Question

Quantacc Ltd. began operations on January 1, 2015, and uses IFRS to prepare its consolidated financial statements. Although not required to do so, to facilitate comparisons with companies in the United States, Quantacc reconciles its net income and stockholders’ equity to U.S. GAAP. Information relevant for preparing this reconciliation is as follows: Quantacc carries fixed assets at revalued amounts. Fixed assets were revalued upward on January 1, 2017, by $35,000. At that time, fixed assets had a remaining useful life of 10 years. On January 1, 2016, Quantacc realized a gain on the sale and leaseback of an office building in the amount of $200,000. The lease is classified as an operating lease and has a term of 20 years. Quantacc capitalized development costs related to a new pharmaceutical product in 2016 in the amount of $80,000. Quantacc began selling the new product on January 1, 2017, and expects the product to be marketable for a total of five years. Net income under IFRS in 2017 is $100,000 and stockholders’ equity under IFRS at December 31, 2017, is $1,000,000. Ignore income taxes.

Required

Prepare a schedule to reconcile Quantacc’s 2017 net income and December 31, 2017, stockholders’ equity under IFRS to U.S. GAAP.

Provide a brief title/description for each reconciling adjustment made, indicate the dollar amount of the adjustment, and calculate total amounts for net income and stockholders’ equity under U.S. GAAP.

Answer 1

19 Quantacc Ltd 21 Schedule to reconcile Quantacc's 2017 net income and December 31, 2017, stockholders' equity under IFRS to U.S. GAAP Income under IFRS Adjustments Add depreciation on revaluation amount in current year under IFRS (35000/10) Add gain on sale and leaseback recognized in current year under U.S. GAAP (200000/20) Add current year's amortization of deferred development costs (80000/5) Income under U.S. GAAP 100,000 23 24 25 26 3,500 10,000 16,000 29,500 129,500 28 29 Stockholders' equity under IFRS Less revaluation surplus Add accumulated depreciation on revaluation amount under IFRS (35000/10) Less total amount of gain on sale and leaseback recognized under IFRS Add cumulative amount of gain on sale and leaseback that would have been recognized under U.S. GAAPin 2016 and 2017(200000/10) Less total amount of development costs capitaied under IFRS in 2016 Add cumulative amount of amortization expense on development costs recognized under IFRS Stockholders' equity under U.S. GAAP 1,000,000 (35,000) 3500 31 32 (200,000) 20,000 (80,000) 16,000 35 37 38 39 275,500 724,500

Explanations 1 Under IFRS There is a revaluation surplus of 35000 and depreciation expense has been charged of 3500 (35000 /10) Under U.S.GAAP Neither expense has been recognized under U.S. GAAP When we reconcile it from IFRS to GAAP we will add back 3500 to IFRS net income 2 Under IFRS No gain was recognized. There is a gain on sale leaseback of 200000 Under US GAAP ,Under US GAAP we will recognize a gain on sale / leaseback of (200000/20-10000 3 Under IFRS Under IFRS a development cost will be recognized Amortization expense related to asset will be recognized (80000/5) 16000 Under U.S.GAAP Under U.S GAAP we will expensed developent cost of 80000