Solved Questions Financial Accounting - Strickney

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Solutions Ch 3 Balance Sheet
3.22 (Nestlé; asset recognition and measurement.)
a. Both U.S. GAAP and IFRS would recognize Investment in Bond (noncurrent asset), CHF800 million. Nestlé would record the bond at acquisition cost, not the amount it will receive at maturity. b. Both U.S. GAAP and IFRS would recognize Prepaid Insurance (current asset); CHF240 million would be recorded initially. At Nestlé’s year-end, the balance in the Prepaid Insurance account would reflect the two months usage of the insurance, reducing the balance to CHF200 [= CHF240 – (CHF240 X 2/12)] million. c. Both U.S. GAAP and IFRS would recognize Option to Purchase Land (noncurrent asset), CHF6 million. d. Neither U.S. GAAP nor IFRS recognizes the employment contract, a mutually unexecuted contract, as an asset. e. Under U.S. GAAP, Nestlé would record only the costs of obtaining the patent as an asset on its balance sheet, Patent (noncurrent asset), CHF0.5 million. The remaining CHF80 million is an expense of the period. Under IFRS, Nestlé would recognize Research Expense of CHF48 (= 60% X CHF80) million in the period incurred and record a Development Asset (noncurrent asset) at the acquisition cost of CHF32 million (= 40% of CHF80 million) as an asset on its balance sheet, which it would depreciate over the useful life of the product. Under IFRS, Nestlé would also recognize the patent as an asset on its balance sheet, Patent (noncurrent asset), CHF0.5 million. f. Under both U.S. GAAP and IFRS, Nestlé would not recognize the cocoa beans as an asset until it receives the inventory. 3.23
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