Optiplex Corporation: Differences Between GAAP and IFRS
Business Finance
Assignment Instructions
Respond to the following questions. The problems should be solved on the basis of IFRS unless otherwise stated.
Chapter 4 Question
As a result of a downturn in the economy, Optiplex Corporation has excess productive capacity. On January 1, Year 3, Optiplex signed a special order contract to manufacture custom-design generators for a new customer. The customer requests that the generators be ready for pickup by June 15, Year 3, and guarantees it will take possession of the generators by July 15, Year 3. Optiplex incurred the following direct costs related to the custom-design generators:
| Item | Cost |
|---|---|
| Cost to complete the design of the generators | $3,000 |
| Purchase price for materials and parts | $80,000 |
| Transportation cost to get materials and parts to manufacturing facility | $2,000 |
| Direct labor (10,000 labor hours at $12 per hour) | $120,000 |
| Cost to store finished product (from June 15 to June 30) | $2,000 |
Because of the company’s inexperience in manufacturing generators of this design, the cost of materials and parts included an abnormal amount of waste totaling 5,000 dollars. In addition to direct costs, Optiplex applies variable and fixed overhead to inventory using predetermined rates. The variable overhead rate is 2 dollars per direct labor hour. The fixed overhead rate based on a normal level of production is 6 dollars per direct labor hour. Given the decreased level of production expected in Year 3, Optiplex estimates a fixed overhead application rate of 9 dollars per direct labor hour in Year 3.
Determine the amount at which the inventory of custom-design generators should be reported on Optiplex Corporation’s June 30, Year 3, balance sheet.
Chapter 5 Question
SC Masterpiece Inc. granted 1,000 stock options to certain sales employees on January 1, Year 1. The options vest at the end of 3 years (cliff vesting) but are conditional upon selling 20,000 cases of barbecue sauce over the 3-year service period. The grant-date fair value of each option is 30 dollars. No forfeitures are expected to occur. The company is expensing the cost of the options on a straight-line basis over the 3-year period at 10,000 dollars per year (1,000 options X $30 divided by 3 = $10,000). On January 1, Year 2, the company’s management believes the original sales target of 20,000 units will not be met because only 5,000 cases were sold in Year 1. Management modifies the sales target for the options to vest to 15,000 units, which it believes is reasonably achievable. The fair value of each option at January 1, Year 2, is 28 dollars.
Determine the amount to be recognized as compensation expense in Year 1, Year 2, and Year 3 under (a) IFRS and (b) U.S. GAAP. Prepare the necessary journal entries.
Submission Requirements
Your paper should meet the following requirements:
- Written communication: Written communication is free of errors that detract from the overall message.
- APA formatting: Resources and citations are formatted according to current APA style and formatting.
- Font and font size: Times New Roman, 12 point.
