Incorporating International Financial reporting Standards into Intermediate Accounting?
1. Candy Company owns only one building that cost $700,000. At December 31, 2010, 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, 2010 balance sheet. The fair value is currently $900,000.
a) Prepare a 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 2011? 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, 2011, 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 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?
Note: The answers to (a), (b) and (c) must be specifically stated
3. During 2010, a company began researching and developing a new product for market. By June 30, 2011, the company had determined the new product was technologically feasible and developed a business plan including 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 2011 - $130,000
Research and development, July-Dec 2011 - $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, 2011 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.
[Note: Assume each scenario is independent and that Waldrop has not met any of the other requirements for capitalizing leases]
i. At the end of the lease term, ownership of the equipment will be transferred to Waldrop
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
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
a) What is the price of similar €20 million non-convertible bonds?
b) Prepare the journal entry to record the issue of the convertible bonds for IFRS?
c) Prepare the journal entry to record the issue of the convertible bonds for US GAAP?
- Don GLv 78 years agoFavorite Answer
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