2. Bianchi SPA, an Italian manufacturing firm, uses IFRS. On 1/1/2012, Bianchi p

Question

2. Bianchi SPA, an Italian manufacturing firm, uses IFRS. On 1/1/2012, Bianchi purchased equipment for S1,000,000. The equipment's useful life is 10 years. It has no residual value. On 1/1/2014, the company chose to revalue the equipment. The fair value of the equipment was $1,200,000. No revaluation was performed in 2015 The company's shareholders' equity as of the end of 2015 is $100 million. What would have been the reported shareholders' equity had the company used U.S. GAAP instead of IFRS? Ignore any tax effects

Explanation / Answer

As per IFRS, Upward revaluation is not considered a normal gain and is not recorded on the income statement; rather it is directly credited to an equity account called revaluation surplus. Revaluation surplus holds all the upward revaluations of a company's assets until those assets are disposed.

Whereas in US GAAP there is no revaluation allowed.

Accordingly, shareholders equity if they had used US GAAP would have been 100 million - $ 2,00,000

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