You are the CFO for Jones company (reporting using IFRS) andmust reconcile your financial statements for the years ending 2008,2009, and 2010 to U.S. GAAP (The Income Statement and StatementStockholdersâ Equity). You have identified the following 4 areaswhere there are differences between IFRS and U.S. GAAP at variousdates. Be sure to consider the cumulative effects of prior yeartransactions for each year.
Intangible Assets (Impairment)
As part of a business combination in January 2005, the companyacquired a brand for $10,000,000. The brand is classified as anintangible asset with a 10 year useful life. At year-end 2008, thebrand is determined to have a selling price of $5,500,000 with zerocost to sell. Expected future cash flows from continued use of thebrand are $6,200,000 (undiscounted) and the present value of futurecash flows is 5,700,000
Research and Development Costs
The company incurred research and development costs of $500,000in 2008. Of this amount, 70% related to development activitiessubsequent to the point at which criteria had been met that anintangible asset existed. The development costs were completed atthe end of 2008 and will be amortized over 10 years beginning2009.
Property Plant and Equipment
On January 1, 2009 a building that had an original cost of$5,000,000 and (Purchase date January 1 2004) and was beingdepreciated over 25 years was determined to have a fair value of$6,000,000. The company uses the revaluation model for suchassets.
Sale Leaseback
On January 1, 2005 the company realized a gain on a salesleaseback of $1,000,000. The term of the lease (starting the dateof the sale) is 20 years.
You are the CFO for Jones company (reporting using IFRS) andmust reconcile your financial statements for the years ending 2008,2009, and 2010 to U.S. GAAP (The Income Statement and StatementStockholdersâ Equity). You have identified the following 4 areaswhere there are differences between IFRS and U.S. GAAP at variousdates. Be sure to consider the cumulative effects of prior yeartransactions for each year.
Intangible Assets (Impairment)
As part of a business combination in January 2005, the companyacquired a brand for $10,000,000. The brand is classified as anintangible asset with a 10 year useful life. At year-end 2008, thebrand is determined to have a selling price of $5,500,000 with zerocost to sell. Expected future cash flows from continued use of thebrand are $6,200,000 (undiscounted) and the present value of futurecash flows is 5,700,000
Research and Development Costs
The company incurred research and development costs of $500,000in 2008. Of this amount, 70% related to development activitiessubsequent to the point at which criteria had been met that anintangible asset existed. The development costs were completed atthe end of 2008 and will be amortized over 10 years beginning2009.
Property Plant and Equipment
On January 1, 2009 a building that had an original cost of$5,000,000 and (Purchase date January 1 2004) and was beingdepreciated over 25 years was determined to have a fair value of$6,000,000. The company uses the revaluation model for suchassets.
Sale Leaseback
On January 1, 2005 the company realized a gain on a salesleaseback of $1,000,000. The term of the lease (starting the dateof the sale) is 20 years.
