Question

A. Articulate the theories of international trade and investment in your own words. Give an example of one of the theories.

B. Compare domestic versus international accounting standards in your own words AND how can the difference be eliminated?

NO Plagiarism

Answer 1

Answer A)

International trade and Investment: - In order to understand International Trade and Investment, it is necessary to have a broad conceptual understanding of why it across national borders takes place. Trade and investment can be examined in terms of the comparative advantage of nations.

A comparative advantage suggests that each nation is relatively good at producing certain products or services. This comparative advantage is based on the nation’s abundant factors of production land, labor, and capital-and a country will export those products and services that use its abundant factors of production intensively. Simply, consider only two factors of production, labor and capital, and two countries, X and Y. If country X has a relative abundance of labor and country Y a relative abundance of capital, country X should export products and services that use labor intensively, country Y should export products and services that use capital intensively.

The absolute advantage theory: - In 1776, Adam Smith has given this theory in his book "The wealth of the nation". It focused on the ability of a country to produce a good more efficiently than another nation. The trade between countries shouldn’t be regulated or restricted by government policy or intervention. The trade should flow naturally according to market forces.

For example, if Country A could produce a good cheaper and faster than Country B, then Country A had the advantage and could focus on specializing in producing that good. Similarly, if Country B was better at producing another good, it could focus on specialization as well. By specialization, countries would generate efficiencies, because their labor force would become more skilled by doing the same tasks. Production would also become more efficient because there would be an incentive to create faster and better production methods to increase the specialization.

Smith’s theory reasoned that with increased efficiencies, people in both countries would benefit and trade should be encouraged. His theory stated that a nation’s wealth shouldn’t be judged by how much gold and silver it had but rather by the living standards of its people.

Answer B).  

Below mentioned are the key comparison between US GAAP and IFRS are: -

1. The Financial Accounting Standards Board (FASB) issues GAAP based on the practices followed by companies in the U.S. On a global turf, the same is done by International accounting slandered Boards (IASB) which issues IFRS.

2. Both GAAP and IFRS allow inventories to be written down to market value. If the market value later increases, only IFRS allows the earlier write-down to be reversed. But under GAAP, the reversal of earlier write-downs is prohibited. Inventory valuation may be more volatile under IFRS.

3. Both methods allow First In First out (FIFO), weighted-average cost, and specific identification methods for valuing inventories. However, GAAP also allows the Last In, First out (LIFO) method also which is not allowed under IFRS. Using the LIFO method may result in artificially low net income and may not reflect the actual flow of inventory items through a company.

4. Under IFRS, extraordinary items are not segregated in the income statement but with GAAP they are shown below the net income.

5. Under IFRS, the EPS calculation does not average the individual interim period calculations, whereas under GAAP the computation averages the individual interim period incremental shares.

6. Development cost, these can be capitalized under IFRS if certain criteria are met, while under GAAP it is considered as expenses.

7. Both methods allow for the recognition of impairment losses on long-lived assets when the market value of asset declines. When conditions change, IFRS allows impairment losses to be reversed for all types of assets except for goodwill. GAAP takes a more conservative approach and prohibits reversals of impairment losses for all types of assets