Exam case financial accounting Essay Example for Free

Exam case financial accounting EssaySolutions to Exercises and Problems Tutorial 1 IFM berth 2-2Case 2-2 SKD Limited1.GoodwillThere is no goodwill amortization expense in Country A, so the goodwill amortization expense discoverd by SKD must be added back to peg down income nether Country A GAAP. SKD amortizes goodwill over a longer period (20 years) than is allowed in Country B (5 years), so an additional amount of goodwill amortization expense must be accepted to determine income under Country B GAAP, which reduces Country B GAAP income. b.The goodwill change affects the kept up(p) internet in stockholders loveliness. The increase in Country A GAAP income results in an increase in retained simoleons and the decrease in Country B GAAP income results in a decrease in retained earnings. c.The accommodation to income is for the current year only. The adjustment to stockholders equity is cumulative. The fact that the stockholders equity adjustment is cardinal times as bigg er as the income adjustment implies that the goodwill was purchased three year ago.2.Capitalized Interesta.The adjustment labeled Capitalized interest relates to the interest that is not expensed but instead is capitalized under Country A GAAP. The adjustment labeled dispraise related to capitalized interest relates to the depreciation of the interest that was capitalized as part of the damage of the asset. b.The beginning(a) adjustment increases income because interest is not being expensed immediately but instead is capitalized as part of the personify of the asset to which it relates. The second adjustment decreases income because under Country A GAAP, the asset to which interest is capitalized has a larger cost and on that pointfore a larger depreciation expense. c.Both income adjustments are closed out to retained earnings and partially offset one another. The increase to income of $50 and the decrease of $20 result in a net increase in retained earnings of $30.3.Fixed Ass etsa.When fixed assets are revalued to a higher amount, there is an increase in their carrying value with an offsetting increase in stockholders equity to keep the balance sheet in balance. The amount by which the assets are revalued is subject to depreciation, which results in a larger depreciation 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 review of assets, which results in a net 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 revaluation occurred at the end of the previous year, then the revaluation amount must have been $64 ($64 8 = $56) because only one year of additional deprecation would be included in the stockholders equity adjustment. 27. Holzer Company Property, Plant, and Equipment (capitalization of adoption costs and measurement of asset incidental to acquisition using two ersatz models)IAS 16 Cost ModelCarry asset on the balance sheet at cost less accumulated depreciation and any accumulated impairment losses.Capitalize borrowing costs borrowing costs attributable to the reflexion of qualifying assets.Annual interest ($900,000 x 10%)$90,000Interest to be capitalized in socio-economic class 1 ($500,000* x 10%)50,000 Interest expense in Year 1$40,000* Expenditures of $1,000,000 were made evenly throughout the year, so the average accumulated expenditures during the year are $500,000 ($1,000,000 / 2).Cost of build verbal expression costs$1,000,000Capitalized interest50,000Total 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$26,250$26,250Balance Sheet mental synthesis (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 fair 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 interest50,000Total 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$25,526Loss on revaluation27,500 retroversion of revaluation loss(27,500)Total expense (income)$0$26,250$43,750$ 25,526$(1,974)Balance SheetBuilding (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 resolved 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 increased by $31,052. A reversal of revaluation loss of $27,500 is recognized in income and $3,552 ($31,052 27,500) is recorded as revaluation surplus in shareholders equity.