Reference no: EM132728632

You work in the Accounting Policy Group of Radley International, Inc., a U.S. publicly-held manufacturer of women's handbags and other fashion accessories. In February 2020, Radley acquired Carlson International, Ltd., a UK-based company that is listed on the London Stock Exchange and NASDAQ. Carlson prepares its consolidated financial statements in accordance with IFRS. You have been assigned to the acquisition team based upon your in-depth knowledge of both U.S. GAAP and IFRS. Your role is to assist your peers at Carlson to prepare Income Statements under both IFRS and US GAAP.

After detailed discussions with the Controller of Carlson and their financial reporting team, you identify the key differences between IFRS and U.S. GAAP for 2019. Your summary is below:

IAS 23: Borrowing Costs

• On January 1, 2019, Carlson borrowed $3,000,000 at an interest rate of 5 percent to finance the construction of a new office building expected to cost $3,000,000. Carlson temporarily invested the proceeds until the cash was needed. Interest earned during 2019 was $6,000. During 2019, expenditures of $2,000,000 were incurred and the weighted-average expenditures were $1,500,000. The project will be completed and the loan will be paid in late 2020. An exchange gain of $5,000 was also recognized on the borrowing as a result of the differences in exchange rates in the United States and Great Britain. (Use US dollars as presented; no foreign exchange calculations are required). Also note that interest expense, related interest income and exchange gain/loss have already been recorded in the income statement.

Problem 1: What is the adjustment using IFRS to put in income statement? What is the adjustment using U.S. GAAP to put in income statement?