Chapter 04 – International Financial Reporting Standards: Part I
36. Atlanta Tours Company – Leases (classification)
Finance Lease Criteria Criterion met?
The leased assets are of such a specialized
nature such that only the lessee can use
them without major modifications being
made.
Perhaps.
Duck Boats Inc. probably would need to
remove the wood carving to be able to sell or
lease the vehicle to another customer. It is
unclear whether this would be considered a
major modification.
below the market rent.
* Calculation of PV of MLP
Present value factor for annuity due, 5 payments, 6% = 4.4651: $2,000 x 4.4651 = $8,930
37. Fields Company – Sale-and-Leaseback (recognition of gain)
Part A.
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Chapter 04 – International Financial Reporting Standards: Part I
Part B.
Part C.
38. Bridget’s Bakery – Operating Lease
Monthly journal entry for each of the first three months of the lease:
Journal entry in months 4 through 120:
39. Acceptable Treatments
Acceptable under
IFRS U.S. GAAP Both Neither
A company takes out a loan to finance the
construction of a building that will be used by
the company. The interest on the loan is
capitalized as part of the cost of the building.
X
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Chapter 04 – International Financial Reporting Standards: Part I
CASE 4-1 Bessrawl Corporation
Reconciliation from U.S. GAAP to IFRS
2014
Income under U.S. GAAP
$1,000,0
00
Adjustments:
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Chapter 04 – International Financial Reporting Standards: Part I
Income under IFRS $1,030,000
2014
Stockholders’ equity under U.S. GAAP
$8,000,0
00
Adjustments:
Stockholders’ equity under IFRS $8,720,000
Explanation of Adjustments
Equipment. Under U.S. GAAP, the company reports depreciation expense of $100,000
[($2,750,000 – $250,000) / 25 years] in 2013 and in 2014.
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Chapter 04 – International Financial Reporting Standards: Part I
Intangible Assets. Under U.S. GAAP, an asset is impaired when its carrying amount exceeds
the undiscounted future cash flows expected to arise from continued use of the asset. The
brand acquired in 2011 has a carrying amount of $40,000 and future expected cash flows are
$42,000, so it is not impaired under U.S. GAAP.
Research and Development Costs. Under U.S. GAAP, research and development expense in
the amount of $200,000 would be recognized in determining 2014 income.
Under IAS 38, $120,000 (60% x $200,000) of research and development costs would be
expensed in 2014, and $80,000 (40% x $200,000) of development costs would be capitalized as
an intangible asset (deferred development costs).
Sale and Leaseback. Under U.S. GAAP, the gain on the sale and leaseback (operating lease)
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