Fast Ltd. is a public company that prepares its consolidated financial statements in accordance with IFRSs. Its net income in Year 2 was $211,000, and shareholders equity at December 31, Year 2, was $1,910,000. | Fast lists its shares on a U.S. stock exchange. Although no longer required to do so, Fast has decided to voluntarily provide a U.S. GAAP reconciliation. You have identified the following four areas in which Fasts accounting principles differ from U.S. GAAP. | 1. | Fast Company gathered the following information related to inventory that it owned on December 31, Year 2: |
| | Historical cost | $122,000 | Replacement cost | 106,000 | Net realizable value | 120,000 | Normal profit margin as percentage of cost | 20% | 2. | Fast incurred research and development costs of $511,000 in Year 1. Twenty percent of these costs were related to development activities that meet the criteria for capitalization as an intangible asset. The newly developed product was brought to market in January Year 2 and is expected to generate sales revenue for 10 years. | | | 3. | Fast sold a building to a bank at the beginning of Year 1 at a gain of $61,000 and immediately leased the building back for a period of five years. The lease is accounted for as an operating lease. | | | 4. | Fast acquired equipment at the beginning of Year 1 at a cost of $122,000. The equipment has a five-year life with no expected residual value and is depreciated on a straight-line basis. At December 31, Year 1, Fast compiled the following information related to this equipment: | | | Expected future cash flows from use of the equipment | $101,000 | Present value of expected future cash flows from use of the equipment | 86,000 | Fair value (net selling price), less costs to dispose | 83,000 | (a) | Determine the amount at which Fast should report each of the following on its balance sheet at December 31, Year 2, using (1) IFRSs and (2) U.S. GAAP. Ignore the possibility of any additional impairment or reversal of impairment loss at the end of Year 2.(Leave no cells blank - be certain to enter "0" wherever required.) |
| IFRS | U.S. GAAP | Inventory @ Dec 31, Yr 2 | $ | $ | (ii) | Research and development |
| IFRS | U.S. GAAP | R&D @ Dec 31, Yr 2 | $ | $ | (iii) | Deferred gain on lease |
| IFRS | U.S. GAAP | Deferred gain on lease @ Dec 31, Yr 2 | $ | $ | | IFRS | U.S. GAAP | Equipment @ Dec 31, Yr 2 | $ | $ | (b) | Prepare a reconciliation of net income for Year 2 and shareholders equity at December 31, Year 2, under IFRSs to a U.S. GAAP basis. |
| | Net Income Year 2 under U.S. GAAP | $ | S/E @ Dec 31, Year 2 under U.S. GAAP | $ | | Harmandeep Ltd. is a private company in the pharmaceutical industry. It has been preparing its financial statements in accordance with ASPE. Since it has plans to go public in the next 3 to 5 years, it is considering changing to IFRSs for the current year. It wishes to adopt policies that will maximize the return on shareholders equity. Based on the draft financial statements prepared in accordance with ASPE, its net income for Year 5 is $403,000, and its shareholders equity at December 31, Year 5 is $3,530,000. |