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Chapter 5: Question 2IFRS (page 262)

IFRS5-2 Briefly describe some of the similarities and differences between GAAP and IFRS with respect to statement of financial position (balance sheet) reporting.

Short Answer

Expert verified

Both of them require reporting accounting policies and estimates made in accounting. Both of them report their assets in a different sequence.

Step by step solution

01

Definition of Accounting Estimates

Accounting estimates can be defined as the approximation made by the business entity for a business transaction that does not have any means of measurement.

02

Similarities between reporting of GAAP and IFRS

1. Both of them require minimum notes disclosure. They require the business entity to disclose information about accounting policies adopted, judgments made by the business entity, and assumptions made by the business entity.

2. Previous period’s financial statement must be reported for comparison.

3. Assets and liabilities must be classified as current and non-current.

03

Difference between reporting GAAP and IFRS

Under IFRS, long-term assets such as property, plant, and equipment are reported first. While under GAAP, assets are reported as per their liquidity.

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Most popular questions from this chapter

BE5-8 (L03) Included in Adams Company’s December 31, 2017, trial balance are the following accounts: Accounts Payable \(220,000, Pension Liability \)375,000, Discount on Bonds Payable \(29,000, Unearned Rent Revenue \)41,000, Bonds Payable \(400,000, Salaries and Wages Payable \)27,000, Interest Payable \(12,000, and Income Taxes Payable \)29,000. Prepare the current liabilities section of the balance sheet.

BE5-3 (L03) Included in Outkast Company’s December 31, 2017, trial balance are the following accounts: Prepaid Rent \(5,200, Debt Investments (to be held to maturity until 2020) \)56,000, Unearned Fees \(17,000, Land (held for investment) \)39,000, and Notes Receivable (long-term) $42,000. Prepare the long-term investments section of the balance sheet.

Presented below is the balance sheet for Tomkins plc, a British company.

Tomkins plc Consolidated Balance Sheet (amounts in £ million)

Particular

Amount £

Non-Current Assets

Goodwill

436

Other tangible assets

78

Property, plant, and equipment

1,122.80

Investment in associates

20.6

Trade and other receivables

81.1

Deferred tax assets

82.9

Post-employment benefits surpluses

1.3

1,822.7

Current assets

Inventories

590.8

Trade and other receivables

753

Income tax recoverable

49

Available for sale investment

1.2

Cash and Cash equivalents

445

1,839

Assets held for sale

11.9

Total assets

3,673.6

Current liabilities

Bank overdraft

4.8

Bank and other loans

11.2

Obligations under finance leases

1

Trade and other payables

677.6

Income tax liabilities

15.2

Provisions

100.3

810.1

Non-Current liabilities

Bank and other loans

687.3

Obligations under financial leases

3.6

Trade and other payables

27.1

Post-Employment benefits obligations

343.5

Deferred tax liabilities

25.3

Income tax liabilities

79.5

Provisions

19.2

1,185.5

Total liabilities

1,995.6

Net assets

1,678

Capital reserve

Ordinary share capital

79.6

Share premium account

799.2

Own shares

(8.2)

Capital redemption reserve

921.8

Currency translation reserve

(93)

Available for sale reserve

(0.9)

Accumulated deficit

(161.9)

Shareholder’s equity

1,536.6

Minority interest

141.4

Total equity

1,678

Instructions

(a) Identify at least three differences in balance sheet reporting between British and U.S. firms, as shown in Tomkins’ balance sheet.

(b) Review Tomkins’ balance sheet and identify how the format of this financial statement provides useful information, as illustrated in the chapter.

Grant Wood Corporation’s balance sheet at the end of 2016 included the following items.

Current assets (\(Cash 82,000)

\)235,000

Current liabilities

\(150,000

Land

30,000

Bond payable

100,000

Building

120,000

Common stock

180,000

Equipment

90,000

Retained earnings

44,000

Accumulated depreciation – Building

(30,000)

Accumulated depreciation – Equipment

(11,000)

Patents

40,000

Total

\)474,000

Total

\(474,000

The following information is available for 2017.

1. Net income was \)55,000.

2. Equipment (cost \(20,000 and accumulated depreciation \)8,000) was sold for \(10,000.

3. Depreciation expense was \)4,000 on the building and \(9,000 on equipment.

4. Patent amortization was \)2,500.

5. Current assets other than cash increased by \(29,000. Current liabilities increased by \)13,000.

6. An addition to the building was completed at a cost of \(27,000.

7. A long-term investment in stock was purchased for \)16,000.

8. Bonds payable of \(50,000 were issued.

9. Cash dividends of \)30,000 were declared and paid.

10. Treasury stock was purchased at a cost of $11,000.

Instructions

(Show only totals for current assets and current liabilities.)

(a) Prepare a statement of cash flows for 2017.

(b) Prepare a balance sheet at December 31, 2017.

Early in January 2018, Hopkins Company is preparing for a meeting with its bankers to discuss a loan request. Its bookkeeper provided the following accounts and balances at December 31, 2017.

Debit \(

Credit \)

Cash

\(75,000

Accounts receivable (net)

38,500

Inventory (net)

65,300

Equipment (net)

84,000

Patent

15,000

Notes and Accounts payable

\)52,000

Note payable (due 2019)

75,000

Common stock

100,000

Retained earnings

50,800

\(277,800

\)277,800

Except for the following items, Hopkins has recorded all adjustments in its accounts.

1. Cash includes \(500 petty cash and \)15,000 in a bond sinking fund.

2. Net accounts receivable is comprised of \(52,000 in accounts receivable and \)13,500 in allowance for doubtful accounts.

3. Equipment had a cost of \(112,000 and accumulated depreciation of \)28,000.

4. On January 8, 2018, one of Hopkins’ customers declared bankruptcy. At December 31, 2017, this customer owed Hopkins \(9,000.

Accounting

Prepare a corrected December 31, 2017, balance sheet for Hopkins Company.

Analysis

Hopkins’ bank is considering granting an additional loan in the amount of \)45,000, which will be due December 31, 2018. How can the information in the balance sheet provide useful information to the bank about Hopkins’ ability to repay the loan?

Principles

In the upcoming meeting with the bank, Hopkins plans to provide additional information about the fair value of its equipment and some internally generated intangible assets related to its customer lists. This information indicates that Hopkins has significant unrealized gains on these assets, which are not reflected on the balance sheet. What objections is the bank likely to raise about the usefulness of this information in evaluating Hopkins for the loan renewal?
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