Problem

Financial Statement HarmonizationRefer to Exhibit 15–6 in this chapter. Assume a United Ki...

Financial Statement Harmonization

Refer to Exhibit 15–6 in this chapter. Assume a United Kingdom company, Brits International, lists on both the London Exchange using U.K. GAAP and the New York Stock Exchange. Brits International must prepare a reconciliation from U.K. GAAP to U.S. GAAP. This reconciliation shows the following difference associated with revaluations of fixed assets:

 

Net Income

Shareholder’s Equity

U.K. balances

$783,200

$4,767,900

U.S. GAAP adjustments:

 

 

a. Additional depreciation charges that result from revaluation of assets

47,600

326,533

b. Reversal of revaluation of fixed assets

________

(523,740)

U.S. GAAP restatement

$830,800

$4,570,693

Required:

a. Explain why the adjustment to U.S. GAAP resulted in additions to net income.


b. Explain why there are additions to shareholders’ equity and why those additions are greater than the additions to net income.


c. Explain why there is a deduction to shareholders’ equity.

EXHIBIT 15–6 Global Variation in Accounting Practices

Country GAAP

Auditors per 100,000

Fixed Asset Revaluation Allowed

LIFO Allowed

Goodwill Impairment Test or Amortize

Depreciation Basis

Segment Disclosure Required

IFRS

Yes

No

Impairment

Economic

Yes

United States

168

No

Yes

Impairment

Economic

Yes

United Kingdom

352

Yes

No

Impairment

Economic

Yes

Japan

10

No

No

Amortize (20 yr)

Tax

Yes

Germany

26

No

No

Amortize (4 yr)

Tax

Limited

China

15

No

Yes

Impairment

Economic/tax

No

Brazil

1

Yes

No

Impairment

Economic

No

Russia

?

No

Yes

Amortized (20 yr)

Tax

No

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