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7/25/2019 international accounting Chap 004
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McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc !ll
I$T%&$!TI'$!( )I$!$CI!( &%*'&TI$G
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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.
International Financial ReportingStandards (IFRS)
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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.
International Financial ReportingStandards (IFRS)
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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$ed# discounted at the appropriate interest
rate.
(earning )b*ecti$e +
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.
(earning )b*ecti$e +
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Recognition and Measurement:IFRS and U.S. GAAP compared
T$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
Recognition and Measurement:IFRS and U.S. GAAP compared
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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
Recognition and Measurement:IFRS and U.S. GAAP compared
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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$e
Recognition and Measurement:IFRS and U.S. GAAP compared
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/1 2 /nventories# co'pared to ,.S. -**Allows for capitali6ation of interest on borrowings for
some in$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
Recognition and Measurement:IFRS and U.S. GAAP compared
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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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/1 2 /nventories# n/'erical co'parison to ,.S.-**
(ower of cost or mar7et under U.S. GAAP-istorical cost ? 0"
Designated mar7et is middle $alue of =R@ &;5
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/1 2 /nventories# n/'erical co'parison to ,.S.-**
Bhe recogni6ed in$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$e
Recognition and Measurement:IFRS and U.S. GAAP compared
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/1 6 PP# co'pared to ,.S. -**
*cco/nting %or reval/ations Re$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$e
Recognition and Measurement:IFRS and U.S. GAAP compared
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/1 6 PP# co'pared to ,.S. -**
*cco/nting %or reval/ations Re$aluation decreases reuire a *ournal entr, to
decrease the asset to fair $alue9!"pense """"
Propert,# plant# and euipment """"
(earning )b*ecti$e
Recognition and Measurement:IFRS and U.S. GAAP compared
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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