Case Summary

Best Value Hardware (BVH), Inc., a public company, is preparing their balance sheet, and income statement for the calendar year-ended December 31, 2016 based on U.S. GAAP and also based on IFRS. BVHs accountant has already recorded most of the entries at year end on the trial balance but needs your assistance in accounting for the following transactions and preparing the appropriate adjusting journal entries.

Read through the following information, then using the provided Excel template, complete the missing information. For this project, you will first complete the calculations, journal entries, and adjusting entries. This information will then be reflected in the financial statements. You will use these financial statements to compare the financial information generated under IFRS and under GAAP.

Part 1: Contingencies (Due at the end of unit 1)

Loss Contingency

12/31/16 Best Value Hardware is being sued by an employee who slipped on spilled milk and broke his back. BVHs lawyers expect to lose the lawsuit and estimate the loss to be between $250,000 and $500,000 with no one outcome being assessed as more likely than the other.

Gain Contingency

12/31/16 Best Value Hardware had a delivery truck drive through the side of one of their stores causing major damages. The delivery truck is owned by an independent party and Best Value Hardware is suing the trucking company for the $2,000,000 in damages. BVHs lawyers are virtually certain they will win the lawsuit and receive the full amount of damages.

Requirements in the provided Excel Template Contingencies tab:

In the shaded text boxes discuss whether or not Best Value Hardware recognize a contingent liability or Gain under U.S. GAAP and IFRS. If a contingency is recognized, determine how much.

Record necessary adjusting journal entries in their own adjusting journal entry for 12/31/16.

Part 2: Compute the Inventory value (Due at the end of unit 2)

Best Value Hardware had the following inventory on hand at 12/31/16. BVH uses the LIFO method for measuring inventory.

Item	# Units	LIFO $Cost	LIFO $Cost	NRV
Light bulbs	177,000	$115,050	$125,050	$150,450
Paint Brushes	250,000	$250,000	$275,000	$325,000
Live Plants	150,000	$375,000	$395,000	$337,500
Holiday Items	175,000	$603,750	$633,750	$568,750
Hammers	200,000	$550,000	$575,000	$600,000

$1,893,800 $2,003,800 $1,981,700

Requirements in the provided Excel Template on the Inventory Worksheet Tab:

Compute the value of the inventory using LIFO and GAAP.

Create the required journal entries regarding the value of the inventory.

Compute the value of the inventory using FIFO and IFRS.

Discuss why the valuation and journal entries are different if computed under IFRS.

Part 3: Property, Plant and Equipment (Due at the end of unit 4, but you will start it in unit 3)

The Company has the following Property, Plant & Equipment at the beginning of January, 2016:

Asset	Purchase Date	Original Cost	Useful Life - Years	Accumulated Depreciation Straight-line	Book Value 12/31/15
Denver, CO Vacant Land	9/15/2009	$1,610,000			1,610,000
Golden, CO Land	1/1/2015	$1,280,000			$1,280,000
Golden, CO Building	1/1/2015	2,175,000	15	(145,000)	2,030,000
Houston, TX Machinery & Equipment	6/1/2015	425,100	5	(49,595)	375,505

Additionally, the company engaged in the following transactions during 2016:

**Note: these transactions have not yet been recorded. You must create the Journal Entries.

JE#1 - August 31, 2016

Purchased land for $850,000 and constructed a building location: Dallas, Texas. All costs were paid for in cash and construction was completed 8/31/16:

Labor & materials $1,250,000

Architecture fees $18,250

Interest costs capitalized on construction $58,000

Prepaid annual insurance of $14,500 for period: 9/1/16 8/31/12

The building has a useful life of 18 years, straight-line depreciation, $0 Residual Value. For IFRS purposes, the building is revalued on an annual basis.

JE#2 and JE#3- September 30, 2016

Sold the land and building - Golden, Colorado for $3,157,000 cash. Record depreciation through the date of sale, then record the sale. Be sure to make a t-account to keep track of the book value and accumulated depreciation.

JE#4 November 1, 2016

Exchanged the Vacant Land for land and a building in Denver, Colorado. The independent appraised fair value of the land and building were as follows: Land $325,000; Building $1,650,000. The Company paid cash to the other party of $260,000 and paid cash for legal fees of $12,000 (assume the legal fees were attributed to the building) as part of the exchange. In addition, the Company prepaid the annual property tax of $30,000 with Cash. Useful life of the building is 10 years, $0 residual value, and straight-line depreciation. For IFRS purposes, the building is revalued on an annual basis.

JE#5 November 30, 2016

Paid cash of $135,000 for new furniture and fixtures for the new building in Denver, Colorado. Paid sales tax $10,800 and installation costs of $7,500. Useful life is 7 years, $0 residual value, straight-line depreciation.

Adjusting Entries: Year-end information at 12/31/16:

Depreciation	Depreciation Method	Useful Life
Building-Dallas, Texas	Straight-line	18 Years
Building-Denver, Colorado	Straight-line	10 Years
Furniture & Fixtures-Denver, Colorado	Straight-line	7 Years
Machinery & Equipment-Houston, Texas	Straight-line	5 Years

Prepaid Expenses	Date paid	Amount paid
Property Taxes	11/1/2016	$30,000
Insurance	8/31/2016	$14,500

Fair Market Value Year-end information at 12/31/16:

	FMV on 12/31/2016
Building-Dallas, Texas	$1,320,000
Building-Denver, Colorado	$1,605,000

Requirements in the provided Excel template:

Record General Journal Entries for the PP&E events that occurred during the year. Be sure to record partial year's expenses as appropriate.

Complete the Depreciation Calculation Table. Be sure to pro-rate as necessary.

Complete the Prepaid Expenses Table. Be sure to pro-rate as necessary.

Enter the year-end Adjusting Journal Entries for Depreciation and Prepaid expenses.

Discuss the Fair Value revaluation option for the properties under GAAP and IFRS, and compute the ending book values for the two properties listed.

Part 4: Analysis (Due at the end of unit 5)

Compute the financial ratios from the provided Financial Statements in the Excel worksheet, conduct a short ratio analysis comparing the financial information generated under IFRS and under GAAP.

Requirements in the provided Excel Template:

1.Compute the ratios listed.

2.Discuss why the financial statements and ratios differ under the two standards of accounting, GAAP and IFRS.