Bessrawl Corporation is a U. S.-based company that prepares its consolidated financial statements in accordance with U.S. GAAP. The company reported after-tax income in 2022 of $1,000,000 and stockholders equity at December 31, 2022, of $8,000,000. The company is considering an inversion to become a European-based company and wishes to determine the impact that a switch to IFRS would have on its financial statements. Bessrawls income tax rate is 21%

You have identified the following three issues in which Bessrawls accounting principles based on U. S. GAAP are likely to differ from IFRS treatment.

1. Inventory
2. Research and development costs
3. Borrowing costs

Bessrawl provides the following information with respect to each of these issues.

1. Inventory

At year-end 2022, inventory had a historical cost of $250,000, a replacement cost of $180,000, a net realizable value of $190,000 (after accounting for projected selling costs of $10,000). The normal profit margin is 20 percent of selling price. Bessrawl uses the LIFO method of accounting for inventories.

1. Research and Development Costs

The company incurred research and development costs of $230,000 in 2022. Of this amount, 45 percent related to development activities subsequent to the point at which criteria had been met indicating that an intangible asset existed. As of the end of the 2022, development of the new product had not been completed.

1. Borrowing costs

In 2022 Bessrawl began construction of a new plant. Interest costs associated with construction loans amounted to $28,000. Additionally, other borrowing costs associated with the loans (bank fees, closing costs, etc.) amounted to $7,000. The new plant meets the criteria to be recognized as a qualifying asset under IAS23: Borrowing Costs.

Required:

Prepare a reconciliation schedule to convert 2022 income and December 31, 2022, stockholders equity from a U.S. GAAP basis to an IFRS basis. Prepare a note to explain each adjustment made in the reconciliation schedule. Also compare ROE_USGAAP to ROE_IFRS.

Reconciliation

Item	Amount Adjustment	Explanation
After-tax Operating Income (U.S. GAAP)	$1,000,000
Reconciled After-tax Operating Income (IFRS)

Item	Adjustment	Explanation
Shareholders Equity (U.S. GAAP)	$8,000,000
Shareholders Equity (IFRS)

ROE Analysis