Refer to Exhibit 156 in this chapter. Assume a United Kingdom company, Brits International, lists on both
Question:
Refer to Exhibit 15–6 in this chapter. Assume a United Kingdom company, Brits International, lists on both the London Exchange using U.K. GAAP and the New York Stock Exchange. Brits International must prepare a reconciliation from U.K. GAAP to U.S. GAAP. This reconciliation shows the following difference associated with revaluations of fixed assets:
Required:
a. Explain why the adjustment to U.S. GAAP resulted in additions to net income.
b. Explain why there are additions to shareholders’ equity and why those additions are greater than the additions to net income.
c. Explain why there is a deduction to shareholders’equity.
Exhibit 15-6 Fixed Asset Goodwill or Amortize Impairment Auditors per Revaluation LIFO Impairment Test Depreciation Disclosure Country GAAP 10,000 FRS United States United Kingdom 211 Basis Allowed Yes No Yes No No No No No Required Yes Yes Yes Yes Allowed Economic Yes No Yes No Yes Yes Yes 93 Impairment Amortize (20 yr) Amortize (4 yr) Tax Tax 16 Germany 15 Impairment Economic/tax Impairment Amortized (20 yr) Economic Tax No No No Russia Net Income Shareholder's Equity U.K. balances U.S. GAAP adjustments: a. Additional depreciation charges $783,200 $4,767,900 47,600 326,533 that result from revaluation of assets b. Reversal of revaluation of fixed assets (523,740) $4,570,693 U.S. GAAP restatement $830,800
Step by Step Answer:
a The adjustments to US GAAP were related to upward revaluations of f...View the full answer
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-0078111044
16th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello
Related Video
Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.
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