144 Chapter Four Case 4-1 Jaguar Land Rover PLC Jaguar Land Rover Automotive PLC (JLR) is...

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144 Chapter Four Case 4-1 Jaguar Land Rover PLC Jaguar Land Rover Automotive PLC (JLR) is a maker of luxury autos based in Coventry, United Kingdom. JLR uses IFRS and has a fiscal year-end of March 31. You have been asked to use your knowledge of IFRS to convert key metrics for the company to a U.S. GAAP basis. For simplicity, you may assume that the only material differences between JLR's as-reported numbers and those it would report under U.S. GAAP are traceable to its policy of capitalizing development costs. Internally Generated Intangible Assets (from Footnote 2, Accounting Policies) Research costs are charged to the consolidated income statement in the year in which they are incurred. Product engineering costs incurred on new vehicle platforms, engines, transmission and new products are recognised as intangible assets-when feasibility has been established, the Group has committed technical, financial and other resources to complete the development and it is probable that the asset will generate future economic benefits. The costs capitalised include the cost of materials, direct labour and directly attributable overhead expenditure incurred up to the date the asset is available for use. Interest cost incurred is capitalised up to the date the asset is ready for its intended use, based on borrowings incurred specifically for financing the asset or the weighted average rate of all other borrowings, if no specific borrowings have been incurred for the asset. Product engineering cost is amortised over a period of between two and ten years. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment loss, if any. Amortisation is not recorded on product engineering in progress until development is complete. Research and Development (from Footnote 11) Year ended 31 March Total research and development costs incurred... Research and development expensed.... Development costs capitalized Intangible Assets (selections from Footnote 18) 2020 ( millions) 1,847 (421) 1,426 Product Development Capitalized Product millions Cost in Progress Development Balance at 31 March 2019... 1,990 6,973 Additions-internally developed 1,426 Transfers. (944) 944 Disposals... (345) Balance at 31 March 2020. 2,472 7,572 Accumulated amortization Balance at 31 March 2019.. 4,104 Amortization for the year.. 788 Disposals (345) Balance at 31 March 2020. 4,547 Net book value at 31 March 2020 2,472 3,025 eri International Financial Reporting Standards: Part I 145 Required: 1. What percentage of R&D expenditures was capitalized during the fiscal year ending March 31, 2020? How does this percentage compare with the capitalization ratios of the German automakers profiled in Exhibit 4.4?od or ablving or 2. Estimate the average useful life of product development costs by dividing average capi- talized product development costs by the amortization expense for fiscal 2019-2020. Compute average capitalized product development costs as simple average balances at the beginning and end of each fiscal year. Does your estimate fall within the range of the useful lives for development costs disclosed in the accounting policy footnote? 3. The following table contains metrics as reported in JLR's three primary financial state- ments. Convert these metrics to a U.S. GAAP basis. Where necessary assume that JLR's fine tax rate is 19 percent, the United Kingdom's corporate tax rate during the 2020 fiscal year, as disclosed in Footnote 14, Taxation. and lovlisa?! end as mo12 goil 21edinom br As Reported (IFRS) ( millions) U.S. GAAP 01 (422) (469) 24,104 Tan 6,556 2,314 2,791 e'opisT ol obivong of griviuper Loss before tax Net profit (after tax) Total assets.. Shareholders' equity. Operating cash flow.. Capital expenditures*. Expenditures for both PPE and intangibles. Isuhan 'oolsT gninequi CASE 4-2 Telco Ltd. Telco Ltd. is a Danish telecom company that prepares consolidated financial statements in INTRODUCTICfull compliance with IFRS 10. The company has expanded dramatically in Central Asia in CURRENT LIA recent years by investing in three units: K-Mobe, U-Mobe, and T-Mobe, supplying cellular service to customers in Kazakhstan, Uzbekistan, and Tajikistan, respectively. Telco's corporate investment policy is to take majority ownership stakes in overseas sub- sidiaries when possible, but to accept lower levels of ownership when majority ownership is not possible or practical. The investment structures of the three Central Asia units are as follows: the study a. Telco owns 45 percent of the voting shares of K-Mobe. The other shares are owned by local institutions: 30 percent are owned by an investment fund connected to the state-owned oil company, and 25 percent are owned by the municipal government of Almaty, Kazakhstan's largest city. The legal documents establishing K-Mobe specify that Telco possesses the right to fill a majority of the seats on K-Mobe's board of directors, as well as to appoint its CEO and CFO. The agreement stipulates that the CEO be a Kazakh national. However, it contains no other restrictions covering whom Telco may appoint or the executives' exercise of power once appointed. b. Telco also owns 45 percent of the voting shares of U-Mobe. The other shares are owned by local institutions: 30 percent are owned by an investment fund connected to a state-owned mining company, and 25 percent are owned by the municipal government of 144 Chapter Four Case 4-1 Jaguar Land Rover PLC Jaguar Land Rover Automotive PLC (JLR) is a maker of luxury autos based in Coventry, United Kingdom. JLR uses IFRS and has a fiscal year-end of March 31. You have been asked to use your knowledge of IFRS to convert key metrics for the company to a U.S. GAAP basis. For simplicity, you may assume that the only material differences between JLR's as-reported numbers and those it would report under U.S. GAAP are traceable to its policy of capitalizing development costs. Internally Generated Intangible Assets (from Footnote 2, Accounting Policies) Research costs are charged to the consolidated income statement in the year in which they are incurred. Product engineering costs incurred on new vehicle platforms, engines, transmission and new products are recognised as intangible assets-when feasibility has been established, the Group has committed technical, financial and other resources to complete the development and it is probable that the asset will generate future economic benefits. The costs capitalised include the cost of materials, direct labour and directly attributable overhead expenditure incurred up to the date the asset is available for use. Interest cost incurred is capitalised up to the date the asset is ready for its intended use, based on borrowings incurred specifically for financing the asset or the weighted average rate of all other borrowings, if no specific borrowings have been incurred for the asset. Product engineering cost is amortised over a period of between two and ten years. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment loss, if any. Amortisation is not recorded on product engineering in progress until development is complete. Research and Development (from Footnote 11) Year ended 31 March Total research and development costs incurred... Research and development expensed.... Development costs capitalized Intangible Assets (selections from Footnote 18) 2020 ( millions) 1,847 (421) 1,426 Product Development Capitalized Product millions Cost in Progress Development Balance at 31 March 2019... 1,990 6,973 Additions-internally developed 1,426 Transfers. (944) 944 Disposals... (345) Balance at 31 March 2020. 2,472 7,572 Accumulated amortization Balance at 31 March 2019.. 4,104 Amortization for the year.. 788 Disposals (345) Balance at 31 March 2020. 4,547 Net book value at 31 March 2020 2,472 3,025 eri International Financial Reporting Standards: Part I 145 Required: 1. What percentage of R&D expenditures was capitalized during the fiscal year ending March 31, 2020? How does this percentage compare with the capitalization ratios of the German automakers profiled in Exhibit 4.4?od or ablving or 2. Estimate the average useful life of product development costs by dividing average capi- talized product development costs by the amortization expense for fiscal 2019-2020. Compute average capitalized product development costs as simple average balances at the beginning and end of each fiscal year. Does your estimate fall within the range of the useful lives for development costs disclosed in the accounting policy footnote? 3. The following table contains metrics as reported in JLR's three primary financial state- ments. Convert these metrics to a U.S. GAAP basis. Where necessary assume that JLR's fine tax rate is 19 percent, the United Kingdom's corporate tax rate during the 2020 fiscal year, as disclosed in Footnote 14, Taxation. and lovlisa?! end as mo12 goil 21edinom br As Reported (IFRS) ( millions) U.S. GAAP 01 (422) (469) 24,104 Tan 6,556 2,314 2,791 e'opisT ol obivong of griviuper Loss before tax Net profit (after tax) Total assets.. Shareholders' equity. Operating cash flow.. Capital expenditures*. Expenditures for both PPE and intangibles. Isuhan 'oolsT gninequi CASE 4-2 Telco Ltd. Telco Ltd. is a Danish telecom company that prepares consolidated financial statements in INTRODUCTICfull compliance with IFRS 10. The company has expanded dramatically in Central Asia in CURRENT LIA recent years by investing in three units: K-Mobe, U-Mobe, and T-Mobe, supplying cellular service to customers in Kazakhstan, Uzbekistan, and Tajikistan, respectively. Telco's corporate investment policy is to take majority ownership stakes in overseas sub- sidiaries when possible, but to accept lower levels of ownership when majority ownership is not possible or practical. The investment structures of the three Central Asia units are as follows: the study a. Telco owns 45 percent of the voting shares of K-Mobe. The other shares are owned by local institutions: 30 percent are owned by an investment fund connected to the state-owned oil company, and 25 percent are owned by the municipal government of Almaty, Kazakhstan's largest city. The legal documents establishing K-Mobe specify that Telco possesses the right to fill a majority of the seats on K-Mobe's board of directors, as well as to appoint its CEO and CFO. The agreement stipulates that the CEO be a Kazakh national. However, it contains no other restrictions covering whom Telco may appoint or the executives' exercise of power once appointed. b. Telco also owns 45 percent of the voting shares of U-Mobe. The other shares are owned by local institutions: 30 percent are owned by an investment fund connected to a state-owned mining company, and 25 percent are owned by the municipal government of