The following hypothetical transactions relate to Nestl S.A., the Swiss chocolate manufacturer. Indicate whether each transaction immediately gives rise to an asset of the company under U.S. GAAP and separately, under IFRS. If Nestl recognizes an asset, state the account title, the amount, and the classification of the asset on the balance sheet as either a current asset or a noncurrent asset. Nestl reports its results in millions of Swiss francs (CHF).

A. Two months prior to its year-end, Nestl pays its insurer CHF240 million to cover annual premiums on its European plants. How are these payments recorded under U.S. GAAP and IFRS? Pick one from the answers below.

1. U.S. GAAP would recognize Prepaid Insurance (current asset) of CHF240 million initially and then reduce on the balance sheet for two months' usage of insurance expense which would amount to CHF200 million. IFRS would expense all CHF240 million as an expense immediately.

2. IFRS would recognize Prepaid Insurance (current asset) of CHF240 million initially and then reduce on the balance sheet for two months' usage of insurance expense which would amount to CHF200 million. U.S. GAAP would expense all CHF240 million as an expense immediately.

3. Both U.S. GAAP and IFRS would expense all CHF240 million as an expense immediately.

4. Both U.S. GAAP and IFRS would recognize Prepaid Insurance (current asset) of CHF240 million initially. Then at balance sheet date the account would need to be decreased to reflect two months' usage of the insurance which would reduce the balance to CHF200 million.

B. Nestl pays a developer in the Czech Republic CHF6 million for an option to purchase a tract of land on which it intends to build a warehouse to serve the eastern European markets. The price of the land is CHF450 million. How would U.S. GAAP and IFRS treat this payment?

Pick one from the answers below.

1. U. S. GAAP would recognize Option to Purchase Land (noncurrent) asset, CHF6 million and IFRS would recognize the payment as an expense.

2. IFRS would recognize Option to Purchase Land (noncurrent) asset, CHF6 million and U.S. GAAP would recognize the payment as an expense.

3. Both U.S. GAAP and IFRS would recognize Option to Purchase Land (noncurrent) asset, CHF6 million.

4. Both U.S. GAAP and IFRS would recognize the payment as an expense.

C. Nestl signs a four-year employment agreement with its chief executive officer for a package valued at CHF17.4 million per year. Of this amount, CHF3.1 million is base salary; the rest is expected bonus and deferred compensation arrangements. The contract period begins next month. How is this transaction recorded under U.S. GAAP and IFRS? Pick one from the answers below.

1. Both U.S. GAAP and IFRS recognize the employment contract, a mutually unexecuted contract, as an asset.

2. Neither U.S. GAAP nor IFRS recognize the employment contract, a mutually unexecuted contract, as an asset.

3. U.S. GAAP recognizes the employment contract, a mutually unexecuted contract, as an asset. IFRS does not.

4. IFRS recognizes the employment contract, a mutually unexecuted contract, as an asset. U.S. GAAP does not.

D. Nestl received notice that a cocoa supplier had shipped by freight cocoa beans invoiced at CHF700 million with payment due in 30 days. The supplier retains title to the cocoa beans until received by Nestl. How would the cocoa beans be treated on the balance sheet? Pick one from the answers below.

1. Under U.S. GAAP, the cocoa beans would be recognized as an asset and under IFRS, they would not be considered assets until received in inventory.

2. Under IFRS, the cocoa beans would be recognized as an asset and under U.S. GAAP, they would not be considered assets until received in inventory.

3. Under U.S. GAAP and IFRS, the cocoa beans would be considered as assets.

4. Under U.S. GAAP and IFRS, the cocoa beans would not be recognized as assets until received in inventory.