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IFRS VS GAAP Accounting?

1. Candy Company owns only one building that cost $700,000. At December 31, 2008, the remaining useful life of the building is 30 years; the accumulated depreciation on the building is $200,000 so its carrying value is $500,000. Candy Company wishes to revalue the building on the December 31, 2008 balance sheet. The fair value is currently $900,000.

a) Prepare the necessary journal entry to carry the building at fair value. Assume Candy Company accounts for accumulated depreciation by eliminating the accumulated depreciation against the gross carrying amount of the asset and restating the net amount to the revalued amount of the asset.

b) What is the depreciation charge on the building in 2009? After this entry is recorded what are the amounts in the Building and the Accumulated Depreciation- Building accounts.

c) Assume the entry in (b) was posted. At December 31, 2009, Candy estimates that the fair value of the building is now $850,000. What is the amount of the adjustment for the change in fair value? Prepare the journal entry to record this adjustment.

2. New Drugs, Inc., an international corporation, has identified a list of expenditures it believes to be intangible assets.

i. Research on potential pharmaceutical formulas

ii. Development of new pharmaceutical formulas, after feasibility and business plans have been established

iii. Legal fees to patent the newly developed formula

iv. Customer list purchased from a competitor xz

v. Patent purchased from a competitor

vi. Legal fees to defend the purchased patent

vii. Goodwill included in the purchase of Old Drugs, Inc.

viii. Internally developed customer list

a) Which items would be recognized as assets under US GAAP? Which items would be capitalized under IFRS?

b) Which item would not be recognized as an asset under US GAAP or IFRS?

c) Which item would be capitalized under IFRS but not US GAAP?

3. During 2007, a company began researching and developing a new product for market. By June 30, 2008, the company had determined the new product was technologically feasible and developed a business plan includin5g identification of a ready market for the product, and a commitment of resources to ready the product for market. The company has tracked costs of the product as follows:

· Research and development, Jan-June 2008 € 130,000

· Research and development, July-Dec 2008 80,000

· Training costs 15,000

· Legal fees – patent 20,000

· Mass production 120,000

· Marketing launch 75,000

a) What amount will be included in intangible assets on the company’s December 31, 2008 financial statements prepared in accordance with IFRS?

b) What amount will be reported as intangible assets under US GAAP?

4. Waldrop Airline entered into an agreement to lease equipment from Wilson Company.

a) In each scenario below, identify whether Waldrop would classify the lease as an operating or finance lease under IAS 17.

b) Next, indicate whether the lease would be classified as operating or capital under FASB Statement No. 13.

i. At the end of the lease term, ownership of the equipment will be transferred to Waldrop Airline.

ii. The fair market value of the equipment is expected to be $100,000 at the end of the lease term. Waldrop has the option to buy the equipment at the conclusion of the lease for $20,000.

iii. The equipment has a useful life of 10 years and the term of the lease is 7 years.

iv. The present value of minimum lease payments is $22,300 and the fair value of the leased equipment is $25,000.

5. Vidalia Corp issued €20 million of convertible bonds at 101. The bond is a five-year issue with interest payable annually at a nominal interest rate of 4%. Each bond has a face value of €1,000 and is convertible at any time up to maturity in to 250 ordinary shares. At the date of issue, the prevailing rate for similar debt without convertible options is 6% and the fair value of Vidalia Corp stock is €3.

a) What is the price of similar €20 million non-convertible bonds

b) How will the issue of the convertible bonds be recorded for IFRS?

c) How will the issue of the convertible bonds be recorded for US GAAP?

1 Answer

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  • 9 years ago
    Favorite Answer

    Is this for your hw assignment or CPA exam?

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