Trecek Corporation incurs research and development costs of $654,000 in 2017, 30
ID: 2572247 • Letter: T
Question
Trecek Corporation incurs research and development costs of $654,000 in 2017, 30 percent of which relate to development activities subsequent to IAS 38 criteria having been met that indicate an intangible asset has been created. The newly developed product is brought to market in January 2018 and is expected to generate sales revenue for 10 years. Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes. Required:
Prepare journal entries for research and development costs for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.
Prepare the entry(ies) that Trecek would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS.
Explanation / Answer
Date Journal Entries under US GAAP 2017 Research and Development Expense A/c Dr 654000 To Bank A/c 654000 31-12-2017 Statement of Profit & Loss A/c Dr 654000 To Research and Development Expense A/c 654000 Date Journal Entries under IFRS 2017 Research and Development Expense A/c Dr 457800 Deffered Devlopment Cost A/c Dr 196200 To Bank A/c 654000 31-12-2017 Statement of Profit & Loss A/c Dr 320460 To Research and Development Expense A/c 457800 ($654000*0.70) 31-12-2018 Amortization Expense A/c Dr 19620 To Deffered Devlopment Cost A/c 19620 (654800-457800)/10 Conversion from US GAAP to IFRS Deffered Devlopment Cost A/c Dr 196200 To Research and Development Expense A/c 196200 Deffered Devlopment Cost A/c Dr 196200 To Retained Earnings A/c 196200 Amortization Expense A/c Dr 19620 To Deffered Devlopment Cost A/c 19620 (654800-457800)/10
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