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MORNIN’ JOE INTERNATIONAL
DISCUSSION QUESTIONS
1.
U.S. GAAP Term IFRS International Term
Statement of comprehensive income* Statement of comprehensive income
Balance sheet Statement of financial position
Interest expense Finance costs
Net income Profit for the year
*Note: U.S. GAAP and IFRS have converged on the title and disclosure requirements for other comprehensive income
items, such as Unrealized Gain (Loss) on Available-for-Sale Investments.
2. The nature of an expense is how the expense would naturally be recorded in a journal entry
3. If an expense is classified by function on the income statement, then the natural classification
4. Under U.S. practice, the term “provision” usually denotes an expense, as in provision
5. First, under IFRS, LIFO is prohibited, whereas it is acceptable under U.S. GAAP. Second, in
6. A biological asset is an agricultural asset, such as a forest, a vineyard, a farm, or livestock.
7. IFRS allow some property, plant, and equipment accounts to be valued at either historical
8. A share premium is an international term for “excess of issue price over par value.”
9. A reserve under IFRS denotes an element of stockholders’ equity. Most reserve items are ac-
Mornin’ Joe International
IFRS ACTIVITIES
IFRS Activity 1
a. Turnover is a European and British term for “Sales” or “Revenue.” It is com-
c. The subtotal for net finance costs is presented at the top of the column. This
is a European presentation approach that would not be found in most U.S.
financial statements. In U.S. financial statements, subtotals are at the bottom
of the column.
IFRS Activity 2
a. The statement of financial position (balance sheet) of LVMH is clearly ordered
differently than a U.S. company statement of financial position (balance
sheet) would be. On the asset side of the statement of financial position
prepared under IFRS (balance sheet), the non-current items are listed prior to
the current items. Within the non-current items, intangible assets are listed
Mornin’ Joe International
IFRS Activity 2 (Concluded)
For LVMH, the equities are listed first on the liabilities and equity side of the
Retained earnings do not appear to be separately identified on the LVMH
statement. “Other reserves” clearly includes retained earnings, as can be de-
termined by the size of the balance. The current period’s “net profit, group
share” (synonymous with net income under GAAP) is included as a separate
line item in the stockholders’ equity section, rather than being included in the
ending balance of retained earnings.
b.
LVMH Term Mornin’ Joe U.S. GAAP Term
Statement of financial position Balance sheet
Share capital Common stock
c. The revaluation reserve is the adjustment to stockholders’ equity for accumu-
lated unrealized gains and losses from changes in fair market value for
selected assets, such as available-for-sale investments. This account is simi-
lar to “Unrealized gain (loss) on available-for-sale investments,” which is
discussed in the Investments chapter. However, under IFRS, fair market valu-
ation is available for a wider selection of assets than under U.S. GAAP. For
Mornin’ Joe International
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IFRS Activity 3
a. and b.
(1)
FIFO less
LIFO
(2)
IFRS Net
Income
(3)
(FIFO less LIFO)
Total Current Assets
(4)
IFRS Net Income Col. (2)
Reported Net Income
Exxon Mobil $21,348 $30,143 36% 99%
c. Exxon Mobil has the largest difference between FIFO and LIFO inventory val-
uation as a percent of current assets. This is because Exxon Mobil has
significant inventories of oil, gasoline, and other oil-related products in
d. A change to IFRS would cause Kroger’s net income to increase to 105% of its
LIFO-reported net income. This is the largest relative impact among the three
firms. Kroger’s net income, as a percent of its inventory, is small. This is
because the percent of net income to sales is smaller for Kroger than for the
other two firms. Thus, the earnings impact of a change from LIFO to FIFO is
large, relative to its reported net income.
e. In periods of rising prices, net income reported under LIFO would normally
be less than as reported under FIFO. This is because LIFO matches current
period costs with sales. If the net income reported under LIFO is greater than
