Question

Fast Ltd. is a public company that prepares its consolidated financial statements in accordance with IFRS. Its net income in Year 2 was $215,000, and shareholders’ equity at December 31, Year 2, was $1,950,000.

Mr. Lombardi, the major shareholder, has made an offer to buy out the other shareholders, delist the company, and take it private. Thereafter, the company will report under ASPE. You have identified the following two areas in which Fast’s accounting principles differ between IFRS and ASPE.

1. Fast incurred research and development costs of $515,000 in Year 1. Thirty percent of these costs were related to development activities that met the criteria for capitalization as an intangible asset. The newly developed product was brought to market in January, Year 2 and is expected to generate sales revenue for 10 years.

2. Fast acquired equipment at the beginning of Year 1 at a cost of $130,000. The equipment has a five-year life with no expected residual value and is depreciated on a straight-line basis. At December 31, Year 1, Fast compiled the following information related to this equipment:

Expected future cash flows from use of the equipment	$	107,000
Present value of expected future cash flows from use of the equipment		90,000
Net realizable value		87,000

(b) Prepare a reconciliation of net income for Year 2 and shareholders’ equity at December 31, Year 2, under IFRS to an ASPE basis. (Omit $ sign in your response.)

  

Net Income Year 2 under ASPE	$
S/E @ Dec 31, Year 2 under ASPE	$

Answer 1

Ans.

Reconciliation of Net Income for Year 2

	Particulars	Amount
	Income as per IFRS	215,000
Add:	Development cost capitalised	154,500
Less:	Amortization of Development cost	15,450
Less:	Impairment of equipment ($104,000 - $90,000)	14,000
	Income as per ASPE	340,050

Reconciliation of Shareholder's Equity at December, Year 2

	Particulars	Amount
	Shareholder's Equity as per IFRS	1,950,000
Add:	Increase of Income on conversion to ASPE	125,050
	Shareholder's Equity as per ASPE	2,075,050

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