On May 19, 2004, the IASB published a single volume of its official pronounce- ments that will be applicable from January 1, 2005.
Access the IASB Web site (www.iasb.org), search for these pronouncements, and prepare a list of them.
Unless otherwise indicated, exercises and problems should be solved based on IFRS.
1. A company incurred the following costs related to the production of inven- tory in the current year:
Cost of materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Cost of direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Allocation of variable overhead costs . . . . . . . . . . . . . . . . . . . . 30,000
Allocation of fixed overhead costs (based on normal
production levels). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Storage costs (after production, prior to sale). . . . . . . . . . . . . . . 2000
Selling costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..8000
The cost of materials included abnormal waste of $10,000. What is the cost of inventory in the current year?
On January 1, Year 1, an entity acquires a new machine with an estimated use- ful life of 20 years for $100,000. The machine has an electrical motor that must be replaced every five years at an estimated cost of $20,000. Continued opera- tion of the machine requires an inspection every four years after purchase; the inspection cost is $10,000. The company uses the straight-line method of depreciation. What is the depreciation expense for Year 1?
S. A. Harrington Company
S. A. Harrington Company is a U.S.-based company that prepares its consoli- dated financial statements in accordance with U.S. GAAP. The company reported income in 2011 of $5,000,000 and stockholders equity at December 31, 2011, of $40,000,000.
The CFO of S. A. Harrington has learned that the U.S. Securities and Exchange Commission is considering requiring U.S. companies to use IFRS in preparing consolidated financial statements. The company wishes to determine the impact that a switch to IFRS would have on its financial statements and has engaged you to prepare a reconciliation of income and stockholders equity from U.S. GAAP to IFRS. You have identified the following five areas in which S. A. Harringtons accounting principles based on U.S. GAAP differ from IFRS.
2. Pension plan
3. Stock options
4. Revenue recognition
5. Bonds payable
The CFO provides the following information with respect to each of these accounting differences.
The company publicly announced a restructuring plan in 2011 that created a valid expectation on the part of the employees to be terminated that the company will carry out the restructuring. The company estimated that the restructuring would cost $300,000. No legal obligation to restructure exists as of December 31, 2011.
In 2009, the company amended its pension plan, creating a past service cost of $60,000. Half of the past service cost was attributable to already vested employees who had an average remaining service life of 15 years, and half of the past service cost was attributable to nonvested employees who, on average, had two more years until vesting. The company has no retired employees.
Stock options were granted to key officers on January 1, 2011. The grant date fair value per option was $10, and a total of 9,000 options were granted. The options vest in equal installments over three years: one-third vest in 2010, one-third in 2011, and one-third in 2012. The company uses a straight-line method to recognize compensation expense related to stock options.
The company entered into a contract in 2011 to provide engineering services to a long-term customer over a 12-month period. The fixed price is $250,000, and the company estimates with a high degree of reliability that the project is 30 percent complete at the end of 2011
On January 1, 2010, the company issued $10,000,000 of 5 percent bonds at par value that mature in five years on December 31, 2014. Costs incurred in issuing the bonds were $500,000. Interest is paid on the bonds annually.
Prepare a reconciliation schedule to reconcile 2011 net income and December 31, 2011 stockholders equity from a U.S. GAAP basis to IFRS. Ignore income taxes. Prepare a note to explain each adjustment made in the reconciliation schedule.
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