Question

what happen to the reference, to this homework The U.S. GAAP standards in this image (and found in your book on page 80) were developed and codified by the Financial Accounting Standards Board (FASB) and accepted by the AICPA (American Institute of Certified Public Accountants). You have probably heard of the AMA (American Medical Association) for physicians. It is a professional organization that promotes and educates physicians. The professional organizations that developed GAAP (Generally Accepted Accounting Principles) are similar to the AMA in that they provide a similar role for accountants providing guidance for how GAAP accounting standards must be applied. Case Study 5-1 on pages 80-81 demonstrates the way professional accountants must use professional judgement when reporting results. Medicine is art and science. "Accounting is more art than science". (Harrison and Harrison, 2013, p.80) Read the case and discuss the following: Which of the approaches in the case most accurately reflects the financial operations of the company for their first year of operation? What are the two different accounting treatments offered? Do you find both acceptable, and why or why not?

Answer 1

Ans:-

• Apart from Greenville Cover Plant, the company is also operating other three plants, the advantage of continuing operations will not impact the cost of operations at other plants.
• Since the company is committed to use high-quality fabric, if the plant continues its operation then it is less likely to incur the termination charges that we need to pay to the major suppliers.
• If those plants have limited production capacity, then the company would find it difficult to meet the quantity demanded for seats.
• Employees such as direct labours, supervisors, and others won’t lose their jobs due to plant shutting down   
• The company’s old equipment’s are good enough to last for a longer period, which would resulted in gaining operating efficiency.

US. GAAP VS IFRS:-

• Under US GAAP the estimation of conveying estimation of merchandise is viewed as dependent on the real expense or market esteem whichever is lower.
• On the other hand, IFRS considers the actual cost or the net realizable value (i.e. (market value - actual cost - completion cost) whichever is lower.
• On the other hand, IFRS added the same to the carrying amount of the inventory itself,   
• Asset retirement obligation (ARO) that is created during the production of inventory is added to the carrying value of fixed assets such as property, plant, and equipment that are used to produce the inventory.   
• Under IFRS, FIFO and weighted-average methods are acceptable, whereas, LIFO method is not permitted.
• Valuation methods of inventory under US GAAP includes FIFO (First-In-First-Out), LIFO (Last-In-First-Out) and Weighted-Average method.   
• In case of increase in value for inventories, US GAAP doesn’t allow to write-down the value for the subsequent increases, whereas, IFRS does allow to reduce inventory based on the actual cost or net realizable value, whichever is lower.   
• I would go for choosing the US GAAP to maintain my accounting statements because it is more flexible in nature compared to IFRS.
• Apart from this, the majority of the corporates and organisations follow US GAAP to prepare their accounting statement.   
• So any discrepancy in usage of accounting principle apart from US GAAP will make it difficult to draw comparative or industry analysis for interested stakeholders.