4. Fidelity’s investment team wants to re-evaluate their international stock por
ID: 2414501 • Letter: 4
Question
4. Fidelity’s investment team wants to re-evaluate their international stock portfolio offered to investors. They are considering adding Highfall AG, a listed Swiss manufacturing firm, to their international portfolio.
Notes to consider for reconciliation:
• Highfall AG uses the FIFO inventory valuation system, which makes COGS lower and inventory valued higher, at a value of $78,000, than it would be under the US GAAP-preferred LIFO system.
• Using IFRS, Highfall AG capitalizes $46,000 of development expenses as an asset on their balance sheet (remember: under US GAAP such costs would be included as operating expenses).
• Using IFRS, Highfall AG reversed a prior goodwill impairment by $30,000, recognizing a gain on their income statement and an increase in the asset price. Such reversals are not allowed under US GAAP.
• There were no prior period adjustments.
Required: Given the information above, please prepare a partial reconciliation for Highfall AG’s financial statements from IFRS to US GAAP.
Income Statement:
Local GAAP
Debit
Credit
US GAAP
Sales
1,300,000
COGS
820,000
Operating Exp.
52,000
Reversal of GW Impairment
30,000
Net Income
458,000
Statement of RE:
Beg. Retained Earnings
400,000
+ Net Income
458,000
End. Retained Earnings
858,000
Balance Sheet:
Inventory (FIFO)
800,000
Goodwill
200,000
R&D
46,000
Total Assets
1,046,000
Total Liability
350,000
Retained Earnings
858,000
Income Statement:
Local GAAP
Debit
Credit
US GAAP
Sales
1,300,000
COGS
820,000
Operating Exp.
52,000
Reversal of GW Impairment
30,000
Net Income
458,000
Statement of RE:
Beg. Retained Earnings
400,000
+ Net Income
458,000
End. Retained Earnings
858,000
Balance Sheet:
Inventory (FIFO)
800,000
Goodwill
200,000
R&D
46,000
Total Assets
1,046,000
Total Liability
350,000
Retained Earnings
858,000
Explanation / Answer
Reversal of Goodwill
Empairment
Income Statement Local GAAP Debit Credit US GAAP Sales 1300000 1300000 COGS 820000 (i) 78000 898000 Operating expenses 52000 (ii) 46000 98000Reversal of Goodwill
Empairment
30000 (iii) 30000 0 Net income 458000 304000 Statement of RE Beg. Retained Earning 400000 400000 + Net Income 458000 304000 End Retained Earning 858000 704000 Balance sheet Inventory(FIFO) 800000 (i) 78000 722000 Goodwill 200000 (iii) 30000 170000 R&D 46000 (ii) 46000 0 Total Assets 1046000 892000 Total Liability 350000 350000 Retained Earnings 858000 304000Related Questions
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