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.
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