Principles of Accounting
ACC 403, Module 2 Case Study
Detailed Balance Sheet Analysis
US GAAP and IFRS differ in how they value some assets and some liabilities. Here are some examples:
1. RECORDING LOSSES IN VALUE
When an asset has lost value (impaired), the book value is reduced under US GAAP and IFRS. However, IFRS permits recovery of prior write downs. US GAAP does not. This can result in very different valuations or book values for long term assets.
Development costs are capitalized and amortized under IFRS. In US GAAP, new product or project development is considered a period cost. That is, it is expensed when it is incurred, without regard to the possibility of future results.
3. FINDING ASSET VALUES
When valuation is needed (because the transaction was in a prior period or bulk purchase prevents knowing the value of individual items purchased) there are differences in US GAAP and IFRS. US GAAP specifies using an “exit value.” That is, the price to sell to market participants. When there are no active trades, you have to resort to either looking at similar assets that are traded or using a fair value model using internal inputs. That is, use the cash flows of the property, the cost to replace or the best-use value. IFRS does not require market trading prices. IFRS reflects the price at which the asset would exchange between willing buyer and sellers. Of course judgment is involved in both frameworks but the “three tier” in US GAAP is unique to it.
EXPENSE vs ASSET
An asset is a cost that is expected to benefit future periods and so has not yet been “used up” (or expired). An expense is a cost that is used up or expired.
CURRENT VS. NON-CURRENT ASSETS
Current assets are those that are expected to be converted to cash, used or expired within one year or the operating cycle, whichever is longer. Long term are those that are not current.
CURRENT VS. NON-CURRENT...