You Are Comparing the Financial Statements of Two Companies, Ready

question 31

Essay

You are comparing the financial statements of two companies, Ready PLC and Marlet Inc., which operate in the same industry but different countries. Ready, Inc. is a British company and prepares its financial statements using British accounting rules. Marlet is a U.S company and prepares its statements using U.S. GAAP.
The following differences in accounting methods are noted: $\begin{array}{c}\begin{array}{|l|c|}\hline&\text { Ready }\\\hline \text { Goodwill } & \begin{array}{l}\text { Goodwill is immediately } \\\text { written-off directly to } \\\text { stockholders' equity }\end{array} \\\hline \text { Inventory costing } & \begin{array}{l}\text { FIFO is used for financial } \\\text { reporting and tax purposes }\end{array} \\\hline \begin{array}{l}\text { Research and } \\\text { Development costs }\end{array} & \text { Capitalized and amortized } \\\hline\end{array}\begin{array}{l|}\hlineMarlet\\\hline\text{Goodwill is capitalized and amortized over 40 years}\\\\\\\hline\text{LIFO allowed for tax and financial reporting purposes}\\\\\hline Expensed\\\\\hline\end{array}\end{array}$
You want to restate the financial statements of Marlet in order to make them comparable with Ready PLC. Identify the adjustments you would make, and the effect on the financial statements.

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Definitions:

Warranty of Title

A legal guarantee provided by a seller to a buyer that the seller has the right to transfer ownership and no hidden liens or encumbrances exist.

Risk of Loss

The financial risk borne by a party in the event that goods are lost, damaged, or destroyed during transportation or storage.

Sale or Return

A sales agreement allowing the buyer to return unsold goods to the seller without obligation within a specified period.

On Approval

"On approval" is a transaction condition allowing a buyer to take possession of goods before deciding to complete the purchase, subject to the goods’ return if not satisfied.