Question

Provide detailed scenarios (these can be case studies, articles, or any published accounting scenario within the last 5 years) in which GAAP and IFRS would handle the situation differently.

Provides at least two scenarios published within the last 5 years and a concise, detailed summary of how each of the situations would have been handled under the GAAP principles and how the same scenario would have been handled under the IFRS principles

Answer 1

Key differences between US GAAP and IFRS in relation to Inventories are :

Under U.S. GAAP, ASC 330-10 is the primary source of guid­ance on ac­count­ing for in­ven­to­ries.

Under IFRSs, IAS 2, In­ven­to­ries, is the primary source of guid­ance on ac­count­ing for in­ven­to­ries.

Both U.S. GAAP and IFRSs define in­ven­to­ries as assets that are (1) held for sale in the or­di­nary course of busi­ness, (2) used in the process of pro­duc­tion for sale, or (3) ma­te­ri­als or sup­plies to be con­sumed in the pro­duc­tion of in­ven­tory or in the ren­der­ing of ser­vices.1 The cost of in­ven­tory under both U.S. GAAP and IFRSs gen­er­ally in­cludes direct ex­pen­di­tures of getting in­ven­to­ries ready for sale, in­clud­ing over­head and other costs at­trib­ut­able to the pur­chase or pro­duc­tion of in­ven­tory.

IAS 2 in­cludes spe­cific scope ex­cep­tions for (1) in­ven­to­ries held by pro­duc­ers of agri­cul­tural and forest prod­ucts, agri­cul­tural produce after harvest, and min­er­als and mineral prod­ucts, to the extent that they are mea­sured at net re­al­iz­able value in ac­cor­dance with well-es­tab­lished prac­tices in those in­dus­tries, and (2) in­ven­to­ries of com­mod­ity bro­ker-traders who measure their in­ven­to­ries at fair value less cost to sell. Under U.S. GAAP, similar guid­ance is pro­vided in (1) ASC 905-330, which allows for mea­sure­ment of in­ven­to­ries at net re­al­iz­able value in certain cir­cum­stances in the agri­cul­tural in­dus­try; and (2) ASC 940-320-30-2 and ASC 946-10-15-2, which allow for mea­sure­ment of certain in­ven­to­ries at fair market value in the fi­nan­cial ser­vices in­dus­try.

The information below sum­ma­rizes these dif­fer­ences and is fol­lowed by a de­tailed ex­pla­na­tion of each dif­fer­ence.2

Mea­sure­ment of car­ry­ing value

GAAP : Lower of cost or market.

IFRS : Lower of cost or net re­al­iz­able value.

Costing formula

GAAP : The same formula used to de­ter­mine the cost of in­ven­tory does not need to be applied to all in­ven­to­ries that have a similar nature and use to the entity.

IFRS : The same formula used to de­ter­mine the cost of in­ven­tory must be applied to all in­ven­to­ries that have a similar nature and use to the entity.

Asset re­tire­ment oblig­a­tions (AROs)

GAAP : An ARO that is created during the pro­duc­tion of in­ven­tory is added to the car­ry­ing amount of the prop­erty, plant, and equip­ment used to produce the in­ven­tory.

IFRS : An ARO that is created during the pro­duc­tion of in­ven­tory is ac­counted for as a cost of the in­ven­tory in ac­cor­dance with IAS 2 and may be added to the car­ry­ing amount of the in­ven­tory.

Ac­count­ing methods

GAAP : First-in, first-out (FIFO); last-in, first-out (LIFO); weighted-av­er­age cost; and spe­cific iden­ti­fi­ca­tion are ac­cept­able ac­count­ing methods for de­ter­min­ing cost of in­ven­tory.

IFRS : FIFO and weighted-av­er­age cost are ac­cept­able ac­count­ing methods for de­ter­min­ing cost of in­ven­tory; LIFO is not per­mit­ted. The spe­cific iden­ti­fi­ca­tion method is re­quired for in­ven­tory items that are not or­di­nar­ily in­ter­change­able and for goods or ser­vices pro­duced and seg­re­gated for spe­cific pro­jects.

Re­ver­sal of write-downs

GAAP: Write-downs taken to reduce in­ven­to­ries to the lower of cost or market may not be re­versed for sub­se­quent in­creases in value.

IFRS : Write-downs taken to reduce in­ven­to­ries to the lower of cost or net re­al­iz­able value are re­versed for sub­se­quent in­creases in value.

Mea­sure­ment of Car­ry­ing Value

Al­though a lower-of-cost-or-mar­ket ap­proach is used under U.S.GAAP to de­ter­mine the car­ry­ing value of in­ven­tory, under IFRSs a lower-of-cost-or-net-re­al­iz­able-value ap­proach is used.

Under U.S. GAAP, the term market, as defined in ASC 330-10-20, states that "market" gen­er­ally means current re­place­ment cost, except that this re­place­ment cost should not (1) exceed net re­al­iz­able value or (2) be lower than net re­al­iz­able value less a normal profit margin.

Sim­i­larly to U.S. GAAP, IFRSs define net re­al­iz­able value as es­ti­mated selling price less es­ti­mated costs of com­ple­tion and sale.

Example 1

Car­ry­ing value $ 100

Re­place­ment cost 90

Net re­al­iz­able value 95

Net re­al­iz­able value less normal profit margin 80

In­ven­tory would be recorded at $90 under U.S. GAAP and at $95 under IFRSs.

Example 2

Car­ry­ing value $ 100

Re­place­ment cost 90

Net re­al­iz­able value 105

Net re­al­iz­able value less normal profit margin 95

In­ven­tory would be recorded at $95 under U.S. GAAP and at $100 under IFRSs (i.e., no write-down is re­quired).

The other scenario considered for differences is regarding Intangibles.

An image has been attached regarding the same.pfa