Question

4. Fidelity’s investment team wants to re-evaluate their international stock portfolio offered to investors. They are considering adding Highfall AG, a listed Swiss manufacturing firm, to their international portfolio.

Notes to consider for reconciliation:

• Highfall AG uses the FIFO inventory valuation system, which makes COGS lower and inventory valued higher, at a value of $78,000, than it would be under the US GAAP-preferred LIFO system.

• Using IFRS, Highfall AG capitalizes $46,000 of development expenses as an asset on their balance sheet (remember: under US GAAP such costs would be included as operating expenses).

• Using IFRS, Highfall AG reversed a prior goodwill impairment by $30,000, recognizing a gain on their income statement and an increase in the asset price. Such reversals are not allowed under US GAAP.

• There were no prior period adjustments.

Required: Given the information above, please prepare a partial reconciliation for Highfall AG’s financial statements from IFRS to US GAAP.

Income Statement:	Local GAAP	Debit	Credit	US GAAP
Sales	1,300,000
COGS	820,000
Operating Exp.	52,000
Reversal of GW Impairment	30,000
Net Income	458,000
Statement of RE:
Beg. Retained Earnings	400,000
+ Net Income	458,000
End. Retained Earnings	858,000
Balance Sheet:
Inventory (FIFO)	800,000
Goodwill	200,000
R&D	46,000
Total Assets	1,046,000
Total Liability	350,000
Retained Earnings	858,000

Answer 1

Income Statement	Local GAAP	Debit	Credit	US GAAP
Sales	1300000			1300000
COGS	820000	(i) 78000		898000
Operating expenses	52000	(ii) 46000		98000
Reversal of Goodwill Empairment	30000	(iii) 30000		0
Net income	458000			304000
Statement of RE
Beg. Retained Earning	400000			400000
+ Net Income	458000			304000
End Retained Earning	858000			704000
Balance sheet
Inventory(FIFO)	800000		(i) 78000	722000
Goodwill	200000		(iii) 30000	170000
R&D	46000		(ii) 46000	0
Total Assets	1046000			892000
Total Liability	350000			350000
Retained Earnings	858000			304000