International Accounting Case

Yazd Corporation is a U.S.-Based company that prepares its consolidated financial statements in accordance with U.S. GAAP. The company reported income in 2014 of $1,000,000 and stockholders equity at December 31, 2014, of $8,000,000.

The CFO of Yazd has learned that the U.S. Securities and Exchange Commission is considering requiring U.S. companies to use IFRS in preparing consolidated financial statements. The company wishes to determine the impact that switch to IFRS would have on its financial statements and has engaged you to prepare a reconciliation of income and stockholders equity from U.S. GAAP to IFRS. You have identified the following seven areas in which Yazds accounting principles based on U.S. GAAP differ from IFRS.

1. Inventory

2. Building

3.Machinery

4.Intangible assets

5. Research and development costs

6.Sale-and-leaseback transaction

7.Foreign Currency Translation

Yazd provides the following information with respect to each of these accounting differences.

Inventory

At year-end 2014, inventory had a historical cost of $430,000, Information, such as replacement cost (fair market value), selling value, sales commission, and profit margin for each individual product is provided below (Yazd company is conservative and calculating based on item-by-item of inventory):

Product	Cost	Replacement Cost ( Fair Value)	Selling Value	Sales commission	Normal Profit Margin
Television	$165,000	$140,000	$170,000	10%	20%
Camera	155,000	165,000	$180,000	10%	15%
Laptop	110,000	91,000	$120,000	10%	8%
Total	$430,000

Property, Plant, and Equipment

Building:

The company acquired a building at the beginning of 2012 at a cost of $2,750,000. The building has an estimated useful life of 25 years, an estimated residual value of $250,000, and is being depreciated on straight-line basis. At the end of 2014 (before calculating depreciation), the building was appraised and the following information was available for this building:

Replacement (fair market value) $2,370,000

Undiscounted future cash-flow from use of this building $2,600,000

Discounted future cash-flow from use of this building $2,200,000

Net realizable value of the building if it is sold $2,100,000

Machinery:

The company acquired a new machine, on January 1, 2013, with an estimated useful life of 20 years for $200,000. The machine has an electrical motor that must be replaced every 5-years at an estimated cost of $40,000. Continued operation of the machine requires an inspection every 4-years after purchase; the inspection cost is $20,000. The company uses the strait-line non-component method of depreciation

Intangible Assets

As part of a business combination in 2009, the company acquired a brand with a fair value of $41,000. The brand is classified as an intangible asset with an indefinite life. At year-end 2014, the brand is determined to have a selling price of $37,000 with zero cost to sell. Expected future cash flows from continued use of the brand are $42,000 and the present value of the expected future cash flows is $35,000.

Research and Development Costs

The company incurred research and development costs of $200,000 in 2014. Of this amount, 65 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 2014, development of the new product had not been completed.

Sale-and-Leaseback

In January 2012, the company realized a gain on the sale-and-leaseback of an office building in the amount of $200,000. The lease is accounted for as an operating lease, and the term of the lease is 5-years.

Foreign Currency Translation

Yazd Company is located in a highly inflationary country (with last three years consecutive inflation rate of 115%). Management of Yazd Company has complete autonomy and does transactions mainly in local currency.

Assume:

-The losses on conversion of financial statements from local currency to US$ is $80,000.

-The losses on conversion of financial statements (after adjusting for the level of inflation) from local currency to US$ is $20,000.

Required:

Prepare a complete and professional report (in MS Word) where you should provide reconciliation schedules to convert 2014 income and December 31, 2014 stockholders equity from U.S. GAAP bases to IFRS. Ignore income taxes. Prepare appropriate notes to explain each adjustment made in the reconciliation schedules.