INTERNATIONAL TAXATION

1.IFRS for SMEs

You are the CFO of Takodana, U.S. mid-size private company. Last year your company purchased 30% of the stock of Jakku Company, and you determined that Takodana has significant influence over Jakku (which is therefore an associate).

a) What is the correct accounting method to treat the investment in Jakku under US GAAP?

b) You are considering adopting IFRS for SMEs. What would be the accounting treatment for the investment under IFRS for SMEs? For your answer assume the associate company does not have a published price quotation for its stock (its stock is not traded) and its fair value cannot be measured reliably. Are there a few alternative methods allowed?

Note: in answering part b you should look at the IFRS for SMEs

a) Assume Jakku reported positive earnings this year, but did not distribute dividends. What would be the effect of that on Takodana’s earnings under US GAAP (the method you indicated in part a)? Under IFRS for SMEs (the method/s you indicated in part b)?

You only need to determine whether earnings go up, down, or stay the same. Assume no impairment was needed this year.

b)  If your goal as a CFO is to simplify your accounting methods, which standard system (US GAAP or IFRS for SMEs) allows you to use a simpler method?