ACC321 Intermediate Accounting II Term Project: Best Value Hardware, Inc. – A Comparison of IFRS and GAAP

| June 2, 2016

ACC321 Intermediate Accounting II

Term Project: Best Value Hardware, Inc. – A Comparison of IFRS and GAAP

Case Summary

Best Value Hardware, Inc., a public company, has prepared their trial balance, balance sheet, and income statement for the calendar year-ended December 31, 2011 based on U.S. GAAP and also based on IFRS. BVH’s accountant has already recorded most of the adjustments at year end on the trial balance but needs your assistance in accounting for the following transactions and preparing the appropriate adjusting journal entries.

Read through the following information, then using the provided Excel template, complete the missing information. For this project you will first complete the calculations, journal entries, and adjusting entries. This information will then be transferred to a Trial Balance worksheet that will summarize the Journal entries. The ending balance from the Trial balance worksheet will then auto-populate financial statements. You will use these financial statements to compare the financial information generated under IFRS and under GAAP.

Part 1: Compute the Inventory value(Due at the end of unit 2)

Best Value Hardware had the following inventory on hand at 12/31/11.



Unit cost

Replacement cost


NRV less normal profit

Light bulbs






Paint brushes






Live plants






Holiday items












Requirements in the provided Excel Template on the Inventory Worksheet Tab:

Calculate the value of inventory on hand under U.S. GAAP.
Apply the LCM rule to each type of product, and compute necessary write-downs.
Record necessary adjusting journal entries.
Finally, discuss how the inventory valuation would be different under IFRS. You do not need to compute the adjustments under IFRS.

Part 2: Property, Plant and Equipment (Due at the end of unit 3)

The Company has the following Property, Plant & Equipment at the beginning of January, 2011:

Denver, CO – Vacant Land

Purchased September 15, 2009. Cost = Carrying Value on 12/31/10 was $1,610,000.

Golden, CO – Land and Building

The land and building were purchased January 1, 2010. The building is being depreciated using straight-line 15 year life, $0 residual value. For IFRS purposes, the building is revalued on an annual basis.


Cost $1,280,000

Fair Value 12/31/10 $1,280,000


Before Revaluation


After Revaluation (IFRS allowed only)**




Cost –new after revaluation adjustment


Accum. Deprec.


Accum. Deprec. –new after revaluation adjustment


Net Carrying Value


Net Carrying Value


**Revaluation Surplus was recorded 12/31/10 = $40,000 for IFRS only.

Houston, TX – Machinery & Equipment

Purchased June 1, 2010, straight-line depreciation 5 year life, $0 residual value. The machinery & equipment are carried at cost under both U.S. GAAP and IFRS.




Accum. Deprec.


Net Carrying Value


Additionally, the Company engaged in the following transactions during 2011: (**Note: these transactions have not yet been recorded)

1. Purchased land for $834,000 and constructed a building – location: Dallas, Texas. All costs were paid for in cash and construction was completed 8/31/11:

a. Labor & materials $1,233,000

b. Architecture fees $18,250

c. Interest costs capitalized on construction $58,790

d. Prepaid annual insurance of $14,500 for period: 9/1/11 – 8/31/12

The building has a useful life of 18 years, straight-line depreciation, $0 Residual Value. For IFRS purposes, the building is revalued on an annual basis.

2. 9/30/11: Sold the land and building – Golden, Colorado for $3,157,000 cash.

3. 11/1/11: Exchanged the Vacant Land for land and a building in Denver, Colorado. The independent appraised fair value of the land and building were as follows: Land $325,000; Building $1,644,000. The Company paid cash to the other party of $260,000 and paid legal fees of $12,000 (assume the legal fees were attributed to the building) as part of the exchange. In addition, the Company prepaid the annual property tax of $30,000. Useful life of the building is 10 years, $0 residual value, and straight-line depreciation. For IFRS purposes, the building is revalued on an annual basis.

4. 11/30/11: Paid cash of $135,000 for new furniture and fixtures for the new building in Denver, Colorado. Paid sales tax $10,800 and installation costs of $7,500. Useful life is 7 years, $0 residual value, straight-line depreciation.

Year-end information at 12/31/11:

Depreciation Method

Recoverable Amount (Fair Value)

Building – Dallas, Texas



Building – Denver, Colorado



Furniture & Fixtures – Denver, Colorado



Machinery & Equipment – Houston, Texas



Requirements in the provided Excel template:

Record journal entries for the PP&E events that occurred during the year. Be sure to record partial year’s expenses as appropriate.
Enter the year-end adjusting journal entries for Depreciation and Prepaid expenses. Be sure to pro-rate as necessary.
Discuss the Fair Value revaluation option for the properties under GAAP and IFRS, and compute the ending book values for the two properties listed.

Part 3: Contingencies (Due at the end of unit 4)

Loss Contingency

12/31/11 Best Value Hardware is being sued by an employee who slipped on spilled milk and broke his back. BVH’s lawyers expect to lose the lawsuit and estimate the loss to be between $200,000 and $500,000 with no one outcome being assessed as more likely than the other.

Gain Contingency

12/31/11 Best Value Hardware had a delivery truck drive through the side of one of their stores causing major damages. The delivery truck is owned by an independent party and Best Value Hardware is suing the trucking company for the $1,000,000 in damages. BVH’s lawyers are virtually certain they will win the lawsuit and receive the full amount of damages.

Requirements in the provided Excel Template:

In the shaded text boxes discuss whether or not Best Value Hardware recognize a contingent liability or Gain under U.S. GAAP and IFRS. If a contingency is recognized, determine how much.

Record necessary adjusting journal entries in their own adjusting journal entry workpaper and also in the respective trial balance worksheet for 12/31/11.
Part 4: Analysis (Due at the end of unit 5)

Using the auto-populated ratios from the Financial Statements in the provided Excel worksheet, conduct a short ratio analysis comparing the financial ratios and financial information generated under IFRS and under GAAP.

Requirements in the provided Excel Template:

Discuss why the financial statements and ratios differ under the two standards of accounting, GAAP and IFRS.

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