Chapter 4 international financial reporting standards

Q1. What are the types differences that exist between IFRS and U.S. GAAP?
Definition differences
Recognition differences
Measurement differences
Differences in allowed alternatives
Differences in (lack of) guidance
Presentation differences
Disclosure differences
Q2. How does application of the lower of cost or market rule for investors differ between
IFRS and U.S. GAAP?
In applying the lower of cost and market rule for inventories, IAS 2 defines market as
net realizable value (NRV) and U.S. GAAP defines market as replacement cost (with
NRV as a ceiling and NRV less normal profit margin as a floor). In addition, the rule
generally is applied on an item by item basis under IAS 2, whereas it may be applied
on an item by item, group of items, or total inventory basis under U.S. GAAP.
Q3. How are the estimated cost of removing and dismantling an asset handled upon
initial recognition of the asset?
The estimated costs of dismantling and removing an asset must be included in the
assets cost upon initial recognition.
Q4. What are the two models allowed for measuring property, plant, and equipment at
dates subsequent to original acquisition?
The two models allowed by IAS 16 are the cost model and the revaluation model.
Under the revaluation model, property, plant, and equipment is reported on the
balance sheet at a revalued amount, measured as fair value at the date of
remeasurement, less accumulated depreciation and any accumulated impairment
losses.
Q5. Which items of property, plant, equipment may be accounted for under the
revaluation model, and how frequently must revaluation occur?
Any item of property, plant, and equipment may be accounted for under the
revaluation model. However, all other items within that class of PPE must be
revalued at the same time. Revaluation must occur frequently enough that the
difference between the revalued assets carrying amount and fair value is not
material.
Q6. How is the revaluation surplus handle under the revaluation model?
The revaluation surplus is an element of other comprehensive income in
stockholders equity. The revaluation surplus is transferred to retained earnings as
the revalued asset is realized, either through its use or upon its disposal. The surplus
is transferred to retained earnings either: (1) as a lump sum when the asset is
disposed of, or (2) each period, as the difference between depreciation on the
revalued amount and depreciation on the historical cost. A third treatment for
revaluation surplus is to allow it to stay in other comprehensive income indefinitely.
Q7. How is the deprecation determined for an item of property, plant, and equipment
that is comprised of significant parts, plant, and equipment?
When an item of property, plant, and equipment is comprised of significant parts that
have different useful lives, as is the case for an airplane, the asset must be split into
components and each component must be depreciated separately.

Q8. In what way does the fair value model for investment property differ from the
revaluation model for property, plant, and equipment?
Under the fair value model for investment property, changes in fair value are
recognized in net income, whereas changes in fair value under the revaluation model
are taken to other comprehensive income.
Q9. How is an important loss on property, plant, and equipment determined and
measured under IFRS? How does this differ from U.S. GAAP?
Under IAS 36, an impairment loss arises when an assets recoverable amount is less
than its carrying value, where recoverable amount is the greater of net selling price
and value in use. Value in use is determined as the expected future cash flows from
use of the asset discounted to present value. The amount of the loss is the
difference between carrying value and recoverable amount.
Under U.S. GAAP, an impairment loss arises when the expected future cash flows
(undiscounted) from the use of the asset are less than its carrying value. If
impairment exists, the amount of the loss is equal to the difference between carrying
value and fair value, which can be determined in different ways.
Q10. When a previous recognized impairment loss is subsequently reversed, what is the
maximum amount at which the affected asset may be carried on the balance sheet?
A previously impaired asset may be written back up only to what its carrying amount
would have been if the impairment had never been recognized.
Q11.what are the three major types intangible asset, and how does the accounting for
them differ?
The three types of intangible assets are: (1) purchased, (2) acquired in a business
combination, and (3) internally generated. (1) and (2) are classified as having a finite
or indefinite useful life; (3) can only be classified as finite-lived. Finite-lived
intangibles are amortized on a systematic basis over their useful lives. All intangibles
are subject to impairment testing. Indefinite-lived intangibles must be tested for
impairment at least annually.
Q12. How are internally generated intangibles handled under IFRS? How does this
differ from U.S. GAPP?
Under IAS 36, expenditures giving rise to a potential intangible are classified as
either research or development expenditures. Research expenditures are expensed
as incurred. Development expenditures are recognized as an intangible asset when
six criteria are met. Under U.S. GAAP, research and development costs are
expensed as incurred. The only exception is for software development costs, which
are recognized as an asset when certain criteria have been met.
Q13. Which intangible assets are subject to annual impairment testing?
Indefinite-lived intangibles and goodwill are subject to impairment testing at least
annually.
Q14. How is goodwill measured in a business combination with a noncontrolling
interest?
Goodwill is measured as the excess of (a) consideration transferred plus
noncontrolling interest over (b) the fair value of the acquired firms net assets. Two
alternative methods are available to measure noncontrolling interest; therefore, two
different measures of goodwill exist for a given business combination.
Q15. What is a gain bargain purpose?

A gain on bargain purchase exists when (a) consideration transferred plus

noncontrolling interest is less than (b) the fair value of the acquired firms net assets.
The difference between (a) and (b) is sometimes referred to as negative goodwill.