Question

Fast Ltd. is a public company that prepares its consolidated financial statements in accordance with IFRSs. Its net income in Year 2 was $200,000, and shareholders' equity at December 31, Year 2, was $1,800,000. Fast lists its shares on a U.S. stock exchange. Although no longer required to do so, Fast has decided to voluntarily provide U.S. GAAP reconciliation. You have identified the following four areas in which Fast's accounting principles differ from U.S. GAAP.
1. Fast Company gathered the following information related to inventory that it owned on December 31, Year 2:
Historical cost ................. $100,000
Replacement cost ................ 95,000
Net realizable value ............... 98,000
Normal profit margin as percentage of cost ...... 20%
2. Fast incurred research and development costs of $500,000 in Year 1. Thirty per cent of these costs were related to development activities that meet the criteria for capitalization as an intangible asset. The newly developed product was brought to market in January Year 2 and is expected to generate sales revenue for 10 years.
3. Fast sold a building to a bank at the beginning of Year 1 at a gain of $50,000 and immediately leased the building back for a period of five years. The lease is accounted for as an operating lease.
4. Fast acquired equipment at the beginning of Year 1 at a cost of $100,000. The equipment has a five-year life with no expected residual value and is depreciated on a straight-line basis. At December 31, Year 1, Fast compiled the following information related to this equipment:
Expected future cash flows from use of the equipment .......... $85,000
Present value of expected future cash flows from use of the equipment .... 75,000
Fair value (net selling price), less costs to dispose .............. 72,000
Required:
(a) Determine the amount at which Fast should report each of the following on its balance sheet at December 31, Year 2, using (1) IFRSs and (2) U.S. GAAP. Ignore the possibility of any additional impairment or reversal of impairment loss at the end of Year 2.
(i) Inventory
(ii) Research and development
(iii) Deferred gain on lease
(iv) Equipment
(b) Prepare a reconciliation of net income for Year 2 and shareholders' equity at December 31, Year 2, under IFRSs to a U.S. GAAP basis.


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  • CreatedJune 08, 2015
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