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Solutions to Exercises and Challenges Tutorial 1 IFM

Circumstance 2-2

Case 2-2 SKD Limited

1 . Goodwill

There is absolutely no goodwill amount expense in Country A, so the goodwill amortization expense recognized by SKD must be added returning to determine profits under Country A GAAP. SKD amortizes goodwill more than a longer period (20 years) than can be allowed in Country W (5 years), so an extra amount of goodwill amount expense has to be recognized to determine income under Country B GAAP, which will reduces Region B GAAP income.

n. The goodwill adjustment affects the stored earnings in stockholders’ fairness. The increase in Country A GAAP cash flow results in a rise in retained profits and the decrease in Country W GAAP income results in a decrease in stored earnings. c. The realignment to income is for the latest year simply. The adjustment to stockholders’ equity can be cumulative. The fact that the stockholders’ equity adjustment is three times as much larger as the income adjusting implies that the goodwill was purchased 3 year ago.

2 . Capitalized Interest

a. The adjustment marked “Capitalized interest relates to the interest that is not expensed but instead is capitalized under Nation A GAAP. The adjusting labeled “Depreciation related to capitalized interest pertains to the devaluation of the interest that was capitalized within the cost of the asset. b. The first adjustment increases income since interest is usually not being expensed immediately yet instead is usually capitalized within the cost of the asset where it relates. The second modification decreases income because beneath Country A GAAP, the asset where interest is usually capitalized has a larger price and therefore a bigger depreciation price. c. Both income modifications are shut down out to stored earnings and partially counteract one another. The increase to income of $50 and the decrease of $20 cause a net increase in retained earnings of $30.

3. Set Assets

a. The moment fixed assets are revalued to a higher amount, there is a rise in their having value with an offsetting increase in stockholders’ equity to hold the balance piece in balance. The amount through which the assets are revalued is susceptible to depreciation, which results in a larger devaluation expense. The adjustment to recognize this additional depreciation price decreases profits under Region B GAAP. It also decreases stockholders’ equity (retained earnings). The reduction in retained revenue from further depreciation is smaller than the rise in stockholders’ equity from revaluation of assets, which results in a net increase in stockholders’ equity. Be aware: if we realized when the fixed assets had been revalued, we could determine the amount by which these people were revalued. For instance , if revaluation occurred at the end of the prior year, then this revaluation quantity must have been $64 ($64 ” eight = $56) because only one full year of additional deprecation would be included in the stockholders’ value adjustment. 28. Holzer Company ” Home, Plant, and Equipment (capitalization of funding costs and measurement of asset subsequent to acquisition applying two alternate models)

IAS 16 Expense Model

Carry property on the balance sheet at are cheaper accumulated depreciation and virtually any accumulated disability losses.

Monetize borrowing costs borrowing costs attributable to the development of qualifying assets.

Annual interest ($900, 500 x 10%)$90, 000

Interest being capitalized in Year 1 ($500, 000* x 10%)50, 000 Interest expense in Year 1$40, 000

* Expenses of $1, 000, 1000 were made consistently throughout the year, hence the average gathered expenditures during the year are $250, 000 ($1, 000, 500 / 2).

Cost of building:

Building costs$1, 500, 000

Capitalized interest50, 000

Total first cost of building$1, 050, 000

Annual depreciation (beginning in 12 months 2) ($1, 050, 000 / forty five years) $26, 250

Year 1Year 2Year 3Year 4Year 5

Income Affirmation

Depreciation expense$0$26, 250$26, 250$26, 250$26, 250

Balance Sheet

Building (at 1/1)$0$1, 050, 000$1, 023, 750$997, 500$971, two hundred and fifty Depreciation(26, 250)(26, 250)(26, 250)(26, 250)

Building (at 12/31)$1, 050, 000$1, 023, 750$997, 500$971, 250$945, 000

IAS of sixteen Revaluation Style

Take asset for the balance sheet at revalued amount equal to reasonable value fewer any subsequent accumulated depreciation and any kind of accumulated disability losses.

Monetize borrowing costs attributable to the construction of being approved assets.

Annual interest ($900, 1000 x 10%)$90, 000

Interest to get capitalized in Year 1 ($500, 1000 x 10%)50, 000 Interest expense in Year 1$40, 000

Expense of building:

Construction costs$1, 000, 000

Made a fortune interest50, 000

Total initial cost of building$1, 050, 000

Yearly depreciation (beginning in Year 2) ($1, 050, 000 as well as 40 years) $26, two hundred and fifty

Year 1Year 2Year 3Year 4Year five

Profits Statement

Depreciation expense$0$26, 250$26, 250$25, 5262$25, 526

Subtotal $0$26, 250$26, 250$25, 526$25, 526

Loss upon revaluation27, 500

Change of revaluation loss(27, 500)

Total expense (income)$0$26, 250$43, 750$25, 526$(1, 974)

“balance sheet”

Building (at 1/1)$0$1, 050, 000$1, 023, 750$970, 000$944, 474 Depreciation(26, 250)(26, 250)(25, 526)(25, 526)

Building (at 12/31)$1, 050, 000$1, 023, 750$997, 500$944, 474$918, 948 Loss in revaluation(27, 500)1

Reversal of revaluation loss27, 5003

Revaluation surplus 3, 5523

Building (at 12/31)$1, 050, 000$1, 023, 750$970, 1000 $944, 474$950, 000

1At December 23, Year 3, the fair value of the building is decided to be $970, 000. The carrying worth of the building is reduced by $27, 500, which has a loss about revaluation acknowledged in Yr 3 net gain. 2 Depreciation in Year 4 is definitely $25, 526 ($970, 000 / 38 remaining years). 3At December 31, Season 5, the fair worth of the building is determined being $950, 000. The having value of the building can be increased by $31, 052. A change of revaluation loss of $27, 500 can be recognized in income and $3, 552 ($31, 052 ” twenty seven, 500) is recorded since revaluation surplus in shareholders’ equity.


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