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Us Gaap Vs. Ifrs

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Yazmin Whang

December 11, 2018


Chapter 10: Property, Plant, and Equipment and Intangible Assets: Acquisition (LO 10-9)

  • Under U.S GAAP, donated assets are recorded under revenue.

Under IFRS, government grants are to be recognized in income over the periods necessary to match them on a systematic basis with related costs they are intended to compensate.

  • Under IFRS, alternative #1 for grants related to assets is to deduct the amount of the grant in determining the initial cost of the asset.
  • Under IFRS, alternative #2 for grants related to assets is to record the grant as a liability, deferred income, in the balance sheet and recognize it in the income statement systematically over the asset’s useful life.
  • Under IFRS, research expenditures are expensed in the period incurred, but development expenditures that meet specific criteria are capitalized as an intangible asset.
  • Amortization typically occurs over the useful life of the software, with straight-line as the default.

Chapter 10: Application of IFRS

Elcorn Enterprises relocates its office to a different city. The city agreed to pay 20% of the $80 million cost of building the HQ in order to entice Elcorn to move. The building was competed on May 8, 2018. Elcorn paid the portion of the cost of the building in cash. Elcorn records the transactions as follows:

Under U.S GAAP:

Building                 $80,000,000

   Cash                                 $64,000,000

   Revenue                         $16,000,000

Revenue= 20% x $80M from grant

Under IFRS Alternative #1:

Building                 $64,000,000

   Cash                                 $64,000,000

*Building is recorded at $64M instead of $80M because IFRS will subtract the amount the city is willing to pitch in from the cost of the building ($80M - $16M= $64M).

Under IFRS Alternative #2:

Building                 $80,000,000

   Cash                                 $64,000,000

   Deferred Income                 $16,000,000

*Building is still recorded at $80M, but the $16M is recorded in deferred income and will then be recognized as income over the life of the building.

Chapter 11: Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition (LO 11-10)

  • IFRS requires that each component of an item of property, plant, and equipment must be depreciated separately if its cost is significant in relation to the total cost of the item.
  • U.S GAAP prohibits revaluation.

Under IFRS, a company may report property, plant, and equipment, may report property, plant, and equipment at cost less book value (like U.S GAAP does) or at its fair value (revaluation).

  • Under U.S GAAP, biological assets are valued at cost less accumulated depletion/depreciation.

Under IFRS, biological assets are valued at fair value less estimated costs to sell, with changes in fair value included in calculation of net income

  • U.S GAAP prohibits revaluation of any intangible asset.

IFRS allows a company to value an intangible asset, other than goodwill, at either: 1) cost less accumulated amortization, or 2) fair value if it can be determined by reference to an active market.

Chapter 11: Application of IFRS

Moving Co. purchased a delivery truck for $60,000. The truck is expected to have a service life of six years and a residual value of $10,000. At the end of three years, the oversized tires, which have a cost of $4,000 (Included in $60,000 purchase price), will be replaced.

Under U.S GAAP:

Straight-line depreciation:                         Depreciation Expense         $10,000

$60,000- $10,000                                        Accumulated Depreciation         $10,000

      5 Years         =     $10,000  per year

Under IFRS:

Straight- line depreciation:                         Depreciation Expense         $9,200

$60,000- $10,000- $4,000                                Accumulated Depreciation        $9,200

        5 Years         =    $9,200 per year

*IFRS requires a review of residual values at least annually.

Chapter 12: Investments (LO 12-9)

  • IFRS eliminated the HTM and AFS classifications, replaced by new classifications that are more restrictive. Classification depends on two criteria: 1) whether the investment’s contractual cash flows consist solely of payments of principal and interest (SPPI) and 2) whether the business purpose of the investment is to hold it for purposes of collecting contractual cash flows, sell the investment at a profit, or both.
  • U.S GAAP allows specialized accounting for particular industries like securities brokers/dealers, investment companies, and insurance companies. IFRS does NOT.
  • Unlike U.S GAAP, under IFRS companies recognize impairments for debt investments that are accounted for at amortized cost (rather than fair value through net income) or at fair value though other comprehensive income. There is no distinction made for OTT status. Impairment is measure either as the 12-month expected credit loss (if credit risk on investment has increased significantly) or the lifetime expected credit loss (if credit risk on investment has not increased significantly). Entire impairment is recognized in earnings with an offsetting allowance reducing the carrying value of the investment to the appropriate amount. IFRS allows recoveries of impairments of debt investments to be recognized in earning. U.S GAAP does not allow this.
  • Unlike U.S GAAP, IFRS FVOCI realized holding gains and losses are not reclassified out of OCI and into net income when the investment is sold. Instead, the accumulated unrealized fain or loss associated with a sold investment is just transferred from AOCI to retained earnings, without passing through the income statement.

Chapter 12: Application of IFRS

Amour Intergroup INC. buys and sells debt securities of other companies as investments, and classifies these investments as AFS. Their fiscal year ends December 31. The following events occurred in 2018:

July 1.: Purchased $1,000,000 of Drea bonds, maturing Dec. 31, 2019.

Valued the Drea bonds at $950,000. Of the $50,000 impairment, $30,000 is credit loss and $20,000 is non credit loss.

Under U.S GAAP:

Case 1: Amour plans to sell the investments or believes more likely than not that it will have to sell the investment before fair value recovers (Impairment is viewed as OTT).

Case 2: Amour does not intend to sell the investment an does not believe that it will have to sell the investment before fair value recovers, but estimates that $30,000 credit losses have occurred (impairment viewed as OTT).

December 31, 2018

Case 1:                                         Case 2:                                                

OTT impairment loss—NI         50,000         OTT impairment loss—NI         30,000

   Discount on bond investment        50,000            Discount on bond investment         30,000

                                                OTT impairment loss—OCI         20,000

                                                    Fair value adjustment—Noncredit loss 20,000

Under IFRS:

Assume amortized cost is $1,000,000, $30,000 of 12-month expected credit losses and $20,000 of additional credit losses expected for default vents occurring after 12 months.

Assuming there has not been a significant increase in credit risk:

Impairment loss—NI                 $30,000

   Allowance for credit losses                 $30,000


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