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

Under IFRS , if there is a increase in fixed assets value due to revalution. It is shown in Other comphrensive income and shown as revalution reserve in shareholders equity.

While in US GAAP , there is no such concept of revalution.

Hence after revalution . shareholders equity is of 100 million.

Revalution reserve = revalued amount - assets book cost

= 1200000 - ( 100000 - 2 years depreciation)

= 1200000 - (1000000 - 200000)

= 400000

Hence share holders equity is increased by 400000 due to revalution.

Hence if we have used US GAAP there would be no revalution , hence shareholders equity would have been (100-0.40) 99.6 million $.

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