BRC International AG is a Germany-based multinational company that is listed on the Frankfurt, London and New York Stock Exchanges. In response to requests by analysts to improve transparency for investors, BRC includes the company’s Income Statements on its corporate website using IFRS and US GAAP, along with its other financial reports. As a CPA with expertise in both U.S. GAAP and IFRS, you have been assigned the task of preparing both income statements for the year ended December 31, 2021.

After reviewing the prior year analysis and after detailed discussions with the Controller of BRC, you have identified the key differences between IFRS and U.S. GAAP for 2021. Your summary is provided below:

IAS 2: Inventories

At December 31, 2021, ending inventory using FIFO had a historical cost of $245,000, a replacement cost of $180,000, and a net realizable value of $195,000. Assume that the normal profit margin is 20 percent of NRV. For U.S. GAAP purposes, BRC uses the Lower of Cost or NRV method (LCNRV) to measure inventory. (As noted in the text, the inventory items are related to similar product lines and, accordingly, BRC can perform these tests at the “Group” level rather than an item-by-item basis).

IAS 16: PP&E

BRC acquired its new headquarters building on January 2, 2020 at a cost of $3,300,000. The building has an estimated useful life of 25 years and an estimated residual value of $200,000. BRC depreciates all of its PP&E on a straight-line basis.

For IFRS, the company elected the revaluation model under IAS 16 to determine the carrying value of its buildings subsequent to acquisition. In January 2021, the building was appraised and determined to have a fair value of $3,800,000. (There was no change in the estimated useful life or residual value of the building). BRC uses the historical cost method for all other categories of PP&E. No additional appraisal was deemed necessary at December 31, 2021.

IAS 36: Impairment

In 2018, BRC acquired a trademark at a cost of $40,000. BRC has classified the trademark as an intangible asset with an indefinite life. Using outside consultants, the trademark is determined to have a selling price (net of costs to sell) of $35,000 at December 31, 2021. Expected future cash flows from continued use of the trademark are $37,000 and the present value of the expected future cash flows is $30,000. (The fair value of the trademark is also estimated to be $30,000 based on a consultant’s report). BRC is required to perform an annual impairment test on this trademark.

IAS 38: Development Costs

During 2021, the company incurred research and development costs of $175,000 on a new product. Of this amount, 75 percent was related to development activities that occurred subsequent to reaching the point of technical feasibility. At the end of 2021, development of the new product had not yet been completed.

IAS 23: Borrowing Costs

On January 1, 2021, BRC borrowed $2,000,000 at an interest rate of 4 percent to finance the construction of a new office building expected to cost $2,000,000. BRC temporarily invested the proceeds until the cash was needed. Interest earned during 2021 was $6,000. During 2021, expenditures of $1,500,000 were incurred and the weighted-average expenditures were $1,000,000. The project will be completed and the loan will be paid in late 2022. An exchange loss of $5,000 was also recognized on the borrowing as a result of the differences in exchange rates between the US Dollar and the Euro. (Use US dollars as presented; no additional foreign exchange calculations are necessary. Note that interest expense, related interest income and exchange gain/loss have already been recorded in the income statement).

IFRS 2: Stock Options (Chapter 5)

Stock options were granted to key employees on January 1, 2020. The fair value per option was $10 on the grant date, and a total of 27,000 options were granted. The options vest in equal installments (i.e., graded vesting) over three years: one-third at the end of 2020, one-third at the end of 2021, and one-third at the end of 2022.

For U.S. GAAP purposes, the Controller has asked you to use the straight-line method to recognize compensation expense related to the stock options.

Required

Using the information provided, prepare BRC’s comparative Income Statements for 2021 under IFRS and US GAAP. You are to assume that BRC’s Net Income for IFRS and US GAAP purposes is $6,000,000 before consideration of these items. For each adjustment, you must include a footnote that explains the adjustment and shows the related calculations. Ignore income taxes. All numbers are in U.S. dollars.

Notes:

1. Your case must be submitted by Wednesday, March 9^th at 11:59 PM.
2. This is not a group case. The work submitted must be your own.
3. Your submission must be prepared using Word or Excel.

BRC International AG

Comparative Income Statements under IFRS and U.S. GAAP

For the year ended December 31, 2021

	IFRS	US GAAP
Net Income under IFRS and US GAAP before accounting differences	$6,000,000	$6,000,000
Add (Subtract) Adjustments:
Adjusted Net Income under IFRS and U.S. GAAP	XXXXXX	XXXXXX