Trial balance for Marvin Squared Co. as at 31 December 2018 $000s

Common Stock ($1 shares) 4,460

Trade and other accounts payable 1,100

Gross revenue 8,000

Customer discounts 500

Beginning inventory of goods at Jan 1 2018 (Please note: this has been credited with the $300,000 impairment allowance) 1,000

Purchases of inventory 1,700

Employee wages 100

Rental of retail premises 300 Manufacturing site and equipment at cost 5,000

Inventory impairment 300

Administration expenditure 200

Cash 300

Research and development expenditure 1,200

Patent legal fees incurred 500

Loan interest paid on construction loan (before capitalization) 520

Interest received on unused portion of construction loan 60

Additional retail facility at construction cost (excluding finance costs) 2,600

Construction loan 2,600

Freehold land at cost 2,000

The company has not yet determined appropriate accounting policies for inventory, non-current assets and research and development. Additional information about the companys first year of trading is:

1. The ending inventory of finished goods at December 31 2018 was valued on a first in, first out basis at $1,300,000, on a weighted average cost basis at $2,000,000 and a LIFO basis at $1,800,000. Assume that the company does not keep inventories of raw materials and unfinished work in process.

2. The manufacturing site and equipment has an estimated useful economic life of four years and a residual value at the end of that period of $500,000. The accountant believes it appropriate to use either the straight-line, double declining balance, or the diminishing balance (applying a depreciation rate of 44% per year to the current net book value) methods for calculating annual depreciation.

3. Research ($200,000) and development expenditure ($1,000,000) were incurred researching, developing and completing an improved point of sale system. The system will be operational on March 1 2019 and is estimated to have a useful economic life of ten years and have no residual value. When development commenced, the companys engineers were sure of the technical and commercial feasibility of the system as it was expected to result in significantly reduced operating costs.

4. On 12/1/2018, the company incurred $150,000 of legal fees to register a 10 year patent for the new point of sales system. On 12/14/2018, the company incurred $350,000 of legal fees to successfully defend its patent in a Martian court. The courts verdict did not increase the future value of the patent. If you choose to capitalize the intangible patent cost(s), assume that there is no amortization during 2018.

5. On January 1 2018, Marvin signed a contract for the construction of a new retail site. To finance this expansion, Marvin obtained a specific $2,600,000 construction loan at an annual interest rate of 20% per year. The retail premises were completed on December 31 2018. The total construction cost (excluding borrowing and interest costs) was $2,600,000. The loan financed the construction costs of the retail premises. Construction fees of $1,800,000 were paid to the construction on January 1 2018, with a further $800,000 paid to the contractor on October 1st 2018. The unused portion of the construction loan was invested on the money markets at a rate of return equal to 10% per year.

6. At 31 December 2018, the companys freehold land was valued at $1,800,000. Land is not depreciated.

7. At June 30, 2018 Marvin Squared had inventory on hand made of material thought to be detrimental to Mars environment. The Martian government outlawed the sale of this material at the end of Q2, causing Marvin to write-off the full book value of the inventory of $300,000. At the end of December, 2018 the Martian government reversed their stance and made the product legal for sale again. Marvin still has the inventory. The historic cost of the inventory was $300,000 and the net realisable value is $1,000,000.

8. As a result of a meteor hitting Mars on 12/31/2018, the companys manufacturing plant and equipment must be tested for impairment. The following data is made available:

Net book value of plant and equipment (i.e carrying value at 12/31/18	Use your own calculations, after accounting for annual depreciation
Fair value (i.e selling price)	3,400,000
Cost of asset disposal	300,000
Expected future cash slows from use	3,600,000
Present value of expected future cash flows from use	3,200,000

Note: the impairment has not been accounted for in the trial balance at 12/31/2018. Account for this, after depreciating the plant. Any impairment loss must be expensed and added to the accumulated depreciation in the balance sheet.

Required: a) Using accounting practices allowed under U.S. GAAP, prepare an income statement and balance sheet for Marvin Company for the year ending December 31 2018. b) Using accounting practices allowed under IFRS, prepare an income statement and balance sheet for Marvin Company for the year ending December 31 2018.