1.IFRS for SMEs
You’re the CFO of Takodana, U.S. mid-size non-public firm. Final yr your organization bought 30% of the inventory of Jakku Firm, and also you decided that Takodana has vital affect over Jakku (which is subsequently an affiliate).
a) What’s the appropriate accounting methodology to deal with the funding in Jakku underneath US GAAP?
b) You might be contemplating adopting IFRS for SMEs. What can be the accounting remedy for the funding underneath IFRS for SMEs? In your reply assume the affiliate firm doesn’t have a broadcast value citation for its inventory (its inventory is just not traded) and its honest worth can’t be measured reliably. Are there a couple of various strategies allowed?
Be aware: in answering half b it is best to take a look at the IFRS for SMEs
a) Assume Jakku reported constructive earnings this yr, however didn’t distribute dividends. What can be the impact of that on Takodana’s earnings underneath US GAAP (the strategy you indicated partially a)? Below IFRS for SMEs (the strategy/s you indicated partially b)?
You solely want to find out whether or not earnings go up, down, or keep the identical. Assume no impairment was wanted this yr.
b) In case your aim as a CFO is to simplify your accounting strategies, which customary system (US GAAP or IFRS for SMEs) permits you to use an easier methodology?
2.
Monetary Statements Presentation
a. Steadiness Sheet
Take a look at the annual stories for the next two corporations:
· Union Pacific 2017 annual report: UP 2017 – (hyperlink https://www.sec.gov/Archives/edgar/knowledge/100885/000010088518000048/unp-20171231x10okay.htm#FinancialStatementsAndSupplementaryData)
· SJ 2017 annual report: SJ 2017 – (hyperlink https://drive.google.com/file/d/1B7eRV3YJ_Zy0BAnjcKwmrUPk8csCEqJD/view)
Reply the next:
i. What’s the business of every firm? Which accounting requirements does every firm use?
ii. What’s the predominant construction of every firm’s stability sheet? What are the primary variations on this presentation construction? (recall our dialogue from class)
b. Earnings Assertion:
Take a look at the annual stories for the next two corporations:
· Apple 2017 annual report: Apple 2017 – ( hyperlink https://www.sec.gov/Archives/edgar/knowledge/320193/000032019317000070/a10-k20179302017.htm#sCE31BDFF50DA58B8962157DE8467840C)
· Samsung 2017 annual report: Samsung 2017-( hyperlink https://pictures.samsung.com/is/content material/samsung/p5/world/ir/docs/2017_con_quarter04_all.pdf)
Reply the next:
i. What’s the business of every firm? Which accounting requirements does every firm use?
ii. Take a look at the revenue statements of each corporations: Are the bills labeled by perform or by nature?
iii. Discover in Samsung the next three quantities for 2017: 1) Whole wages and salaries; 2) Uncooked supplies and items used in the course of the interval; three) Depreciation expense for the interval (notice: discover the depreciation expense for the yr and never the collected depreciation, and likewise don’t embody amortization).
iv. Can you discover the above three quantities from b(iii) for Apple?
c. Money Circulation Assertion
Take a look at the 2018 Annual report of Vodafone, a UK firm that makes use of IFRS:
https://www.sec.gov/Archives/edgar/knowledge/839923/000110465918039071/a18-6491_120f.htm
Discover the money circulate assertion. We realized at school that IFRS permits extra freedom as to the classification of some money circulate gadgets (whether or not they’re working, investing, or financing), whereas US GAAP uniquely prescribes the class with no decisions obtainable. In Vodafone’s money circulate assertion discover 4 gadgets/strains the place the corporate labeled a money circulate in a class which may be totally different than the class prescribed in US GAAP, and reply the next:
i. What are the 4 gadgets? (notice that dividends paid wouldn’t be one of many 4 variations in Vodafone’s case, as a result of Vodafone labeled these cost within the financing class, which can be the one class allowed in US GAAP. It’s good to discover 4 gadgets which may be labeled otherwise in US GAAP).
ii. For every of the gadgets, clarify what the alternatives for presentation in IFRS are, and what the requirement in US GAAP is.
iii. If these gadgets would have been introduced as required in US GAAP, what can be the share change within the money circulate from working actions for Vodafone in 2018? (Calculate the money circulate from working actions as it will be in US GAAP and evaluate it to the money circulate from working as it’s at the moment introduced in IFRS).
three.
IFRS Hierarchy: IAS eight and the IFRS Framework
The Enjoyable-Man firm acquires a mushroom farming enterprise. The CFO of the corporate is contemplating account for the mushrooms. IFRS has a normal on agriculture (IAS 41) which requires that animals and vegetation must be introduced at their honest worth. Nonetheless, when visiting the mushroom farming operation, the CFO is stunned to be taught that mushrooms are neither vegetation nor animals—they’re fungi. Moreover, he can not discover the place in IFRS it’s specified account for the fungi that Enjoyable-Man is farming (i.e. the residing mushrooms) as IAS 2 (which offers with stock) and IAS 16 (which offers with PP&E) exclude organic property from their scope.
Clarify in short what are the sources that IFRS requires Enjoyable-Man’s CFO to think about when making his accounting coverage alternative, and what do you assume can be the possible alternative of coverage (Be aware: you aren’t required to know the related IFRS requirements and guidelines, and so your dialogue must be basic and shouldn’t be greater than three/four – 1 web page lengthy).
four. IFRS within the US?
Many regard worldwide comparability and the avoidance of twin reporting for guardian and subsidiaries as the 2 most necessary advantages from a attainable adoption of IFRS within the US. Discover a big U.S. home firm that you just consider will obtain each of the above advantages from IFRS adoption. Particularly, present the next:
a) The corporate has worldwide presence and international subsidiaries:
Look into the corporate’s monetary assertion (or different data sources) to see the place the corporate operates on the earth and what % of its operations are worldwide. Are there international subsidiaries? (if obtainable, current a listing of subsidiaries). Are these subsidiaries function in IFRS utilizing international locations?
b) The corporate’s predominant opponents are utilizing IFRS:
On this firm’s business, are the primary opponents utilizing IFRS? US GAAP? or different GAAPs? (Record the primary opponents and present whether or not they’re utilizing IFRS, US GAAP, or different GAAPs). The extra opponents which can be utilizing IFRS within the business, the extra the corporate will profit from adopting IFRS, as a result of elevated comparability.
Necessary notes:
i. You possibly can search for international locations and what GAAP they’re utilizing within the following net handle (that we additionally checked out at school):
https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/#profiles
(notice: if the hyperlink doesn’t open, copy the handle to your browser)
ii. Attempt to discover a firm that satisfies each requirement: (a) and (b) above, not simply one of many necessities
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