11 May SaulGroup, Inc., a U.S.-based company, is considering adopting IFRS in preparing its consolidated financial statements
SaulGroup, Inc., a U.S.-based company, is considering adopting IFRS in preparing its
consolidated financial statements. You are hired to assess the impact this change will
have on its financial statements. Basically, SaulGroup’s U.S. GAAP differ from IFRS in
four areas – inventory; property, plant, and equipment; intangible assets; research and
development costs.
Instructions:
Please respond to the following questions in each scenario:
1. Inventory
On December 31, 2016, SaulGroup’s inventory of Product X is as follows: Historical
cost is $1,000,000. Replacement cost is $700,000. Estimated selling price is
$850,000. Estimated costs to complete and sell are $100,000. Normal profit margin
as a percentage of selling price is 20%. The entire inventory of Product X that was
on hand at December 31, 2016 was completed in 2017 at a cost of $90,000 and sold
at a price of $870,000.
a. What is the impact that Product X has on income in 2016 and 2017 under (1)
IFRS and (2) U.S. GAAP?
b. How would you explain the difference in income, total assets, and total
stockholders’ equity using IFRS and U.S. GAAP over the years 2016 and
2017?
2. Plant, Property and Equipment
On January 2, 2016, SaulGroup purchased equipment at a cost of $5 million. The
equipment has a five-year life, no residual value, and is depreciated on a straightline basis. On January 2, 2018, the fair value of the equipment (net of any
accumulated depreciation) is determined as $6 million.
a. If the revaluation model is applied for measurement subsequent to initial
recognition under IFRS, what is the impact the equipment has on SaulGroup’s
income in Years 2016 – 2020 using (1) IFRS and (2) U.S. GAAP?
b. How would you explain the difference in income, total assets, and total
stockholders’ equity using IFRS and U.S. GAAP over the period of Years
2016 to 2020?
.
ACC512: International Accounting
Unit 2 Assignment
3. Research and Development
In 2016, SaulGroup spent $1 million in developing Product Y. Of this amount, 30%
related to development cost (IAS 38 criteria had been met for recognition of the
development costs as an intangible asset). The development of Product Y was
complete, and the product was available for sale on January 2, 2017. Sales of the
product are expected to continue for five years. Straight-line method is used.
a. What is the impact the research and development costs have on SaulGroup’s
in 2016 and 2017 income under (1) IFRS and (2) U.S. GAAP?
b. How would you explain the difference in income, total assets, and total
stockholders’ equity related to Product Y using IFRS and U.S. GAAP over the
year 2016 and 2017?
4. Intangible Assets
In 2014, SaulGroup acquired a brand with a fair value of $100,000. The brand is
classified as an intangible asset with an indefinite life. At the end of 2016, the
estimated selling price of the brand is $80,000 with zero selling cost. Expected
future cash flows from continued used of the brand are $120,000, and the present
value of the expected future cash flows is $70,000.
a. Determine the amount of impairment loss, if any, to be recognized in the year
2016 under (1) IFRS and (2) U.S. GAAP.
b. How would you explain the difference in income, total assets, and total
stockholders’ equity using IFRS and U.S. GAAP over the year 2016 and
2017?
