MODULE 4

Module 4 -Balance Sheet

Module .4 - Case

Is there is a difference in approach to valuation by US GAAP and IFRS? Discuss and note two or three specific differences?

U.S generally accepted accounting principles is only followed in United State of American, where as international financial reporting standard (IFRS) is a universal accounting standard followed in all around the globe. The most common difference between U.S GAAP and IFRS are as follows:

Under the IFRS convention if the inventory is written down, in the future it can be reverse in some other period, whereas under U.S GAAP once the inventory is written down, it is prohibited to make a reversal entry.

Under the IFRS convention, intangible assets are only recognized if they have potential to create future economic gains like Research and Development, advertising cost etc. Whereas, under the U.S GAAP intangible assets are value at the fair value.

GAAP accounting convention uses a different method in calculating inventory, Last-In First-Out (LIFO), First-In First-Out (FIFO) and weighted average method to value inventory juxtaposed IFRS does not uses LIFO to value inventory. Distinguish between an expense (expired cost) and an asset?

Assets are the investment by the company and can be used to generate future economic gain for the business e.g. land, machinery, cash, inventory and etc. Whereas expenses are the cost that incur to business while generating revenue from the assets e.g. sale and administration expense, interest, bad debt on loan, depreciation and etc. Distinguish between current and long-term assets?

Assets are classified into two categories fixed (long-term) assets and current assets. Fixed asset are those assets that can be tangible and intangible and have life for more than one year. Every accounting year, these fixed assets, are depreciate at a prescribed rate, in the case of intangible assets, assets are amortize, and fixed assets are considered as less liquid compare to current asset. Example includes plant, property and equipment

Whereas, current assets have life of less than one year and consider as more liquid than fixed assets and in some cases provision of bad debt is deducted from account receivable (current asset) as per the accounting convention. Example includes cash, account receivable, prepaid expenses and etc. Distinguish between current and long-term liabilities?

Current liabilities are an obligation for the business that are expected to be paid in one accounting year, considered as a short term obligation for business and usually it requires cash outflow for the settlement. These short terms borrowing is acquired by the business, to meet its daily working capital requirement. Example of current liabilities includes account payable, accrued expenses, note payable and etc.

Whereas noncurrent liabilities are also an obligation for the business that are expected to be paid out in more than one accounting period and considered as long term obligation for the business. Usually noncurrent liabilities are acquired to make a long term investment for the business especially buying new land and equipment for business expansion. Example of noncurrent liability includes; loan, bond and debenture ...