Professional Documents
Culture Documents
Chapter Topics
Differences between IFRS and US GAAP.
Inventories.
Property, Plant & Equipment.
Investment Property.
Impairment of Assets.
Intangible Assets.
Goodwill.
Borrowing Costs.
Leases.
Disclosure and Presentation Standards.
4-2
Learning Objectives
1. Discuss the differences between IFRS and U.S. GAAP.
2. Describe IFRS requirements for recognition and
measurement of inventories; property, plant and
equipment; intangibles and leased assets.
3. Explain the major differences between IFRS and U.S. GAAP
on the recognition and measurement of assets.
4. Describe the IFRS requirements in a variety of disclosure
and presentation standards.
5. Explain the major differences between IFRS and U.S. GAAP
on certain disclosure and presentation issues.
6. Analyze the impact that the differences between IFRS and
U.S. GAAP can have on financial statements.
4-3
Definitions.
Recognition.
Measurement.
Alternatives.
Lack of requirements or guidance.
Presentation.
Disclosure.
Learning Objective 1
4-4
IFRS more flexible in many cases:
Choice of alternatives.
Less guidance leads to more judgment in applying IFRS.
Learning Objective 1
4-5
Initial cost.
Cost formulas to allocate cost of inventories to expense.
Subsequent balance sheet measurement.
Learning Objective 2
4-6
Costs included:
Cost of purchase (purchase price and direct acquisition
costs).
Conversion costs (labor and overhead).
Other costs (design, interest if takes time to bring to
saleable condition).
Costs excluded:
Abnormal waste.
Storage unless necessary for production process.
Purely administrative overhead.
Selling costs.
Learning Objective 2
4-7
Cost formulas:
No LIFO!
Must use same cost formula for similar inventory items.
Learning Objective 2
4-11
Land or buildings held for rental, capital appreciation or
both.
Learning Objective 2
4-13
Impairment means carrying amount > recoverable amount:
Recoverable amount = greater of net selling price and value in use
Net selling price = price in active market less disposal costs
Value in use = PV of future net cash flows (cover maximum of 5 years
unless longer period is justified)—based on approved budgets and
using appropriate discount rate
Definition:
Identifiable, nonmonetary asset .
No physical substance.
Held for production of goods or services, rental to others, or
for administrative purposes.
Must be controlled by enterprise as result of past events
from which future economic benefits are expected to be
realized.
Learning Objective 2
4-16
Definition (continued):
Must expense immediately if definition not met unless obtained in
business combination and then it is included in goodwill.
Purchased intangibles:
Similar to U.S. GAAP treatment.
Learning Objective 2
4-20
Other considerations re: capitalization of development
costs:
Considerable management judgment.
Include direct costs.
Allocate indirect costs (personnel, materials, depreciation of
equipment, etc.).
Under IAS 23, Borrowing Costs -- must include such costs if
they constitute a qualifying asset.
Amortize over useful life with appropriate method reflecting
pattern of how economic benefits will be realized (e.g.
declining balance, units of production and straight-line).
Learning Objective 2
4-21
Must demonstrate the following criteria for
development cost capitalization:
Technical feasibility so asset can be available for use or sale.
Intention to complete asset for use or sale.
Ability to use or sell the asset.
How probable future economic benefits will be generated
(eg—market or internal use).
Available adequate technical, financial and other resources
to complete the asset for use or sale.
Ability to reliably measure expenditures pegged to
development.
Learning Objective 2
4-22
Other issues:
Revaluation model is allowed with finite-lived intangibles if
there is a price on an active market—THIS IS RARE IN
PRACTICE.
Impairment of intangibles:
If carrying amount can’t be recovered on finite-lived assets—need to
look at changes in events or circumstances.
For indefinite-lived intangibles and goodwill—test annually.
Under special circumstances can reverse per IAS 36—EXCEPT for
goodwill—no reversal allowed!
Learning Objective 2
4-23
Other issues:
Revaluation model is allowed with finite-lived intangibles if
there is a price on an active market—THIS IS RARE IN
PRACTICE.
Impairment of intangibles:
If carrying amount can’t be recovered on finite-lived assets—need to
look at changes in events or circumstances.
For indefinite-lived intangibles and goodwill—test annually.
Under special circumstances can reverse per IAS 36—EXCEPT for
goodwill—no reversal allowed!
Learning Objective 2
4-24
Recognize only in business combinations.
Learning Objective 2
4-25
Impairment of goodwill:
Test at least annually.
Impairment is tested at the level of the cash-generating unit
(CGU)—the smallest identifiable group of assets that
generates cash inflows—use bottom-up and top-down test
to allocate overall goodwill to each CGU.
Compare carrying value of CGU, including goodwill, with
recoverable amount (higher of value in use and fair value
less costs to sell).
U.S. GAAP is tested at level of the reporting unit which can
be different and typically larger than CGU.
U.S. GAAP only requires only a bottom-up test.