Bessrawl Corporation: Leading Provider of Innovative Solutions

The reconciliation schedule converting the 2014 income and December 31, 2014 stockholders’ equity from GAAP to IFRS 

An explanation of the identified adjustment 

Inventory 

GAAP provides that organizations should report inventory on their balance sheets at a lower cost than the value of the market. In this case, the market is identified as the replacement cost ($180, 000), which is characterized by the net value that could be realized ($190, 000), as the ceiling. The net realizable value is less than the firm’s normal profit, which is $152, 000, the floor. The inventory, reported in the organization’s 2014 balance sheet was put down as the replacement cost, which is $180, 000. In the same year’s income, a $70, 000 loss was included. The IAS 2 stipulates that it is possible for the corporation to report inventory on its balance sheet as $250, 000, and the net realizable value at $190, 000. In this light, it would be possible to report the December 31, 2014 inventory balance sheet as well as the realizable value at $190, 000. Consequently, the $60, 000 inventory writedown loss would have appeared in its net income. In this light, it would be possible to stipulate that the IFRS income would be larger than the GAAP net income by $10, 000. For this reason, the IFRS retained earnings would increase by a similar amount.

Property, plant and equipment 

The company reports provide that the depreciation expense was $100, 000. The IAS16’s revaluation model would indicate that the expense spent on the building was $100, 000 in the year 2013. This reporting is indicative of the provision that at the end of the same year, the book value of the expenses was $2,750,000. This brings in the possibility of revaluing the expenses on the equipment upwards at the beginning of 2014, which would result to a fair value of $3,250,000. In the journal entry, the reevaluation will be recognized as recorded below

In the year 2014, the depreciation would be 

The 2014 IFRS base income will then be $25,000, derived from the additional IFRS depreciation. This figure is indicating that the base income is lower compared to the GAAP income. Conversely, the IFRS stockholders’ equity, which is $575,000, would be higher than the stockholders’ equity under GAAP. This amount is equal to the revaluation surplus, $600,000. The amount is lower than the additional depreciation value in the year 2014, which was factored in under IFRS. The value led to the reduction of retained earnings.

Intangible assets 

Under the U.S. GAAP, an asset that is considered as impaired is one that carries the amount that is in excess of the excess future cash flow expectation that has not been discounted (Weygandt, 2010). The expectation is that the undiscounted cash flow is that it will arise from the continued utilization of the particular asset. In this light, the recoverable amount of the corporation’s brand is $35,000. This amount exceeds the net selling price of the identified amount as well as the present value of the cash flows expected in future, which remains at $34,000. In this light, it would be possible to recognize an impairment loss that amounts to $5,000 under IFRS. For this reason, the IFRS income as well as the retained earnings will amount to $5,000, which is less than the income and retained earnings under the U.S. GAAP.

Research and development costs 

The return and development cost under the United States’ GAAP, the expense considered is $200,000. The determination of the 2014 income recognizes this amount. IAS 38 provides the possibility of expensing the research and development costs (Walton & Business Expert Press, 2009), which would be used in relation to the attached 2014 costs. In turn, the calculation will be  . Conversely, the capitalization of the development costs as intangible assets would be calculated as  . This cost could be also considered deferred development cost (Weygandt, 2010). In the year 2014, the income based on IFRS would be $80,000 more than the income reflected under GAAP. The reason for the gap emanates from the provision that the new product is yet to be introduced in the market, meaning that the amortization of the deferred costs of development under IFRS 2014 has not yet taken effect.

Sale-and-leaseback transaction 

The gains sale and leaseback provisions recorded under GAAP, can be identified in the income derived from the life of a particular lease. Since the term of the lease is five years, $30,000 the 2014 gain from the lease will be taken into account. Conversely, this amount can be recognized in the years 2012 as well as 2013, thereby creating a cumulating amount of $90,000 at the end of the year 2014. IAS 17 provides that that the gain realized, which amounts to $150,000 could be recognized in the 2012 income. For this reason, the retained earnings for the same year would be of the identified amount, meaning that it would not be possible to recognize gains from the year 2014. For this reason, under IFRS, the 2014 income would be lower than the income recorded under GAAP. However, the stockholders’ equity in December 31, 2014 will increase with $60,000 more than the amount recorded under GAAP.

References

Walton, P., & Business Expert Press. (2009).  An executive's guide for moving from U.S. GAAP to IFRS . New York, N.Y.] (222 East 46th Street, New York, NY 10017: Business Expert Press.

Weygandt, J. J. (2010).  Accounting principles . Mississauga, Ont: J. Wiley & Sons Canada.