Essay on exam case financial accounting

752 Words Dec 6th, 2013 4 Pages
Solutions to Exercises and Problems Tutorial 1 IFM

Case 2-2
Case 2-2 SKD Limited

1. Goodwill
a. There is no goodwill amortization expense in Country A, so the goodwill amortization expense recognized by SKD must be added back to determine income under Country A GAAP.
SKD amortizes goodwill over a longer period (20 years) than is allowed in Country B (5 years), so an additional amount of goodwill amortization expense must be recognized to determine income under Country B GAAP, which reduces Country B GAAP income.
b. The goodwill adjustment affects the retained earnings in stockholders’ equity. The increase in Country A GAAP income results in an increase in retained earnings and the decrease in Country B GAAP income results in a
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The amount by which the assets are revalued is subject to depreciation, which results in a larger depreciation expense. The adjustment to recognize this additional depreciation expense decreases income under Country B GAAP. It also decreases stockholders’ equity (retained earnings). The decrease in retained earnings from additional depreciation is smaller than the increase in stockholders’ equity from revaluation of assets, which results in a net increase in stockholders’ equity. Note: if we knew when the fixed assets were revalued, we could determine the amount by which they were revalued. For example, if revaluation occurred at the end of the previous year, then the revaluation amount must have been $64 ($64 – 8 = $56) because only one year of additional deprecation would be included in the stockholders’ equity adjustment.
27. Holzer Company – Property, Plant, and Equipment (capitalization of borrowing costs and measurement of asset subsequent to acquisition using two alternative models)

IAS 16 Cost Model
Carry asset on the balance sheet at cost less accumulated depreciation and any accumulated impairment losses.

Capitalize borrowing costs borrowing costs attributable to the construction of qualifying assets.

Annual interest ($900,000 x 10%) $90,000
Interest to be capitalized in Year 1 ($500,000* x 10%) 50,000
Interest expense in Year 1 $40,000 * Expenditures of $1,000,000 were
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