Question

U.S. GAAP and IFRS require property, plant, and equipment to be accounted for and reported differently. Explain the major differences between the two and how this affects the financial statements. Select one or the other method, explain your reason for your selection, providing support why your selection provides a benefit to the company.

*PLEASE DO NOT GIVE THE SAME ANSWER AS THE OTHER ANSWER ON CHEGG FOR THIS QUESTION*

Answer 1

US GAAP ASC 360

IFRS IAS16 And 40

Depreciation: US GAAP: Component depreciation is permitted, but is not often used

Ifrs: Depreciation of individual components is required when components lives are different

Major overhaul costs: US GAAP : various alternative are available to account for the costs of performing a major overhaul including (a) expensing the costs as incurred, (b) accounting for overhaul as a seperate component and (c) deferring the costs and amortiising them over period of benifit

IFRS: costs of performing a major overhaul are required to be capitalized if overhaul represesnts a replacement of a previously identified component

Revaluation:US GAAP:Revaluation is not allowed

IFRS : An entity may elect to apply the revaluation model which allows the entity to measure property plant and equipment at fair value. If elected the model must be applied to entire classes of assets

Investment property: US GAAP : no specific guidance exists

Generally, real estate companies and operating companies account for investment type property using historical cost. Investor entities generally account for their investment in investment type property at fair value. No option exists to account for leased property at fair value.

IFRS: Investment property is defined as property held to earn rentals or for capital appreciation or both

An entity is permitted to record investment property at fair value, with changes in fair value recognized in the income statement. The option to account for property at fair value applies to leased property.

Value of assets are recorded at historical asset. Under US GAAP So it doesn't represent true value of asset at balance sheet. It may lead to undervaluation or overvaluation of assets in balance sheet.

Under IFRS Assets are recorded at fair value so this method of accounting depicts the correct picture of assets.

When it's comes to investment property. There is a clear definition of the same when it comes to IFRS. Any change in the asset will be highlighted in financial statements. No specific guidance exists when it comes to US GAAP.

So when it comes to selection of method to a company it is best to select IFRS since it is universally accepted and it addresses many areas which is not clearly mentioned in US GAAP . So IFRS is best one