international accounting chap 004

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McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc !ll

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Chapter 4


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Chapter Topics

Differences between IFRS and U.S. GAAP Recognition and measurement Disclosure and presentation

International Financial ReportingStandards (IFRS)


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Learning Objectives

1. Describe the reuirements of IFRS on therecognition and measurement of assets.

2. !"plain the differences between IFRS and U.S.GAAP on recognition and measurement

issues.. Describe the reuirements of IFRS related to

the disclosure of financial information.



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Learning Objectives

!.!"plain the differences between IFRS and U.S.GAAP on disclosure issues.

".Use numerical e"amples to highlight thedifferences between IFRS and U.S. GAAP.



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Historical cost# amount paid to acuire an asset or#for liabilities# the amount recei$ed when the obligationis incurred.

Net realizable value% amount of cash &sometimes thepresent $alue' minus collection and other costsincurred.

(earning )b*ecti$e +

Recognition and Measurement:Some background


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Current (replacement) cost# amount needed toacuire an eui$alent asset.

Current market value% amount of cash recei$ed froman immediate sale of the asset.

Present value o uture cash lo!s% amount of cashto be recei$ed# discounted at the appropriate interest

rate.


Recognition and Measurement:Some background


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Recognition and Measurement:IFRS

IFRS Substantiall, similar to U.S. GAAP -owe$er# significant differences do e"ist.An effecti$e wa, to understand IFRS is to compare to

U.S. GAAP. Describe IFRS in terms of significant differences from

U.S. GAAP.



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Recognition and Measurement:IFRS and U.S. GAAP compared

T$pes o% &i%%erences $einitions %eco&nition 'easurement lternatives ack o re*uirements or &ui+ance

Presentation $isclosure

(earning )b*ecti$e


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For' 2F !rnst / 0oung 112 stud, reflected +#311 reconciling

items and 11 uniue differences. 4an, differences related to first time adoption of IFRS. Greatest number of differences related to pensions and

business combinations.

)ther differences related to pro$isions# asset impairment#leases and intangibles.

(earning )b*ecti$es and 5



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*reas +ith signi%icant di%%erences /nventor0 (/1 2) Propert0 Plant an+ *uipment (PP) (/1 6) /ntan&ible ssets (/1 3#) /mpairment o ssets (/1 36) orro!in& Costs (/1 23)

eases (/1 ")

(earning )b*ecti$e



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/1 2 /nventories# co'pared to ,.S. -** Reuires lower of cost or net reali6able $alue &U.S.

GAAP uses lower of cost or mar7et'. IAS does not allow use of last8in# first8out &(IF)'. IFRS would tend to lead to9

-igher in$entor, balances. (ower cost of goods sold. -igher net income compared to U.S. GAAP if (IF)

is used.

(earning )b*ecti$e



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/1 2 /nventories# co'pared to ,.S. -**Allows for capitali6ation of interest on borrowings for

some in$entories. :apitali6ation of interest on in$entories will lead to

-igher in$entor, balances. (ower cost of goods sold.

-igher net income compared to U.S. GAAP.

(earning )b*ecti$e



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/1 2 /nventories# n/'erical co'parison to ,.S. -**Application of lower of cost or net reali6able $alue. Assume the following9

-istorical cost ;


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/1 2 /nventories# n/'erical co'parison to ,.S.-**

(ower of cost or net reali6able $alue using IAS -istorical cost ? 0"

=et reali6able $alue &=R@'

? estimated sales price % estimated selling costs? ;5


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(ower of cost or mar7et under U.S. GAAP-istorical cost ? 0"

Designated mar7et is middle $alue of =R@ &;5


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Bhe recogni6ed in$entor, amount under IAS is ;5< andunder U.S. GAAP is ;511.

=ote9 under U.S. GAAP the ;511 now representshistorical cost. Under IAS # historical cost remains at;


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/1 6 PP# co'pared to ,.S. -** Subseuent to initial measurement# IAS +C allows the

two different measurement approaches. Historical cost88 &the cost model' recogni6es the

asset at cost less accumulated depreciation# reuiredb, U.S. GAAP.

(earning )b*ecti$e

Recognition and Measurement:IFRSand U.S. GAAP compared


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/1 6 PP# co'pared to ,.S. -** %evaluation88 &the re$aluation model' reuires that all

assets within a class be re$alued periodicall,.A ma*or difference between IFRS and U.S. GAAP

as fi"ed assets are often substantial. Re$aluation is generall, not allowed under U.S.

GAAP.

(earning )b*ecti$e



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/1 6 PP# co'pared to ,.S. -**

*cco/nting %or reval/ations Re$aluation increases reuire a *ournal entr, to

increase the asset to fair $alue9Propert,# plant# and euipment """"

Re$aluation surplus """"

=ote9 Bhe re$aluation surplus is in the other comprehensi$e incomecomponent of euit,.

(earning )b*ecti$e



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/1 6 PP# co'pared to ,.S. -**

*cco/nting %or reval/ations Re$aluation decreases reuire a *ournal entr, to

decrease the asset to fair $alue9!"pense """"

Propert,# plant# and euipment """"

(earning )b*ecti$e



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/1 6 PP# n/'erical co'parison to ,.S.-**

Accounting for accumulated depreciation at time ofre$aluation. Assume the following as of ++E9

-istorical cost ; +1#111Accumulated depreciation #111:urrent mar7et $alue +#111Ratio of carr,ing $alue to cost 1>

(earning )b*ecti$e

international accounting chap 004

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