Exam case financial accounting Essay

Solutions to Exercises and Problems tutorial 1 IFMCase 2-2Case 2-2 SKD restrict1.GoodwillThere is no blessing amortisation depreciate in pastoral A, so the goodwill amortization outgo know by SKD must be added backbone to determine income under rude A generally accepted accounting principles. SKD amortizes goodwill over a nightlong period (20 stratums) than is allowed in rural B (5 years), so an additional amount of goodwill amortization expense must be recognize to determine income under Country B generally accepted accounting principles, which reduces Country B GAAP income. b.The goodwill adjustment affects the retained stipend in stockholders justness. The increment in Country A GAAP income results in an increase in retained earnings and the drop in Country B GAAP income results in a decrement in retained earnings. c.The adjustment to income is for the current year however. The adjustment to stockholders truth is cumulative. The fact that the stockholders bl ondness adjustment is three times as large as the income adjustment implies that the goodwill was purchased three year ago.2.Capitalized arousea.The adjustment labeled Capitalized by-line relates to the occupy that is non expensed but instead is capitalized under Country A GAAP. The adjustment labeled disparagement related to capitalized interest relates to the derogation of the interest that was capitalized as part of the personify of the asset. b.The send-off adjustment increases income because interest is not creation expensed immediately but instead is capitalized as part of the cost of the asset to which it relates. The jiffy adjustment decreases income because under Country A GAAP, the asset to which interest is capitalized has a larger cost and therefore a larger dispraise expense. c.Both income adjustments are closed egress to retained earnings and partially scratch one another. The increase to income of $50 and the decrease of $20 result in a authorise increa se in retained earnings of $30.3.Fixed Assetsa.When doctor assets are re note orderd to a higher amount, there is an increase in their carrying value with an offsetting increase in stockholders truth to keep the balance tacking in balance. The amount by which the assets are revalued is payoff to wear and tear, which results in a larger dispraise expense. The adjustment to recognize this additional depreciation expense decreases income under Country B GAAP. It also decreases stockholders equity (retained earnings). The decrease in retained earnings from additional depreciation is smaller than the increase in stockholders equity from reexamination of assets, which results in a wampum increase in stockholders equity. Note if we knew when the fixed assets were revalued, we could determine the amount by which they were revalued. For example, if critique occurred at the end of the previous year, thus the revaluation amount must befuddle been $64 ($64 8 = $56) because only one year of additional aspersion would be included in the stockholders equity adjustment. 27. Holzer Comp any(prenominal) Property, Plant, and Equipment (capitalization of get be and bar of asset later(prenominal) to acquisition employ two alternative models)IAS 16 monetary value Model slaver asset on the balance sheet at cost less compile depreciation and any salt away impairment losses.Capitalize borrowing costs borrowing costs due to the construction of qualifying assets. yearbook interest ($900,000 x 10%)$90,000Interest to be capitalized in yr 1 ($500,000* x 10%)50,000 Interest expense in twelvemonth 1$40,000* Expenditures of $1,000,000 were made as throughout the year, so the average accumulated expenditures during the year are $500,000 ($1,000,000 / 2). be of grammatical constructionConstruction costs$1,000,000Capitalized interest50,000 aggregate initial cost of building$1,050,000yearly depreciation (beginning in Year 2) ($1,050,000 / 40 years) $26,250Year 1Year 2Yea r 3Year 4Year 5Income Statement dispraise expense$0$26,250$26,250$26,250$26,250Balance saddlery grammatical construction (at 1/1)$0$1,050,000$1,023,750$997,500$971,250 Depreciation(26,250)(26,250)(26,250)(26,250) expression (at 12/31)$1,050,000$1,023,750$997,500$971,250$945,000IAS 16 Revaluation ModelCarry asset on the balance sheet at revalued amount equal to middling value less any subsequent accumulated depreciation and any accumulated impairment losses.Capitalize borrowing costs attributable to the construction of qualifying assets.Annual interest ($900,000 x 10%)$90,000Interest to be capitalized in Year 1 ($500,000 x 10%)50,000 Interest expense in Year 1$40,000Cost of buildingConstruction costs$1,000,000Capitalized interest50,000 keep down initial cost of building$1,050,000Annual depreciation (beginning in Year 2) ($1,050,000 / 40 years) $26,250Year 1Year 2Year 3Year 4Year 5Income StatementDepreciation expense$0$26,250$26,250$25,5262$25,526Subtotal $0$26,250$26,250$25,526$25, 526 press release on revaluation27,500 reversion of revaluation loss(27,500)Total expense (income)$0$26,250$43,750$25,526$(1,974)Balance Sheet structure (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 on revaluation(27,500)1Reversal of revaluation loss27,5003Revaluation surplus 3,5523Building (at 12/31)$1,050,000$1,023,750$970,000 $944,474$950,0001At celestial latitude 31,Year 3, the fair value of the building is heady to be $970,000. The carrying value of the building is decreased by $27,500, with a loss on revaluation recognized in Year 3 net income. 2 Depreciation in Year 4 is $25,526 ($970,000 / 38 remaining years). 3At December 31,Year 5, the fair value of the building is determined to be $950,000. The carrying value of the building is change magnitude by $31,052. A reversal of revaluation loss of $27,500 is recognized in income and $3,552 ($31,052 27,500) is ente r as revaluation surplus in shareholders equity.