Acc512 Unit2 Assign Case 4 1

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)
Impairment loss on intangible assets
(5,000)
Recognition of deferred development costs
80,000
Recognition of gain on sale and leaseback in 2012
150,000
Accumulated amortization of deferred gain on sale and leaseback
(90,000)
Stockholders’ equity under IFRS
$8,720,000

Explanation of Adjustments

Inventory

Under US GAAP, the inventory on the balance sheet would be reported at the lower of cost or market value. The market value is defined as replacement cost ($180,000), with net realizable value ($190,000) as a ceiling and net realizable value less a normal profit ($152,000) as a floor. The inventory in this case was written down to replacement cost and reported on the December 31, 2014 balance sheet at $180,000. The 2014 income would have included a $70,000 loss (250,000 minus 180,000).

In accordance with IAS 2, the inventory on the balance sheet would be reported at the lower of cost ($250,000) and net realizable value ($190,000). The inventory would have been reported on the December 31, 2014 balance sheet at net realizable value of $190,000 and would reflect a loss on write-down of inventory of $60,000 in net income.

IFRS income would be $10,000 larger than US GAAP net income. IFRS retained earnings would also be