Quantacc Ltd.

began operations on January 1, 2011, and uses IFRS to prepare its

consolidated financial statements. Although not required to do so, to facilitate comparisons
with companies in the United States, Quantacc reconciles its net income and stockholders’
equity to U.S. GAAP. Information relevant for preparing this reconciliation is as follows:
1. Quantacc carries fixed assets at revalued amounts. Fixed assets were revalued upward
on January 1, 2013, by $35,000. At that time, fixed assets had a remaining useful life of 10
years.
2. On January 1, 2012, Quantacc realized a gain on the sale and leaseback of an office
building in the amount of $200,000. The lease is classified as an operating lease and has a
term of 20 years.
3. Quantacc capitalized development costs related to a new pharmaceutical product in 2012
in the amount of $80,000. Quantacc began selling the new product on January 1, 2013, and
expects the product to be marketable for a total of 5 years.
Net income under IFRS in 2013 is $100,000 and stockholders’ equity under IFRS at
December 31, 2013, is $1,000,000.

Required
a. Prepare a schedule to reconcile Quantacc’s 2013 net income and December 31, 2013,
stockholders’ equity under IFRS to U.S. GAAP.
b. Provide a brief title/description for each reconciling adjustment made, indicate the dollar
amount of the adjustment, and calculate total amounts for net income and stockholders’
equity under U.S. GAAP. 
Solution:

a)

Year 2013

Net income under IFRS $100,000

Adjustments:

Reversal of depreciation on revaluation of fixed assets 3,500

Reversal of amortization of deferred development costs 16,000

Reversal of gain on sale and leaseback (150,000)

Amortization of gain on sale and leaseback 7,500

Net income (loss) under U.S. GAAP $ (23,000)

December 31, Year 2013

Stockholders’ equity under IFRS $500,000

Adjustments:

Reversal of revaluation of fixed assets (35,000)

Reversal of accumulated depreciation on revaluation of fixed assets 7,000

Reversal of deferred development costs (80,000)

Reversal of accumulated amortization on deferred development costs 32,000

Reversal of gain on sale and leaseback (150,000)

Accumulated amortization of gain on sale and leaseback 7,500

Stockholders’ equity under U.S. GAAP $ 281,500

 b) Add the depreciation in year 2013on the excess value of carrying amount
$35,000/10 = $3,500. Add the depreciation in year 2012 and year 2013 on the value
in excess of carrying amount $35,000/10*2 = $7,000.

Add the recognized development costs under IFRS in year 2013 $80,000/5 = $16,000. Add
the recognized development costs under IFRS in year 2012 and 2013 is $80,000/5*2 =
$32,000

Derecognize gain on sale of operating leaseback. Effect of derecognize gain ($150,000) on

sale of operating lease and recapture deducted amortized gain (7,500) on sale and
leaseback on the income statement in year 2013.

Derecognize gain on the appreciation of fixed assets in year 2012

Expense the capitalized development costs in year 2012

Amortize deferred gain on sale of operating leaseback over the useful life $150,000/20 =
7,500.