MAC 7600 CASE STUDY PROJECT
Inventory
Based on the IFRS, we will have differences based on the inventory loss that will be accrued by the entity. The main reason for this will be on the basis that using the U.S.GAAP we will automatically deduct the historical cost from the market value while using the international financial reporting standards we will use the difference from historical cost and the net realizable value of the product (Krishnan & Lin, 2012).
U.S.GAAP
Replacement cost-180,000
Historical cost-(250,000)
IFRS Inventory loss-70,000
IFRSs
Net Realizable Value-190000
Historical cost-(250000)
Inventory loss-60000. Don't use plagiarised sources.Get your custom essay just from $11/page
Based on the U.S GAAP the inventory loss will be 70,000 while based on IFRSs the inventory loss will be 60000
Property, Plant, and Equipment
Differences in depreciation will also arise in switching to international financial reporting standards. Fair value based on revaluation is what is used in calculating depreciation in international reporting financial standards (Hermamann, Saudagaran & Thomas, 2006). The U.S GAAP, on the other hand, uses the initial cost of an item when calculating the depreciation on property, plant, and equipment.
Based on U.S GAAP
=Cost-salvage value/useful life
2750000-250000/25
=100,000
Based on IFRS Depreciation
=Fair Value-Salvage value/Remaining useful life
=3250000-250000/24
=125000
The difference based on the two methods of depreciation there would be a difference of $25000
Intangible Asset
Based on U.S GAAP the value of the intangible asset is 40000
The IFRS, however, recognizes assets based on the higher between the selling price and the present value of the expected future value of expected future cash flow (Churky, Reinstein, & Gross, 2010). The selling price will thus be used as it is higher.
Thus the use of the IFRs will decrease the net income by $5,000
Research and Development Costs
The development cost in the US GAAP is treated as an expense; however, using the IFRS, the asset is capitalized and amortized over its lifetime.
Development cost being 40% will be accounted for as
=0.4*200000
=80000
Sales and Leaseback Transactions
IFRS recognizes gains only when they are realized, unlike the U.S GAAP, where they realized the gain portion of 30,000.
Reconciliation Statement For U.S GAAP and IFRS for the year 2014
| 2014 | |
| Income under U.S. GAAP | $1,000,000 |
| Adjustments: Add | |
| The difference in inventory loss as per IFRS | 10,000 |
| Development costs treated as expenses | 80,000 |
| Less: Property plant and equipment | (25000) |
| An impairment loss for intangible asset | (5000) |
| Sales and leaseback gain | (30000) |
| Income under IFRS | 1,030,000 |
Reconciliation Statement for Stockholders Equity
| 2014 | |
| Stockholders’ equity under U.S. GAAP | $8,000,000 |
| Adjustments: | |
| Add net income | 30000 |
| Stockholders’ equity under IFRS | 8030000 |
References
Churyk, N. T., Reinstein, A., & Gross, G. M. (2010). Raleigh building products: A teaching case that highlights the differences between IFRS and US GAAP. Journal of Accounting Education, 28(2), 128-137.
Herrmann, D., Saudagaran, S. M., & Thomas, W. B. (2006, March). The quality of fair value measures for property, plant, and equipment. In Accounting Forum (Vol. 30, No. 1, pp. 43-59). Taylor & Francis.
Krishnan, S., & Lin, P. (2012). Inventory Valuation Under IFRS and GAAP: this article is based on a study supported by the IMA [R] research foundation. Strategic Finance, 93(9), 51-59.