Chapter 11 – Worldwide Accounting Diversity and International Standards
11-21
Education.
21. (continued)
Conversion Entries
12/31/18
(1) AOCI, 1/1/18 56,000
Retained Earnings, 1/1/18 56,000
Partial Conversion Worksheet, 12/31/18
(amounts in yuan)
Conversion Entries
Account
IFRS
Debit
Credit
U.S. GAAP
Past service cost expense
-0-
(2) 4,000
4,000
Net income, 2018
-0-
4,000
Retained earnings, 1/1/18
60,000
(1) 56,000
4,000
Retained earnings, 12/31/18
60,000
8,000
Deferred past service cost (AOCI)
-0-
(2) 4,000
(4,000)
AOCI, 1/1/18
-0-
(1) 56,000
56,000
AOCI, 12/31/18
-0-
52,000
Total assets
-0-
-0-
Defined benefit obligations
(60,000)
(60,000)
Total liabilities
(60,000)
(60,000)
AOCI, 12/31/18 (above)
-0-
52,000
Retained earnings, 12/31/18 (above)
60,000)
8,000
Total liabilities and equity
-0-
-0-
60,000
60,000
Note: Parentheses reflect credit balances.
The entries needed to convert the IFRS balances to a U.S. GAAP basis are as follows:
Chapter 11 – Worldwide Accounting Diversity and International Standards
11-22
Education.
22. (20 minutes) (Intangible Asset – Impairment)
Note: Other than dates, all amounts are in markkas.
Under IFRS, an asset is impaired when its carrying amount exceeds its recoverable
amount, which is the larger of net selling price and value in use. Mikkeli correctly
determines an impairment loss on the brand as follows:
Impairment loss 5,000
The following journal entry is made.
IFRS
12/31/17
Impairment Loss 5,000
Future cash flows (undiscounted) 42,000
Because future cash flows exceed carrying amount, the brand is not impaired under
U.S. GAAP.
U.S. GAAP
12/31/17
Brand 5,000
Impairment Loss 5,000
11-23
Education.
22. (continued)
[Note: The 12/31/17 partial conversion worksheet below summarizes the above entries,
and shows that the conversion entry results in the correct amounts being reported in the
U.S. GAAP column.]
(amounts in markkas)
Conversion Entries
Account
IFRS
Debit
Credit
U.S. GAAP
Impairment loss
5,000
5,000
-0-
Net income
5,000
-0-
Retained earnings, 1/1/17
-0-
-0-
Retained earnings, 12/31/17
5,000
-0-
Cash
(40,000)
(40,000)
Brand (net)
35,000
5,000
40,000
Total assets
(5,000)
-0-
Total liabilities
-0-
-0-
Retained earnings, 12/31/17 (above)
5,000
-0-
Total liabilities and equity
5,000
-0-
5,000
5,000
Note: Parentheses reflect credit balances.
Assuming that the Brand has suffered no further impairment in 2018, the following
conversion entry would be made on 12/31/18.
Conversion Entry
12/31/18
11-24
23. (20 minutes) (Intangible Asset – Research and Development Cost)
Note: Other than dates, number of years, and percentages, all amounts are in
krone.
Under IFRS, 250,000 [1,000,000 x 25%] of development costs incurred in 2017 are
capitalized as a finite-lived intangible asset. However, amortization does not begin until
the product generated by the intangible asset is brought to market in January 2018.
IFRS
2017
Development Expense 750,000
Chapter 11 – Worldwide Accounting Diversity and International Standards
11-25
Education.
23. (continued)
[Note: The 12/31/17 partial conversion worksheet below summarizes the above entries,
and shows that the conversion entry results in the correct amounts being reported in the
U.S. GAAP column.]
Partial Conversion Worksheet, 12/31/17
(amounts in krone)
Conversion Entry
Account
IFRS
Debit
Credit
U.S. GAAP
Development expense
750,000
250,000
1,000,000
Amortization expense
-0-
-0-
Net income, 2017
750,000
1,000,000
Retained earnings, 1/1/17
-0-
-0-
Retained earnings, 12/31/17
750,000
1,000,000
Cash
(1,000,000)
(1,000,000)
Intangible asset (net)
250,000
250,000
-0-
Total assets
(750,000)
(1,000,000)
Total liabilities
-0-
-0-
Retained earnings, 12/31/17 (above)
750,000
1,000,000
Total liabilities and equity
750,000
1,000,000
250,000
250,000
Note: Parentheses reflect credit balances.
In 2018, related to the development costs incurred in 2017, 50,000 [250,000 ÷ 5 years]
of amortization expense is recognized under IFRS.
IFRS
12/31/18
Amortization Expense 50,000
Chapter 11 – Worldwide Accounting Diversity and International Standards
11-26
Education.
23. (continued)
The following entry converts the IFRS balances to the amounts needed under U.S.
GAAP.
Conversion Entry
12/31/2018
U.S. GAAP column.]
Partial Conversion Worksheet, 12/31/18
(credits in parentheses)
Conversion Entry
Account
IFRS
Debit
Credit
U.S. GAAP
Development expense
-0-
-0-
Amortization expense
50,000
50,000
-0-
Net income, 2018
50,000
-0-
Retained earnings, 1/1/18
750,000
250,000
1,000,000
Retained earnings, 12/31/18
800,000
1,000,000
Cash
(1,000,000)
(1,000,000)
Intangible asset (net)
200,000
200,000
-0-
Total assets
(800,000)
(1,000,000)
Total liabilities
-0-
-0-
Retained earnings, 12/31/18 (above)
800,000
1,000,000
Total liabilities and equity
800,000
1,000,000
250,000
250,000
Note: Parentheses reflect credit balances.
Chapter 11 – Worldwide Accounting Diversity and International Standards
11-27
Education.
24. (20 minutes) (Loss Contingency – Lawsuit)
Note: Other than dates and percentages, all amounts are in yen.
Under IFRS, because the probability of loss on December 31, 2017, is 55% (i.e., “more
likely than not”), a loss and related provision (liability) must be recognized. The loss
must be recognized at its “best estimate.”
IFRS
12/31/17
Litigation Loss 4,000,000
11-28
Education.
24. (continued)
[Note: The 12/31/17 partial conversion worksheet below summarizes the above entries,
and shows that the conversion entry results in the correct amounts being reported in the
U.S. GAAP column.]
Partial Conversion Worksheet, 12/31/17
(amounts in yen)
Conversion Entries
Account
IFRS
Debit
Credit
U.S. GAAP
Litigation loss
4,000,000
4,000,000
-0-
Net income, 2017
4,000,000
-0-
Retained earnings, 1/1/17
-0-
-0-
Retained earnings, 12/31/17
4,000,000
-0-
Cash
-0-
-0-
Total assets
-0-
-0-
Provision for litigation loss
(4,000,000)
4,000,000
-0-
Total liabilities
(4,000,000)
-0-
Retained earnings, 12/31/17 (above)
4,000,000
-0-
Total liabilities and equity
-0-
-0-
4,000,000
4,000,000
Note: Parentheses reflect credit balances.
Under IFRS, when the lawsuit is concluded and payment made on May 5, 2018, an
additional 1,000,000 loss must be recognized, as follows:
IFRS
5/15/18
Litigation Loss 1,000,000
U.S. GAAP
5/15/18
Litigation Loss 5,000,000
Cash 5,000,000
24. (continued)
Conversion Entry
12/31/18
Litigation Loss 4,000,000
Retained Earnings, 1/1/18 4,000,000
[Note: The 12/31/18 partial conversion worksheet below summarizes the above entries,
and shows that the conversion entry results in the correct amounts being reported in the
U.S. GAAP column.]
Partial Conversion Worksheet, 12/31/18
(amounts in yen)
Conversion Entry
Account
IFRS
Debit
Credit
U.S. GAAP
Litigation loss
1,000,000
4,000,000
5,000,000
Net income
1,000,000
5,000,000
Retained earnings, 1/1/18
4,000,000
4,000,000
-0-
Retained earnings, 12/31/18
5,000,000
5,000,000
Cash
(5,000,000)
(5,000,000)
Total assets
(5,000,000)
(5,000,000)
Provision for litigation loss
-0-
-0-
Total liabilities
-0-
-0-
Retained earnings, 12/31/18 (above)
5,000,000
5,000,000
Total liabilities and equity
5,000,000
5,000,000
4,000,000
4,000,000
Note: Parentheses reflect credit balances.
Chapter 11 – Worldwide Accounting Diversity and International Standards
11-30
Education.
25. (40 minutes) (Property, Plant, and Equipment – Revaluation of Equipment)
Note: Other than dates and number of years, all amounts are in pesos.
Under IFRS, the equipment will be revalued on January 1, 2017. The accumulated
depreciation of 50,000 will be eliminated (debit) on that date and the equipment account
journal entries for 2016 and 2017 are shown below.
IFRS
1/1/16
Equipment 500,000
Cash 500,000
12/31/16
Depreciation Expense 50,000
12/31/17
Depreciation Expense 60,000
Accumulated Depreciation-Equipment 60,000
Chapter 11 – Worldwide Accounting Diversity and International Standards
25. (continued)
Revaluation is not permitted under U.S. GAAP. The equipment is depreciated at the
rate of 50,000 per year.
U.S. GAAP
1/1/16
Equipment 500,000
Cash 500,000
40,000, and overstates AOCI by 90,000. To convert from IFRS to U.S. GAAP the
following entry is made on 12/31/17:
Conversion Entry
12/31/2017
Revaluation Surplus (AOCI) 90,000
Depreciation Expense 10,000
Chapter 11 – Worldwide Accounting Diversity and International Standards
25. (continued)
[Note: The 12/31/17 partial conversion worksheet below summarizes the above entries,
and shows that the conversion entry results in the correct amounts being reported in the
U.S. GAAP column.]
Partial Conversion Worksheet, 12/31/17
(amounts in pesos)
Conversion Entry
Account
IFRS
Debit
Credit
U.S. GAAP
Depreciation expense
60,000
10,000
50,000
Net income, 2017
60,000
50,000
Retained earnings, 1/1/17
50,000
50,000
Retained earnings, 12/31/17
110,000
100,000
Revaluation surplus
(90,000)
90,000
-0-
AOCI, 1/1/17
-0-
-0-
AOCI, 12/31/17
(90,000)
-0-
Cash
(500,000)
(500,000)
Equipment
540,000
40,000
500,000
Accumulated depreciation-equipment
(60,000)
40,000
(100,000)
Total assets
(20,000)
(100,000)
Total liabilities
-0-
-0-
AOCI, 12/31/17 (above)
(90,000)
-0-
Retained earnings, 12/31/17 (above)
110,000
100,000
Total liabilities and equity
20,000
100,000
90,000
90,000
Note: Parentheses reflect credit balances.
Accumulated Depreciation-Equipment 60,000
Carrying amount of Equipment, 12/31/18 (IFRS)
Equipment 540,000
Accumulated Depreciation-Equipment (120,000)
Net 420,000
11-33
25. (continued)
In 2018, an additional 50,000 of depreciation is recognized under U.S. GAAP which
results in a carrying amount for Equipment at 12/31/18 of 350,000.
U.S. GAAP
Equipment 40,000
Accumulated Depreciation-Equipment 30,000
Chapter 11 – Worldwide Accounting Diversity and International Standards
Problems 26-30 require U.S. GAAP amounts to be converted to IFRS
Note that the solution provided here for Problems 26-30 also includes a partial
conversion worksheet to show how the conversion entry correctly converts U.S.
GAAP balances to IFRS. The problems do NOT require students to prepare a
partial conversion worksheet.
26. (20 minutes) (Loss Contingency – Litigation)
Summary of Facts:
Lawsuit initiated, 2017 80% probability of loss
12/31/17
Litigation Loss 45,000
Litigation Liability 45,000
Conversion from U.S. GAAP to IFRS – 2017
To convert from U.S. GAAP to IFRS an additional loss and liability of $25,000 must be
recognized. The following conversion entry is required.
11-37
Education.
26. (continued)
Conversion from U.S. GAAP to IFRS – 2018
From an IFRS perspective, U.S. GAAP understates the beginning balance in retained
earnings by $25,000, and overstates the 2018 litigation loss by the same amount.
12/31/18
Retained Earnings, 1/1/18 25,000
Litigation Loss 25,000
[Note: The 12/31/18 partial conversion worksheet below summarizes the above entries,
and shows that the conversion entry results in the correct amounts being reported in the
IFRS column.]
Partial Conversion Worksheet, 12/31/18
(amounts in $)
Conversion Entry
Account
U.S. GAAP
Debit
Credit
IFRS
Litigation loss
40,000
25,000
15,000
Net income, 2018
40,000
15,000
Retained earnings, 1/1/18
20,000
25,000
45,000
Retained earnings, 12/31/18
60,000
60,000
Cash
(60,000)
(60,000)
Total assets
(60,000)
(60,000)
Litigation liability
-0-
-0-
Total liabilities
-0-
-0-
Retained earnings, 12/31/18 (above)
60,000
60,000
Total liabilities and equity
60,000
60,000
25,000
25,000
Note: Parentheses reflect credit balances.