Question

Enumerate and briefly explain the differences between the IFRS and US GAAP on the following issues:

• Treatment of Inventory and Valuation methods

• Treatment of Inventory write-down and Asset Impairment and revaluation

• Treatment and determination of costs of Property, Plant, and Equipment

• Treatment of Investment Properties

• Treatment of Research and development costs

• Treatment of Intangible Assets

• Treatment of Assets’ Impairment Loss

• Treatment of costs of borrowing to purchase or construct assets

• Treatment of Related Party Transactions

• Treatment of correction of errors

• Treatment of Discontinued Operation

Answer 1

1. Treatment of Inventory and valuation methods in US GAAP Vs IFRS:

The Major difference between IFRS and GAAP is that , GAAP is rule based, IFRS is principle based.

As per IFRS Inventory is measured as less of costs but as per GAAP net realizable value is equal to estimated selling price less any reasonable costs.

2. Treatment of Inventory write-down and Asset Impairment and revaluation:

There are 3 common methods of inventory accounting in GAAP 1. FIFO , 2. LIFO and 3. Weighted average accounting methods, where as IFRS prohibits use of LIFO.

IFRS also allows reversals and subsequant increase in value to be recongnized in financials statetments , GAAP prohibits reversals

3. Treatment and determination of costs of Property, Plant, and Equipment:

As per IFRS cost of an item, of property, Plant , equipement shall be recognized as an asset only if it is probable that

a) Future economic benefits associated with items will flow to entity

b) Cost of item can be measured reliable

As per GAAP only way to record is that cost method, cost method involves acquisition cost of fixed costs and costs of bringing fixed assets to use. This lncludes loans , and other admin expenses

4.Treatment of Investment Properties

Under GAAP Component depreciation is permiteed and under IFRS is not permitted. Under GAAP revaluation is not allowed under IFRS revaluation model allowed