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International Accounting

Ipat International Ltd provided the following reconciliation from IFRS to US GAAP in its most recent annual report.

................................................................................................................Net Income Shareholders Equity
As stated IFRS............................................................................541,713 7,638,794
U.S GAAP Adjustments
(a) Reversal of additional depreciation charges
Arising from revaluation of fixed assets..............................................85,720 643,099
(b) Reversal of revaluation surplus of fixed assets................................0 (977,240)
As stated under US GAAP .........................................................627,433 7,305,653

(a) Explain why US GAAP adjustment (a) results in an addition to net income. Explain why US GAAP adjustment (a) results in an addition to shareholders equity that is greater than the addition to net income. What is the shareholders equity account affected by adjustment (a)?
(b) Explain why US GAAP adjustment (b) results in a subtraction from shareholders equity but does not affect net income. What is the shareholders equity account affected by adjustment (b)?

Solution Preview

Ipat International Ltd provided the following reconciliation from IFRS to US GAAP in its most recent annual report.

................................................................................................................Net Income Shareholders Equity
As stated ...

Solution Summary

This solution discusses GAAP adjustments result in changes to net income, and also explains why shareholder equity changes. This solution also explains why there is a decrease in equity but not net income. The applicable adjustments and reasons for the adjustments are thoroughly discussed.

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