Bessrawl Corporation reported income in 2014 of $1,000,000 and stockholder’s equity at December 31, 2014, of $8,000,000. The CFO of CLA Limited has learned that the U.S. Securities and Exchange Commission (SEC) is considering requiring U.S. companies to use IFRS in preparing consolidated financial statements. The company wishes to determine the impact that a switch to IFRS would have on its financial statements and has engaged you to prepare a reconciliation of income and stockholders’ equity from U.S. GAAP to IFRS. You have identifies the following five areas in which Bessrawl's accounting principles based on U.S. GAAP differ from IFRS.

1. Inventory

2. Property, Plant and Equipment

3. Intangible Assets

4. Research and Development Costs

5. Sale-and-Leaseback transactions

CLA Limited provides the following information with respect to each of these accounting differences.

Inventory – at year-end 2014, inventory had a historical cost of $250,000, a replacement cost of $180,000, a net realizable value of $190,000, and a normal profit margin of 20 percent.

Property, Plant and Equipment – The company acquired a building at the beginning of 2013 at a cost of $2,750,000. The building has an estimated useful life of 25 years, and estimated residual value of $250,000, and is being depreciated on a straight-line basis. At the beginning of 2014, the building was appraised and determined to have a fair value of $3,250,000. There is no change in estimated useful life or residual value. In a switch to IFRS, the company would use the revaluation model in IAS 16 to determine the carrying value of property, plant and equipment subsequent to acquisition.

Intangible Asset – as a part of a business combination in 2011, the company acquired a brand with a fair value of $40,000. The brand is classified as an intangible asset with an indefinite life. At year-end 2014, the band is determined to have a selling price of $35,000 with zero cost to sell. Expected future cash flows from continued use of the brand are $42,000, and the present value of the expected future cash flows is $34,000.

Research and Development Costs – the company incurred research and development costs of $200,000 in 2014. Of this amount, 40 percent related to development activities subsequent to the point at which criteria had been met indicating that an intangible asset existed. As of the end of the 2014, development of the new product had not been completed.

Sale-and-Leaseback – in January 2012, the company realized a gain on the sale-and-leaseback of an office building in the amount of $150,000. The lease is accounted for as an operating lease, and the term of the lease is five years.

Prepare a reconciliation schedule to convert 2014 income and December 31, 2014, stockholders’ equity from a U.S. GAAP basis to IFRS. Ignore income taxes. Prepare a note to explain each adjustment made in the reconciliation schedule. A template for the reconciliation schedule is provided below. Be sure to explain each adjustment below this template.