600,000
Accumulated depreciation on revaluation of equipment
(25,000)
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Under the revaluation model of IAS 16, depreciation expense on equipment in 2013 was $100,000, making the book value at the end of 2013 of $2,650,000. At the beginning of 2014 the equipment would be revalued upward to its fair value of $3,250,000.

The journal entry to recognize the revaluation would be:
Equipment $600,000 Revaluation Surplus (a stockholders’ equity account) $600,000

In 2014, depreciation expense would be $125,000 [($3,250,000 - $250,000)/24 years].

The additional depreciation under IFRS causes IFRS-based income in 2014 to be $25,000 smaller than U.S. GAAP income. IFRS-based stockholders’ equity is $575,000 larger than U.S. GAAP stockholders’ equity. This amount is equal to the revaluation surplus ($600,000) less the additional depreciation in 2014 under IFRS ($25,000), which reduced retained earnings.

Intangible Assets

Under U.S. GAAP, an asset is considered impaired when its carrying amount exceeds the undiscounted future cash flows expected to occur from continued use of the asset. The brand acquired in 2011 has a carrying amount of $40,000 and future expected cash flows are $42,000, so it is not impaired under U.S. GAAP.

Under IAS 36, an asset is considered impaired when its carrying amount exceeds its recoverable amount, which would be the greater of net selling price and the present value of future cash flows. The brand’s recoverable amount is
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