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Chapter 04 - International Financial Reporting Standards: Part I
23. Iptat International – Property, Plant and Equipment (revaluation model)
a. Adjustment (a) relates to the depreciation of the revaluation amount on fixed assets.
b. Adjustment (b) relates to the revaluation surplus (increase in shareholders’ equity) that is
24. Lincoln Company – Research and Development Costs
a. IFRS Year 1 Year 2
Research expense $6 million
U.S. GAAP
b. IFRS result in $4 million larger income before tax in Year 1 and $800,000 smaller income
before tax in Years 2-6 compared to U.S. GAAP.
25. Xanxi Petrochemical Company – Deferred development costs; Gain on sale and
leaseback
Under IFRS, Xanxi apparently has capitalized some development costs as an asset (IAS
38), which would not be acceptable under U.S. GAAP. Adjustment (a) adds back the current
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Chapter 04 - International Financial Reporting Standards: Part I
26. Buch Corporation – Property, Plant, and Equipment (impairment loss and subsequent
reversal of impairment loss)
Cost $100,000
Useful life 10 years
The impairment loss of $7,000 would be recognized in income on December 31, Year 3 with
an offsetting reduction in the asset’s carrying value. As a result, the asset will be reported at
on the December 31, Year 3 balance sheet at a carrying value of $63,000. This amount will
be depreciated over the remaining useful life of 7 years on a straight-line basis.
Year 1 Year 2 Year 3 Year 4 Year 5
Carrying value (at 1/1) $100,000 $90,000 $80,000 $63,000 $54,000
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Chapter 04 - International Financial Reporting Standards: Part I
IAS 36 requires an impairment loss to be reversed if the recoverable amount of an asset is
determined to exceed its new carrying amount, but only if there are changes in the estimates
used to determine the original impairment loss or there is a change in the basis for determining
Summary of amounts to be reported on the balance sheet and income statement in Years 1
– 5:
Year 1 Year 2 Year 3 Year 4 Year 5
Carrying value (at 1/1) $100,000 $90,000 $80,000 $63,000 $54,000
Income Statement
27. Holzer Company – Property, Plant, and Equipment (capitalization of borrowing costs
and measurement of asset subsequent to acquisition using two alternative models)
IAS 16 Cost Model
Carry asset on the balance sheet at cost less accumulated depreciation and any
accumulated impairment losses.
Capitalize borrowing costs borrowing costs attributable to the construction of qualifying
assets.
* Expenditures of $1,000,000 were made evenly throughout the year, so the average
accumulated expenditures during the year are $500,000 ($1,000,000 / 2).
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Chapter 04 - International Financial Reporting Standards: Part I
Annual depreciation (beginning in Year 2) ($1,050,000 / 40 years) $26,250
Year 1 Year 2 Year 3 Year 4 Year 5
Income Statement
IAS 16 Revaluation Model
Carry asset on the balance sheet at revalued amount equal to fair value less any
subsequent accumulated depreciation and any accumulated impairment losses.
Capitalize borrowing costs attributable to the construction of qualifying assets.
Year 1 Year 2 Year 3 Year 4 Year 5
Income Statement
Depreciation expense $0 $26,250 $26,250 $25,526 2
$25,526
1At December 31,Year 3, the fair value of the building is determined to be $970,000. The
carrying value of the building is decreased by $27,500, with a loss on revaluation
recognized in Year 3 net income.
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Chapter 04 - International Financial Reporting Standards: Part I
28.Quantacc Company – Reconciliation to U.S. GAAP
Year 5
December 31, Year 5
29. Stratosphere Company – Property, Plant, and Equipment (revaluation model)
Amounts in parentheses represent credits.
Date Cost
Accumulated
depreciation
Carrying
Amount
Revaluation
Surplus Income
Retained
Earnings
January 1, Year 1 4,000,000 4,000,000
* Calculated as $3,780,000 divided by remaining life of 18 years.
Note: The net impact on retained earnings over the life of the equipment is negative
$500,000 (debit), which is the difference between the purchase price of $4,000,000 and the
selling price of $3,500,000.
Journal entries to account for the building under the revaluation model
January 1, Year 1
Building 4,000,000
Cash 4,000,000
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Chapter 04 - International Financial Reporting Standards: Part I
December 31, Year 1
December 31, Year 2
December 31, Year 3
January 2, Year 4
Cash 3,500,000
30. Reforce Company – Intangible Assets (determination of cost)
Intangible
Cost Asset
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Chapter 04 - International Financial Reporting Standards: Part I
31. Philosopher Stone – Intangible Assets (web site development costs)
Because Philosopher Stone’s intranet will only be used to share information about company
personnel, demonstrating future economic benefits might be difficult. SIC 32 talks about a
32. Bartholomew Corporation – Goodwill (impairment)
Calculation of Recognized Noncontrolling Interest
Calculation of Unrecognized Noncontrolling Interest
Calculation of Goodwill
Impairment Test, End of Year 1 Net assets Goodwill Total
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Chapter 04 - International Financial Reporting Standards: Part I
Determination of recoverable amount:
Allocation of impairment loss
33. Rocker Division – Goodwill (impairment)
Part A.
Calculation of impairment loss, 12/31/Y5:
Goodwill
Property, Plant,
and Equipment
Other
Intangibles Total
Carrying amount,
Part B.
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Chapter 04 - International Financial Reporting Standards: Part I
Goodwill
Property, Plant,
and Equipment
Other
Intangibles Total
Carrying amount,
34. Complete Company – Goodwill (measurement and impairment)
Part A.
Alternative 1 – Noncontrolling Interest Measured at Proportionate Share of Fair Value
of Acquired Firm’s Net Assets
Calculation of Noncontrolling Interest
Calculation of Goodwill
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Chapter 04 - International Financial Reporting Standards: Part I
Alternative 2 – Noncontrolling Interest Measured at Fair Value
Calculation of Noncontrolling Interest
Calculation of Goodwill
Part B.
Alternative 1 – Noncontrolling Interest Measured at Proportionate Share of Fair Value
of Acquired Firm’s Net Assets Excluding Goodwill
Calculation of Noncontrolling Interest
Calculation of Goodwill
Alternative 2 – Noncontrolling Interest Measured at Fair Value
Calculation of Noncontrolling Interest
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Chapter 04 - International Financial Reporting Standards: Part I
Part C.
Assume that Complete Company adopted Alternative 1 in Part A to account for
noncontrolling interest
Impairment loss is determined as follows:
Partial Co. Partial Co.
Net assets Goodwill Total
Allocation of impairment loss:
All of the impairment loss is allocated to goodwill. Because Partial Company is a CGU, the
impairment loss is shared between the controlling and noncontrolling interest. Thus,
$72,000 (60%) is allocated to the parent’s investment in Partial Company; the remaining
$48,000 (40%) is attributed to the noncontrolling interest but is not recognized.
Partial Co. Partial Co.
Net assets Goodwill Total
Year 1 Income Statement
End of Year 1 Consolidated Balance Sheet (amounts related to Partial Company)
35. Thurstone Company – Borrowing Costs (capitalization)
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