the IFRS and GAAP differ on the impairment test for long-lived assets, can you show a...

the IFRS and GAAP differ on the impairment test for long-lived assets, can you show a numerical example on how a change from GAAP will occur to IFRS with regards to this specific matter?

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Expert Solution

Under GAAP, long term assets are value at historical cost i.e., purchase price minus accumulated depreciation. Under IFRS, long term assets can be value at historical cost or fair market value. Under GAAP the value of the asset can only be decreased by charging depreciation or loss but under IFRS the value of the asset can be increased considering the fair market value. So under GAAP, impairment of asset is charged to profit and cannot be taken back. But under IFRS, if the asset's fair market value increases, you can take back the amount of the impairment.

Example, let us assume a fixed asset cost be $25,000 and one of its part worth $300 is damaged. So under GAAP, $300 will be charged to profit as an expense or loss of asset and the value of the asset is decreased to $24,700. If later it is found that the damaged was false then we cannot reverse the entry to correct the value of the asset as it is charged to profit. But incase of IFRS this reverse amount can be adjusted or added while valuing the asset at fair market value. So if you change from GAAP to IFRS, you can correct the value of the asset by adding back the false impairment loss while valuing the asset.

ekkarill92 answered 1 year ago

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