Question

In: Accounting

During Year 1, Reforce Company conducted research and development on a new product and incurred $60,000...

During Year 1, Reforce Company conducted research and development on a new product and incurred $60,000 research and $300,000 development cost. The company had determined that all of the IAS 38 criteria have been met for capitalization of development cost. On January 2, Year 2, the product is ready for sale and is expected to be marketable for 3 years.

What was the difference between IFRS and U.S.GAAP for Year 1 total assets?

Total assets under IFRS were $300,000 lower than total assets under U.S.GAAP.

B.

Total assets under IFRS were $360,000 higher than total assets under U.S.GAAP.

C.

Total assets under IFRS were $300,000 higher than total assets under U.S.GAAP.

D.

There was no difference for total assets under IFRS and U.S.GAAP.

Solutions

Expert Solution

Answer: C Total assets under IFRS were $300,000 higher than total assets under U.S.GAAP.

Under IFRS (IAS-38) the expenses of research is always written off in Income statement for the period in which such research expenses made while the expenses of development is capitalized only after it meet the predefined conditions as defined in IAS38 but under US.GAAP the amount of research and expenditure is always written off or charged to Income statement.

Condition defined under IAS38 are as follows:

  • The technical feasibility of completing the intangible asset so that it will be available for use or sale.
  • Intention to complete the intangible asset and use or sell it.
  • Its ability to use or sell the intangible asset.
  • How the intangible asset will generate probable future economic benefits.
  • Adequate resources are available to complete the development.
  • Ability to reliably measure the expenditure attributable to the intangible asset during its development.

Let me know if you have any doubt in comment section.


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