Professional Documents
Culture Documents
International Accounting: TP: /is - Vnu.edu - VN
International Accounting: TP: /is - Vnu.edu - VN
International Accounting: TP: /is - Vnu.edu - VN
HaNoi National
University h tp:
/is.vnu.edu.vn/
INTERNATIONAL ACCOUNTING
Ha Noi, 2019
Topic Three
International Financial
Reporting Standards
(IFRS): Part I
INTERNATIONALSCHO L
International Financial Reporting Standards - Part I
HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P:
Chapter Topics
• Differences between IFRS and US GAAP.
• Inventories. – IAS 2
• Property, Plant & Equipment. – IAS 16
• Investment Property. – IAS 40
• Biological assets – IAS 41
• Impairment of Assets. – IAS 36
• Intangible Assets. – IAS 38
• Goodwill.
/IS.VNU.EDU.VN
Learning Objectives
1. Discuss the differences between IFRS and U.S. GAAP.
2. Describe IFRS requirements for recognition and measurement
of inventories; property, plant and equipment; intangibles and
leased assets.
3. Explain the major differences between IFRS and U.S. GAAP on
the recognition and measurement of assets.
4. Describe the IFRS requirements in a variety of disclosure and
presentation standards.
5. Explain the major differences between IFRS and U.S. GAAP on
certain disclosure and presentation issues.
6. Analyze the impact that the differences between IFRS and
/IS.VNU.EDU.VN
• Definitions
• Recognition.
• Measurement.
• Alternatives.
• Lack of requirements or guidance.
• Presentation.
• Disclosure.
/IS.VNU.EDU.VN
• Costs included:
– Cost of purchase (eg: purchase price and direct
acquisition costs).
– Conversion costs (eg: labor and production overhead).
Fixed production overhead should be based on normal
level of production.
– Other costs incurred in bringing inventories to their present location
and condition (eg: design, interest if takes time to bring to saleable
condition).
• Costs excluded:
– Abnormal waste.
/IS.VNU.EDU.VN
Cost of inventory $
Cost of materials 100,000
Cost of direct labor 60,000
Allocation of variable overhead costs 30,000
Allocation of fixed overhead costs (based on normal 25,000
production levels)
Abnormal waste (10,000)
Cost of inventory 205,000
/IS.VNU.EDU.VN
Cost formulas:
• For interchangeable inventories: FIFO, AVCO. No LIFO. Standard cost
and retail method are also acceptable.
• For not ordinarily interchangeable inventories: specific identification
method.
• Must use same cost formula for similar nature and use inventory items.
Subsequent balance sheet measurement:
• On balance sheet, inventories should be reported at lower of cost
and net realizable value.
• NRV = estimated selling price less costs of completion and other costs
to make sale.
• Write-downs to NRV must be reversed when the selling price
/IS.VNU.EDU.VN
increases.
Learning Objectives 2 and 3 INTERNATIONALSCHO L
HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P:
/IS.VNU.EDU.VN
1. IAS 2 Inventories. Example
INTERNATIONALSCHO L
1. IAS 2 Inventories
HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P:
US. GAAP:
- Cost formulas:
Allow LIFO
Do not require the same cost formula for similar nature and use
inventories
- Subsequent balance sheet measurement:
Any write-down establishes new cost for subsequent periods.
Reversing prior write-down is prohibited.
/IS.VNU.EDU.VN
Initially measured at cost. Including: (1) purchase price; (2) all costs
directly to put it into service; (3) estimated costs of dismantling the
asset and restoring the site.
- Example: Caylor Corporation constructed a powder coating facility at a
cost of $3,000,000: $1,000,000 for the building and $2,000,000 for
machinery and equipment. Local law requires the company to dismantle
and remove the plant assets at the end of their useful life. Caylor
estimates that the net cost, after deducting salvage value, for removal of
the equipment is $100,000, and the net cost for dismantling and
removing the building will be $400,000. The useful life of the facility is 20
years, and the company uses a discount rate of 10 percent in
determining present values.
- Required: Calculate the initial costs of each of the building and
/IS.VNU.EDU.VN
31/12/Y1:
Dr Land: 20,000
Cr Revaluation surplus – land: equity 20,000
Dr loss on revaluation (expense on PL): 50,000
Cr Buildings: 50,000
/IS.VNU.EDU.VN
Dr Machinery: 10,000
Cr Revaluation surplus – machinery:10,000
Learning Objectives 2 and 3 INTERNATIONALSCHO L
2. IAS 16 Property, Plant & Equipment
2. Measurement after initial recognition
HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P:
- Revaluation model:
Land Buildings Machinery
Fair value at 31/12/Y1 120,000 450,000 210,000
FV at 31/12/Y2 150,000 460,000 185,000
Gain or loss 30,000 10,000 (25,000)
31/12/Y2:
Dr Land 30,000
Cr Revaluation surplus - land: 30,000
Dr Buildings: 10,000
Cr Recovery of loss on Revaluation (P/L) 10,000
Dr Revaluation surplus - machine 10,000
/IS.VNU.EDU.VN
3. Depreciation
- Depreciation is the allocation of the depreciable amount of an asset
over its estimated useful life.
- Estimated useful lives, residual value and method should be reviewed
annually—any changes are “prospective”
- Note: Significant components must be depreciated separately if they
have different appropriate depreciation methods or useful lives.
(Component depreciation is not common under US GAAP).
/IS.VNU.EDU.VN
1. IFRS
Component Cost Useful life Depreciation
Motor $10,000 5 $2,000
Inspection 2,000 2 1,000
Machine 108,000 10 10,800
Total $120,000 $13,800
2. U.S. GAAP
Total $120,000 10 $12,000
/IS.VNU.EDU.VN
2. IAS 16 Property, Plant & Equipment
HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P:
3. Depreciation
2 alternative treatments of accumulated depreciation upon Revaluation
described in IAS 16:
- Restate the accumulated depreciation proportionately with the change
in the gross carrying amount of the asset
- Eliminate the accumulated depreciation against the gross carrying
amount of the asset
Example: Kiely has buildings that cost $1,000,000 with accumulated
depreciation of $600,000 on Dec 31, Year 1. On that date, Kiely
determines that the market value for these buildings is $750,000. Kiely
wishes to use revaluation method to report buildings.
/IS.VNU.EDU.VN
4. Derecognition
- Derecognition refers to the removal of an asset or liability from the
balance sheet and the accounts
- An item is derecognized when: (1) retirements and (2) disposals
/IS.VNU.EDU.VN
Measurement
- IAS 41 requires all biological assets to be measured at the year end
at fair value less cost to sell.
- Fair value can usually be taken to be market value.
- Any gain or loss arising from changes to fair value is recognised in
profit or loss.
- Agricultural produce is recognised prior to harvest at fair value less
estimated point of sale costs.
- Following harvest agricultural produce is classified as inventory
and accounted for in accordance with IAS 2.
- This measurement method resembles the fair vale method for
investment property. However, while IAS 40 makes the fair value
/IS.VNU.EDU.VN
impairment loss
Learning Objectives 2 and 3 INTERNATIONALSCHO L
Example: Determination and Measurement of
Impairment Loss
HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P:
INTERNATIONALSCHO L
Example: Determination and Measurement of
Impairment Loss
HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P:
- IFRSs:
Carrying amount: 50,000
Recoverable amount: higher of FVLCS and VIU. FVLCS (39,000),
VIU (46,000)
=> Impairment: 4,000
- US GAAP:
CA: 50,000
Undiscounted future CF: 55,000
=> no impaired
/IS.VNU.EDU.VN
INTERNATIONALSCHO L
Example: Reversal of impairment loss
HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P:
INTERNATIONALSCHO L
ANSWER
HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P:
INTERNATIONALSCHO L
6. IAS 38, Intangible Assets
HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P:
Applies to:
• (i) Purchased intangibles.
• (ii) Intangibles acquired in business combination.
• (iii) Internally-generated intangibles.
• (iv) Goodwill covered separately under IFRS 3— Business
Combinations.
/IS.VNU.EDU.VN
Definition:
• An identifiable, nonmonetary asset without physical substance.
• Held for production of goods or services, rental to others, or for
administrative purposes.
• Must be controlled by enterprise as result of past events from which
future economic benefits are expected to be realized.
• Must expense immediately if definition not met unless It is obtained in
business combination and then it is included in goodwill.
Question:
• Is human capital or talent, experience, etc of an entity’s employees an
/IS.VNU.EDU.VN
How should each of the above items be shown in the financial statements
for the year ended 31 August 20X8?
6. IAS 38, Intangible
Assets
HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P:
Impairment of goodwill:
• As an indefinite-lived intangible asset, goodwill is not amortized.
Instead, goodwill must be tested for impairment annually
• Impairment is tested at the level of the cash-generating unit
(CGU)—the smallest identifiable group of assets that generates
cash inflows—use bottom-up and top-down test to allocate
overall goodwill to each CGU.
• Compare carrying value of CGU, including goodwill, with
recoverable amount (higher of value in use and fair value less
costs to sell).
• U.S. GAAP is tested at level of the reporting unit which can be
different and typically larger than CGU.
• U.S. GAAP only requires only a bottom-up test.
/IS.VNU.EDU.VN
(Similar to US GAAP)
• Example:
Learning Capitalization
Objectives 2 and 3 of Borrowing Costs (page 143) INTERNATIONALSCHO L
8. IAS 23. Borrowing Costs
• Example: Capitalization of Borrowing Costs (page 143)
HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P:
•
Required: Assume that income earned on temporary investment of
borrowing during year 1 is € 225,000. Calculate the amount of interest
eligible
Learning for capitalization?
Objectives 2 and 3 INTERNATIONALSCHO L
8. IAS 23. Borrowing Costs
• Example: Capitalization of Borrowing Costs (page 143)
HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P: /IS.VNU.EDU.VN-HT P:
/IS.VNU.EDU.VN