Question

Fast Ltd. is a public company that prepares its consolidated financial statements in accordance with IFRS. Its net income in Year 2 was $215,000, and shareholders’ equity at December 31, Year 2, was $1,950,000.

Mr. Lombardi, the major shareholder, has made an offer to buy out the other shareholders, delist the company, and take it private. Thereafter, the company will report under ASPE. You have identified the following two areas in which Fast’s accounting principles differ between IFRS and ASPE.

1. Fast incurred research and development costs of $515,000 in Year 1. Thirty percent of these costs were related to development activities that met the criteria for capitalization as an intangible asset. The newly developed product was brought to market in January, Year 2 and is expected to generate sales revenue for 10 years.

2. Fast acquired equipment at the beginning of Year 1 at a cost of $130,000. The equipment has a five-year life with no expected residual value and is depreciated on a straight-line basis. At December 31, Year 1, Fast compiled the following information related to this equipment:

Expected future cash flows from use of the equipment	$	107,000
Present value of expected future cash flows from use of the equipment		90,000
Net realizable value		87,000

Required:

(a) Determine the amount at which Fast should report each of the following on its balance sheet at December 31, Year 2, using (1) IFRS and (2) ASPE. Ignore the possibility of any additional impairment or reversal of impairment loss at the end of Year 2. Assume that Fast wants to minimize net income. (Leave no cells blank - be certain to enter "0" wherever required. Omit $ sign in your response.)

(i) Research and development

	IFRS	ASPE
R&D @ Dec 31, Yr 2	$	$

(ii) Equipment

  

	IFRS	ASPE
Equipment @ Dec 31, Yr 2	$	$

Answer 1

based on above problem we need to consider the intangible asset from the data of use. year one we need to reverse the depriciation and add to net income.

As per Accounting standards intangible shall be recoganized only if, the company can demonstrate all the followings.

Technical feasibility of completing the intangible asset so that it will be available for use or sale.

Its intention to complete the intangible asset and use or sell it.

its ability to use or sell the intangible asset and how the generate probable future economic benefits.

the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.

Its ability to measure reliably the expenditure to the intangible asset during its development.