...Property, Plant and Equipment Property, Plant and Equipment I- Nature of Accounting Issues Businesses purchase and use a variety of fixed assets, such as equipment, furniture, tools, machinery, buildings, and land. These fixed assets are long-term or relatively permanent assets. Also, they are tangible assets because they exist physically. They are owned and used by the business and are not offered for sale as part of normal operations. Perhaps the most descriptive titles these assets are known under are plant assets or property, plant and equipment. Depending on the industry, the plant assets of a business can be a significant part of its total assets. That is why the accounting for these long-term assets has important implications for a company’s reported results. In this paper, we discuss the proper accounting for the acquisition, use, and disposition of property, plant, and equipment. Before going over a brief overview of the nature of accounting issues, we ought to take a deeper look at what plant assets really are. The major characteristics of property, plant, and equipment are as follows: * They are acquired for use in operations and not for resale. Only assets used in normal business operations are classified as property, plant, and equipment. For example, an idle building is more appropriately classified separately as an investment. Also, land developers or sub dividers classify land as inventory. * They are long-term in nature and usually depreciated...
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...on the Balance Sheet based on the cost no matter how much their actual values are. So it is possible for companies to inflate or write down the value of PP&E by managers. Therefore, the investors have to pay attention to the policy of the PP&E and in this memo we tend to analyze the account deeply and understand how to the amount is reported on financial statement. In order to find the differences between IFRS and U.S GAAP on this subject, summaries of the requirements of GAAP and IFRS separately will lay a foundation for the comparison. IFRS: IAS 16 An entity may choose 2 accounting models for its property plant and equipment: an entity shall apply the same model to the entire class of PP&E (IAS 16-29: An entity shall choose either the cost model in paragraph 30 or the revaluation model in paragraph 31 as its accounting policy and shall apply that policy to an entire class [Refer: paragraph 37] of property, plant and equipment.) 1. Cost model (IAS 16-30: After recognition [Refer: paragraph 7] as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation [Refer: paragraphs 6 (definition of depreciation) and 43–62] and any accumulated impairment losses [Refer: paragraph 63]) An entity shall carry an asset at its cost less any accumulated depreciation and...
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...There are still many differences in accounting treatment between International financial reporting standards (IFRS) and the U.S Generally Accepted Accounting Principles (GAAP). While IFRS are widely used by many countries around the world, FASB of the U.S still working on the intention of either adopt the IFRS or converge towards it. Until the convergence actually happens, there are still many critics about the accounting treatment at the same subject under U.S GAAP and IFRS. Example of this is the argument about whether U.S GAAP should allow upward revaluation of non-financial asset of IFRS which was described in details on the article “Upward Revaluation of Non-financial” in the CPA journal November 2012 by David Sardone and Tom Tyson. Base on the article, this paper will explore further the comparison of the IFRS standard for accounting treatment for Property Plant Equipment with the treatment of available-for-sale investments under GAAP, along with the support about the authors’ suggestion about the US GAAP’s adoption of IFRS treatment to the property, plant, equipment especially with those have lives in excess of ten years. Even though many differences between IFRS and U.S GAAP exist and can be the critic target for U.S companies, there are still similarities from these two accounting standards. Asset held for sale under GAAP is defined as those which meet the following criteria: “It must be available for immediate sale in its present condition; the entity is actively trying...
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... | |D Hazelwood | |Due 25JUN12 | Abstract This case study focuses on the treatment of property, plant, and equipment and how they are viewed by both GAAP and IFRS. We are provided with a situation in which we are required to apply both standards and determine the value of fixed assets IAW IFRS and GAAP in order to determined which accounting standard would be more beneficial in this situation; specifically, if it allows Old Line to be able to borrow more funds. The case study will also conclude with an opinion on whether the student’s preference is GAAP or IFRS in regards to acquisition contingencies. Background of the Situation: Old Line Manufacturing Company is having liquidity problems whereby the borrowing base is limited to 60% of net fixed assets. Given the different types of PPE, the CFO is entertaining the idea of changing from GAAP to IFRS in order to be able to borrow more funds. Specific PPE: 1. Land A – carried at historical cost of $4M, with a fair value of $5M. In accordance with GAAP, “the historical cost of acquiring an asset includes the costs necessarily incurred to bring it to the condition and location necessary for its intended use” (ASC...
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..._______ ______ from 2001 to present. 3. In many cases, IFRS are more __________ than U.S. GAAP.. 4. Inventory is an example of IAS that provides less extensive guidance than U.S. GAAP. a. True/False 5. What should include in the cost of inventories? 6. List costs that are not included in the costs of inventories. 7. How does IAS 2 require inventory to be reported on the balance sheet? How does U.S. GAAP require inventory reported on the balance sheet? 1 8. How does application of the lower of cost or market rule for inventories differ between IFRS and U. S. GAAP? 9. Which items should be included in the cost of property, plant, and equipment under IAS 16? 10. What are the two models allowed for measuring property, plant, and equipment at dates subsequent to original acquisition? 11. Define fair value in IAS 16. 12. If the enterprise chooses to follow the revaluation model, revaluation must be made ______ ________ that the carrying amount of assets does not differ materially from the assets’ fair value. 13. IAS 16 requires that all assets of _____ ______ ______ be revalued at the same time. 14. Revaluation increases are ______ directly to the other ____________ ________ component of ________ as a revaluation _________. 2 15. What is the treatment of revaluation surpluses and deficits under IAS 16? 16. How is depreciation determined for an item of property, plant, and equipment that is comprised of significant parts, such as an airplane...
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...Accepted Accounting Practice in the US (US GAAP) and International Financial Reporting Standards (IFRS), address the measurement of non-financial assets differently, and compelling arguments exist in favor of each approach. Notes that, despite the challenges to auditing fair value estimates, some suggest that Financial Accounting Standards Board (FASB) should conform more closely to current IFRS procedures by allowing the revaluation of certain non-financial assets. The authors propose that FASB should allow the upward revaluation of fixed assets, such as property, plant, and equipment (PP&E), which have extended economic lives. The main difference discussed is revaluation of nonfinancial assets compared to fair value. GAAP does not permit revaluation whereas IFRS is in support of revaluation. Also, IFRS permits the reversal of impairment losses from prior periods for all nonfinancial assets besides goodwill. The IFRS standard for accounting for PPE differs from the treatment of available-for-sale investments under GAAP. Some similarities, however, include the fact that initial recognition of an asset is valued at cost. As always, the IFRS approach is a little bit more lenient, as it is more principles-based, and gives companies more freedom to decide how they want to value their assets. The cost model is the only approach allowable under GAAP to value nonfinancial assets, whereas under IFRS, the cost model and the revaluation model can be used. The article shows the criteria for an...
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...In accounting, historical cost is the original monetary value of an economic item.[1] Historical cost is based on the stable measuring unit assumption. In some circumstances, assets and liabilities may be shown at their historical cost, as if there had been no change in value since the date of acquisition. The balance sheet value of the item may therefore differ from the "true" value. While historical cost is criticised for its inaccuracy (deviation from "true" value), it remains in use in most accounting systems. Various corrections to historical cost are used, many of which require the use of management judgment and may be difficult to implement or verify. The trend in most accounting standards is a move to more accurate reflection of the fair or market value, although the historical cost principle remains in use, particularly for assets of little importance. Depreciation affects the carrying value of an asset on the balance sheet. The historical cost will equal the carrying value if there has been no change recorded in the value of the asset since acquisition. Improvements may be added to the cost basis of an asset. Historical cost does not generally reflect current market valuation. Alternative measurement bases to the historical cost measurement basis, which may be applied for some types of assets for which market values are readily available, require that the carrying value of an asset (or liability) be updated to the market price (mark-to-market valuation) or some other...
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...GAAP and IFRS Comparisons Mark Evans ACC/291 June 16, 2014 Michael Mosley GAAP and IFRS Comparisons Accountability requires standards. Standards are used in accounting processes to ensure accuracy and continuity of information for intended audiences. Generally Accepted Accounting Principles (GAAP) is the set of standards used in the United States. International Financial Reporting Standards (IFRS) is the set of standard accepted internationally. Each set of rules has similarities and differences. The Financial Accounting Standards Board (FASB) is the entity responsible for developing GAAP and the International Accounting Standards Board (IASB) is the organization responsible for the IFRS development (Beltratti, Spear, & Szabo, 2013). Within recent years the organizations that govern these sets of principles has worked to make them more compatible to each other. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (Ernst & Young, 2013). The FASB and IASB have been working towards ensuring that the concept of fair value will have the same meaning for both GAAP in the United States and IFRS internationally. First there is the issue of defining the meaning of fair value measurement. Also there is the issue of valuation techniques used to determine fair value. And there is the way each board mandates disclosure and reporting of these assets...
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...CHAPTER 11 DEPRECIATION, IMPAIRMENTS, AND DEPLETION IFRS questions are available at the end of this chapter. TRUe-FALSe—Conceptual Answer No. Description T 1. Nature of depreciation. F 2. Nature of depreciation. T 3. Depreciation, depletion, and amortization. T 4. Definition of depreciation base. F 5. Factors involved in depreciation process. F 6. Definition of inadequacy. T 7. Objection to straight-line method. F 8. Units-of-production approach. F 9. Accelerated depreciation method. T 10. Declining-balance method. T 11. Group or composite approach. F 12. Use of the composite approach. T 13. Accounting for changes in estimates. F 14. Computation of impairment loss amount. T 15. First step in determining an impairment. T 16. Reporting impaired assets held for disposal. F 17. Method used to compute depletion. T 18. Costs included in depletion base. F 19. Computing asset turnover ratio. T 20 Profit margin on sales ratio. Multiple Choice—Conceptual Answer No. Description d 21. Knowledge of depreciation accounting. b 22. Conceptual rationale for depreciation accounting. c 23. Depreciation and retaining funds. b S24. Definition of depreciation. a S25. Service life vs. physical life. a P26. Definition of depreciable cost. d 27. Economic factors affecting useful service life. d 28. Factors involved in computing depreciation. d 29. Straight-line method assumption. a 30. Activity method of depreciation. ...
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... 1. International Financial Reporting Standards, abbreviated “IFRS”, are a set of high quality, understandable, enforceable, and globally accepted rules for companies to use all over the world. These IFRS are permitted or required in around 120 countries. Companies, securities regulators, investors, creditors, and other business people alike prefer to have comparable financial statement information when making business transaction internationally. IFRS presents a solution to this problem. These standards are set by the International Accounting Standards Board (IASB). Consisting of 16 members from various countries, the IASB structure is similar to that of the FASB in that they have a parent organization entitled the IFRS Foundation (Accounting Textbook, 1-17). The phrase “International Convergence of Accounting Standards” refers to both a goal and the path that is necessary to achieve it. Ultimately, the FASB would to like to be able to provide a unified set of superior quality, international accounting standards that companies worldwide would implement for both domestic and cross-border financial reporting, thus accomplishing convergence. However, until that time, FASB is committed to working with other accounting standard setting bodies to help to eventually develop a converged system without compromising quality (fasb.org). 2. Perhaps one of the most convergence hindering differences between IFRS and U.S. GAAP is the way in which they treat Inventory Costing....
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...The IFRS is a better accounting standard system than GAAP because it is used internationally as the primary standard accounting system and it has more enhancing qualities First the IFRS is use internationally as the primary standard accounting system for at least 151 countries (European Union) consisting of two organizations overseeing practices (IFRS and IASB). The IFRS were created plans as a common worldwide language for business affairs. So companies accounts were able to be understandable and comparable across international boundaries. They are a set of conditions of building international shareholding and trade and particularly important for companies that dealing in several countries. They are willing and ready to fight replacing the mainly different national accounting standards. The GAAP is only use by the United States for stock exchange and corporations within the United States but a lot of companies operate outside the U.S. conducting operations on international soil. U.S. accounting standards with respect to history have been set by the American Institute of Certified Accountant subject to Securities and Exchange Commission regulations. The SEC encouraged the establishment for the use of a single person or group standard setting bodies through the AICPA and later the FASB to have a specified opinion that the private sector had the proper knowledge, resources, and talents. GAAP consists of two organizations AICPA and the FASB for publishing accounting principles...
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...What are the types of differences that exist between IFRS and U. S. GAAP? 2. The International Accounting Standards Committee (IASC) issued a total of ______ International Accounting Standards (IAS) during the period 1973–2001. 3. The International Accounting Standards Board issued a total of ______ IFRS from 2001 to present. 4. In many cases, IFRS are more flexible than U.S. GAAP. True or False? 5. Inventory is an example of IAS that provides less extensive guidance than U.S. GAAP. True/False 6. What should include in the cost of inventories? 7. How does IAS 2 require inventory to be reported on the balance sheet? How does U.S. GAAP require inventory reported on the balance sheet? 8. Which items should be included in the cost of property, plant, and equipment under IAS 16? 9. What are the two models allowed for measuring property, plant, and equipment at dates subsequent to original acquisition? 2 10. Define fair value in IAS 16. 11. If the enterprise chooses to follow the revaluation model, revaluation must be made ______ ________ that the carrying amount of assets does not differ materially from the assets’ fair value. 12. IAS 16 requires that all assets of _____ ______ ______ be revalued at the same time. 13. Revaluation increases are ______ directly to the other ____________ ________ component of ________ as a revaluation _________. 14. How is depreciation determined for an item of property, plant, and equipment that is comprised of significant parts, such as an...
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...Introduction Basically, the study is on the differences of Generally Accepted Accounting Principles (GAAP) influence in property management industry. The study focuses on two basic accounting principles in valuing assets, which are fair value and historical cost. The property refers to the land and building, as those are the main part of total fixed assets of a company. Asset is the most important element in the balance sheet, hence the method used for assets valuation is very important to avoid over or under estimation. This is the reason why the choice for measurement method is importance in determining the value of assets because it will affects the acquisition price and the comprehensive income of the firm in terms off income and shareholder equity. The author too focuses on the accounting treatment in accordance to International Financial reporting Standard (IFRS), US GAAP and Greek GAAP. With reference to the article, asset can be defined as a good able to provide a constant flow of services such as housing services and a source of cash flow. Assets are ruled by a set of basic aspects such as the cost (cost of land or construction cost), the residual value, the useful life estimation and depreciation charge. These elements are correlated with the type and use form of assets. The author also apply some accounting principles in their study such as prudence, historical costs, substance over form, going concern, true and fair view and many more. Data Methodology/approach ...
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...IFRS The Changeover A Guide for Users of Financial Reports A Canadian Performance Reporting Board Publication IFRS The Changeover A Guide for Users of Financial Reports A Canadian Performance Reporting Board Publication The IFRS Changeover — A Guide for Users of Financial Reports Copyright © 2010 The Canadian Institute of Chartered Accountants 277 Wellington Street West Toronto ON M5V 3H2 www.cica.ca ISBN 978-1-55385-512-5 Printed in Canada Disponible en français July 2010 i PREFACE This guide is published by the Canadian Performance Reporting Board (CPRB) of the Canadian Institute of Chartered Accountants. Its purpose is to provide a perspective for users of external financial reports on matters arising from Canada’s imminent change in accounting standards for public companies. Members of audit committees and preparers may also find this guide a useful reference. For fiscal years commencing in 2011 and thereafter, Canadian GAAP for most public companies will transition to International Financial Reporting Standards (IFRSs). These global accounting standards should improve international financial reporting comparability in an increasingly global business environment. The conversion to IFRSs will potentially result in a myriad of changes in an entity’s financial statements, and, therefore, its performance metrics. In some cases these changes will have no material consequences. In others, however, the changeover will have a material impact...
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...its estimated useful life down to the recoverable amount ASSET AND LIABILITIES IN DOMINATED CORRENT Monetary items such as cost balance receivable and payable which are dominated in foreign currency using the closing exchange rate under IFRS. EXCEPTION TO THE HISTORICAL COST BASIS OF ACCOUNT REVALUATION OF PROPERTY PLANT EQUIPMENT Under IFRS it is acceptable, but not required to restate the values of property, plant and equipment to a fair value; fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing partners in an arm’s length transaction. Such a policy must be applied to all asset of a particular class. It would therefore be acceptable for an entity to revolve free hold properties every three (3) years. The revaluation must be made with sufficient regularity to ensure that the carrying value does not differ materially from market value in subsequent years. A surplus on revaluation would be recovered as a reserve movement not as income. DERIVATIVE FINANCIAL INSTRUMENT Under IFRS and US GAAP derivative financial instruments are stated at fair value (mark to market) with movement recorded in the income statement. FINANCIAL REPORTING IN HYPER INFLATIONARY ECONOMIES IFRS requests a separate method of accounting in currencies deemed to be hyper inflationary. The characteristics of a hyper inflation include the population keeping it wealth in non-monetary assets or relatively stable foreign currency; prices...
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