Giordano LLC prepares its financial statements in accordance with U.S. GAAP. The company's net income for the year ended 12/31/2020 was $400,000. The company's total stockholders' equity at 12/31/2020 was $1,600,000, which included common stock of $1,000,000 and retained earnings of $600,000.

Required:

Using the templates provided, reconcile the company's yearly net income for 2020 and its stockholders' equity at this date from U.S. GAAP to IFRS. Your reconciliation must adjust for each of the six transactions below:

i. The balance sheet at 12/31/2020 includes a building with a 10-year useful life that was acquired on 1/12/2018 at a historical cost of $6,000,000.

(C-S)/UL 10 = $600,000 annual depn

Accumulated depreciation of $1,200,000 had been charged on this property at 12/31/2019, and the fair value of the property increased to $8,000,000 on 1/1/2020. Assume that the company prefers IAS 16's fair value option for the subsequent measurement of property.

ii. The company owns land that qualifies as an investment property under IAS 40.The historical cost of the land was $200,000.On 12/31/2020, a real estate broker determined that the fair market value of the land was $600,000.

iii. The U.S GAAP balance sheet at 12/31/2020 used the LIFO method to value inventory, and after accounting for an impairment loss, its carrying value was reduced to $400,000. The historic cost of the inventory was $560,000 and it had a $400,000 replacement cost. Through additional analysis you determine that the estimated selling price for this inventory is $440,000, with $40,000 cost to sell. The normal profit margin on this inventory is 10%.

LCM

Ceiling = NRV$440,000 less $40,000 = $400,000

???????Market = RC? $400,000

Floor = NRV $400,000 less normal profit$44,000 (SP x 10%) = $356,000

Ceiling and floor do not apply ----------Market = RC $400,000

HC $560,000

Impairment loss of $160,000

Lower of $560,000 cost and NRV $400,000

Impairment loss $160,000 under IAS 2

Assume that the company uses FIFO for IFRS purposes, and the historic cost of inventory under this method was also $560,000.

iv. During 2020, the company obtained a 20% $1,600,000 construction loan to fund the completion of a new office building. The contractor was paid $1,200,000 on 1/1/2020, and another $400,000 on 10/1/2020. The unused portion of the loan generated $20,000 of interest income during the year. The building qualifies as a qualifying asset for purposes of capitalizing interest and borrowing costs under both US GAAP and IFRS. The capitalization of interest on the self-constructed asset is already incorporated in the US GAAP financials.

Total interest expense for 2020 ($320,000)

Total interest income $20,000

v. During 2018, the company incurred $500,000 of development costs related to a new product. This expenditure fulfilled all of the criteria for recognizing an intangible asset under IAS 38. Sales of the product commenced in March 2019, and it will be marketable for 20 years.

vi. During 2020, the company was sued by 10 customers who allege that one of its products caused skin allergies. At 12/31/2020, the company's attorney's estimate that it is 90% likely probable that the company will be found liable in court. Legal counsel suggests that the payout per case will range from $10,000 to $40,000, with each of these outcomes equally likely. The contingency has already been accounted for in the US GAAP financials.

vii. The company's plant was tested for impairment on 12/31/2020. On this date, the company's plant and equipment had the following characteristics:

Expected future cash flows from use $550,000

Present value of expected future cash flows $480,000

Net book value (i.e. carrying value) $600,000

Fair value (i.e. selling price) $500,000

Asset disposal and selling costs $150,000

Note: the impairment has already been accounted for in the U.S. GAAP financial statements

US GAAPDoes CV $600,000 > Undiscounted FCFs from Use $550,000?

Yes! Impairment loss CV $600,000 - FV $500,000 = loss of $100,000

IFRS CV $600,000 > Recoverable amount $480,000?

Impairment loss CV - RA = $120,000

RA higher of Net selling price $350,000 and Value in Use (PV of FCFs $480,000)