Principal Company Is a U

question 31

Essay

Principal Company is a U.S.-based company that prepares its consolidated financial statements in accordance with U.S. GAAP. Principal reported net income of $ 2,600,000 in 2011 and stockholders' equity of $12,000,000 at December 31, 2011. Principal wants to determine the reporting impact of switching to IFRS. The following three items would create differences in financial reporting:
1) At December 31, 2011, inventory had a historical cost of $850,000, a replacement cost of $700,000, and a net realizable value of $800,000. The normal profit margin was 10%.
2) Principal acquired a building at the beginning of 2009 at a cost of $5,000,000. The building has an estimated useful life of 20 years, an estimated residual value of $1,000,000, and is being depreciated on a straight-line basis. On January 1, 2011, the building has a fair value of $5,500,000. There is no change in the estimated useful life or residual value. In a switch to IFRS, Principal would use the revaluation model in IAS 16 to determine the carrying value of property, plant, and equipment subsequent to acquisition.
3) In 2011, Principal incurred $800,000 of research and development for a new product, of which 35% relates to development activities subsequent to the point at which criteria indicating the creation of an intangible asset had been met. As of the end of 2011, development of the new product had not been completed.
Required:
1) Prepare a schedule reconciling net income under U.S. GAAP to net income under IFRS for the year ended December 31, 2011.
2) Prepare a schedule reconciling stockholders' equity under U.S. GAAP to stockholders' equity under IFRS at December 31, 2011.

Predict market outcomes based on technological improvements or changes in production costs.

Identify the effects of entry or exit of suppliers and changes in substitute goods on market equilibrium.

Evaluate the impact of changes in the number of buyers in the market.

Understand the distinction between movements along the demand or supply curve versus shifts in the curves.

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Definitions:

Management Theorist

An expert or scholar who develops concepts and principles regarding how to organize, plan, direct, and control resources and activities within organizations.

Middle Management

A level of management in an organization that acts as an intermediary between executive management and operational staff, responsible for implementing organizational policies and strategies.

Systematic Program

A planned set of activities or procedures designed to achieve specific goals or outcomes, often structured and organized in a methodical way.

Employee Development

Organizational efforts aimed at helping employees acquire or enhance skills, competencies, and knowledge necessary for their professional growth and job performance.