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At the end of its reporting year, SunnySide shows the following intangible assets on its books:

3. At the end of its reporting year, SunnySide shows the following intangible assets on its books: $30,000 patents with estimated remaining useful life of 10 years, and $46,000 goodwill with an indefinite life. Before closing its books, the company evaluates its intangible assets and identifies a $10,000 impairment in patents and a $15,000 impairment in goodwill. For IFRS, SunnySide accounts for its intangible assets using the cost method.

a. How will the impairment loss be reported for US GAAP and IFRS?
b. At the end of the following year, SunnySide determines the company has recovered $6,000 of the patent impairment and $8,000 of the goodwill impairment. How will this be reported for US GAAP and IFRS?

5. Excerpts from the reconciliation of Nokia’s 2006 IFRS financial statements to GAAP are provided below.
Nokia 2006 Financial Statements – US GAAP Reconciliation
Amortization and impairment of identifiable intangible assets acquired
“The net carrying amount of other intangible assets under US GAAP is EUR 447 million in 2006 (EUR 425 million in 2005) and consists of capitalized development costs of EUR 149 million (EUR 213 million in 2005) and acquired patents, trademarks and licenses of EUR 298 million (EUR 212 million in 2005). The Group does not have any indefinite lived intangible assets. Amortization expense under US GAAP of other intangible assets as of December 31, 2006, is expected to be as follows…”
Amortization of goodwill
“…Under IFRS, the Group recorded an impairment of goodwill of EUR 151 million related to Amber Networks in 2003 as the carrying amount of the cash-generating unit exceeded the recoverable amount of the unit. Under US GAAP, goodwill is allocated to “reporting units”, which are operating segments or one level below an operating segment (as defined in FAS 131, Disclosures about Segments of an Enterprise and Related Information). The goodwill impairment test under FAS 142 compares the carrying value for each reporting unit to its fair value based on discounted cash flows.

The US GAAP impairment of goodwill adjustment reflects the cumulative reversal of impairments recorded under IFRS that did not qualify as impairments under US GAAP. Upon completion of the 2003 annual impairment test, the Group determined that the impairment recorded for Amber Networks should be reversed under US GAAP as the fair value of the reporting unit in which Amber Networks resides exceeded the book value of the reporting unit. The annual impairment tests performed subsequent to 2003 continue to support the reversal of this impairment. The Group recorded no goodwill impairments during 2006 and 2005…”

Consider the information provided in the reconciliation and answer the following questions:

a. Do US GAAP financial statements typically include capitalized development costs as intangible assets? Why would Nokia’s US GAAP financial statements include €149 million of capitalized development costs?

b. What could cause a difference in the calculation of impairments for the two accounting methods?

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