I've spent Hours trying to figure out how to reconcile net income from ASPE to IFRS and could use some help. If you're able to complete the last 2 questions, that's awesome. What would be more awesome would be if you could show me why how you got the numbers. Question 1

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

Required:

(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.)

(i)

Inventory

	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	$	$

(iv)

Equipment

	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.

Harmandeep has engaged you to reconcile net income and shareholders equity from ASPE to IFRSs. You have identified the following five areas for which IFRSs differs from ASPE:

1.	Impaired loansoriginal versus market rate of interest
2.	Interest costscapitalize versus expense
3.	Actuarial gains/lossesrecognize in net income versus OCI
4.	Compound financial instrumentdebt versus equity components
5.	Income taxesfuture income tax method or taxes payable method

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

Impaired Loans

One of Harmandeeps debtors is in financial difficulty and defaulted on its loan payment during the year. The outstanding balance on this loan receivable at the end of Year 5 was $232,000. Harmandeep agreed to accept five annual payments of $53,000 with the first payment due at December 31, Year 6, as a full settlement of the loan. The original interest rate on the loan was 8%. The market rate of interest for this type of loan is 6%. No adjustment has been made for the impairment of the loan receivable.

Interest Costs

Harmandeep arranged a loan of $860,000 to finance the construction of a warehouse. $430,000 was borrowed on March 1, Year 5, and another $430,000 was borrowed on October 1, Year 5. The loan is repayable over 5 years with an interest rate of 6%, with the first payment due on September 30, Year 6. The warehouse was nearly complete at the end of Year 5. No interest has been accrued on the loan at the end of Year 5.

Actuarial Gains/Losses

Harmandeep instituted a defined benefit pension plan in Year 3. The first actuarial evaluation, which was done as at June 30, Year 5, indicated an actuarial gain of $154,500. The expected average remaining service life of the employee workforce was 15 years at the time of the actuarial evaluation. The actuarial gain has not yet been recognized in the preliminary financial statements.

Compound Financial Instrument

Harmandeep issued bonds for proceeds of $1,060,000 on December 31, Year 5. The bonds are convertible into common shares at any time within the next five years. The bonds would have been worth only for $1,004,000 if they did not have the conversion feature. The proceeds on the bonds have been recognized as long-term debt in the preliminary financial statements.

Income Tax

Harmandeeps income tax rate has been and is expected to continue at 40%. Assume that any adjustments to accounting income for the above items are fully deductible or taxable for tax purposes. The preliminary financial statements reflect the tax payable method of accounting for income taxes. If the future income tax method were adopted, future tax liabilities should be set up for $303,000 at the end of Year 4 and $346,000 at the end of Year 5.

Required:

Prepare a schedule to convert net income and total shareholders equity from the preliminary financial statements amounts to amounts under ASPE and IFRSs. Where accounting choices exist, choose policies that minimize return on total shareholders equity under ASPE and maximize return on total shareholders equity under IFRSs.(Leave no cells blank - be certain to enter "0" wherever required. Round intermediate computations and final answers to nearest whole dollar value. Negative amounts should be indicated by a minus sign.)

	Net Income		S/E
Description	ASPE	IFRS	ASPE	IFRS
Preliminary Financial statement
Loan Impairment
Accrued Interest Payable
Actuarial Gains
Equity Portion of Compound Instrument
Future Tax Liability
Revised Values	$	$	$	$

Question 2