Question

Trecek Corporation incurs research and development costs of $690,000 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.

Answer 1

Requirement 1
	Account Title and Explanation	Debit	Credit
U.S. GAAP
2017	Research and development expenses	$690,000
	Cash		$690,000
	To record cost of R&D expensed under U.S. GAAP
IFRS
2017	Research and development expenses (690,000 × 70%)	$483,000
	Development costs - Deferred           (690,000 × 30%)	$207,000
	Cash		$690,000
	To record cost of R&D expensed under IFRS
U.S. GAAP
Dec 31	No journal entry required
2018
IFRS
Dec 31	Amortization expense    (207,000 ÷ 10)	$20,700
2018	Development costs - Deferred		$20,700
	To record amortization expense
Requirement 2
Dec 31	Development costs - Deferred	$207,000
2017	Research and development expenses		$207,000
	To record conversion worksheet entry in 2017
Dec 31	Development costs - Deferred	$207,000
2018	Retained earnings		$207,000
	To record conversion worksheet entry in 2018
Dec 31	Amortization expense	$20,700
2018	Development costs - Deferred		$20,700
	To record conversion worksheet entry in 2018