...EXAMINATION OF INVENTORY COSTING CONVERGENCE UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND INTERNATIONAL FINANCIAL REPORTING STANDARDS Casey Reineking Department of Accounting Murray State University Murray, KY 42071-3314 E-mail: casey.reineking@hotmail.com Don H. Chamberlain Department of Accounting Murray State University Murray, KY 42071-3314 Holly R. Rudolph Department of Accounting Murray State University Murray, KY 42071-3314 L. Murphy Smith* Department of Accounting Murray State University 351 Business Building Murray, KY 42071-3314 Tel: 270-809-4297 Email: msmith93@murraystate.edu *Corresponding author Forthcoming in Journal of International Business Research AN EXAMINATION OF INVENTORY COSTING CONVERGENCE UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND INTERNATIONAL FINANCIAL REPORTING STANDARDS ABSTRACT Accounting principles in the United States are converging toward international standards. If convergence continues, and there are proponents and detractors, then the U.S. system of accounting, called Generally Accepted Accounting Principles (GAAP), will eventually be replaced by International Financial Reporting Standards (IFRS). Convergence has profound implications for publicly traded companies and their many stakeholders such as investors, lenders, government agencies, and employees. A key issue facing accounting standard-setters is the treatment of inventory costing, an area in which GAAP and IFRS differ. This study addresses three...
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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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...Case Study #1 Inventory The Cost of Inventory The general principle for cost inclusion into inventory for US GAAP and IFRS is similar but not exactly the same. First let us look at US GAAP. The basis of accounting for inventories is “cost,” which is explained in ASC 330-10-30 paragraph 1 as “the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location.” These costs are divided into two different categories, the first is Acquisition Costs, and the second are Production Costs. We are then told that in determination of the final amounts for both acquisition costs and production costs, it involves many different considerations to come up with a final value. Next, we have to look into the IFRS definition of which costs we can include in our inventory valuation. In AIS 2 paragraph 10, it states that an inventories cost can be based on three costs, not just two as we saw in US GAAP (but basically meaning the same thing). The first cost is the Purchasing Costs, second is the Conversion Costs, and third is Other Costs that are used in bringing the inventories to their present location and condition. The first similarity that comes to my attention is that both US GAAP and IFRS determine the cost of inventories by the costs that are incurred by an entity to get inventory from its original state it was purchased or acquired in to its present condition and location. The only difference is that...
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...1 Chapter 4 study guide 1. 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...
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...Chapter 4 study guide 1. The International Accounting Standards Committee (IASC) issued a total of ______ International Accounting Standards (IAS) during the period 1973–2001. 2. The International Accounting Standards Board issued a total of 14 _____ ________ _______ ______ 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...
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...Analysis of IFRS and U.S. GAAP GAAP or acronym for Generally Accepted Accounting Principles refers to the standard framework of guidelines for financial accounting used in any given jurisdiction. It is a common set of accounting principles, standards, and procedures that companies use to compile their financial statements (Investopedia). For many years, countries have developed their own accounting standards. The U.S. has always followed the U.S. GAAP while most European countries followed the IFRS, or acronym for International Financial Reporting Standard. In a sense, the U.S. had their own financial “language”, and in order to communicate with others, they needed to translate to a language they could understand. As globalization and international trade increased, such differences in the financial language caused many difficulties and problems, creating a demand for a new language that is universally accepted and understood. The convergence of IFRS and GAAP is what came of this demand. Understanding U.S. GAAP and more importantly its transition to IFRS is extremely crucial for anyone pursuing a career in Accounting or related fields. At the time of the stock market crash in 1929, there was no structure setting accounting standards. As the nation plunged into the Great Depression, there were calls for increased government regulation of financial institutions. The result was the establishment of the Securities and Exchange Commission (SEC); a federal agency that administers...
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...Accounting for inventory under IFRS and U.S. GAAP ABSTRACT U.S. General Accepted Accounting Standards (U.S. GAAP) and International Financial Reported Standards (IFRS) both give guidance for inventory valuation. This study will give several examples, compare cost flow assumptions and inventory valuation under U.S. GAAP and IFRS, and indicate the possible influences to reported companies and financial information users. INTRODUCTION The U.S. Securities and Exchange Commission (SEC) continues to move forward in its proposed plans to replace U.S. GAAP for U.S. public companies with IFRS. Inventory valuation is important, because inventory is a crucial element not only in the computation of profit, but also in the valuation of assets for balance sheet purposes. Unfortunately, inventory values sometimes are manipulated by management in order to create a more favorable impression. In the following sections, I introduced several differences between U.S. GAAP and IFRS. I also analysis the possible reasons of information manipulation and influence. In section one and section two respectively I will talk about differences in cost flow assumptions and inventory valuation under both methods. I. COST FLOW ASSUMPTIONS Companies typically purchase merchandise at several different prices. Ending inventory equals the quantity on hand multiply the unit acquisition price. If a company use historical cost to determine the cost of inventory and it purchases inventory at different unit prices...
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...Business plan Name Institution Introduction Mac at-home food and restaurant Ltd aims at tapping the culinary skills and provides a flexible work-from home business approach. Moreover, the business provides a low risk approach into an ever-popular food service and restaurant industry. It is the aim of the company to tap into the high demand in the food and restaurant industry. There is increased demand by various individuals on the availability of the food service over the internet, and place where they can enjoy various food service at serene environment offered at a cheaper price. Therefore, the objective of Mac at-home food and restaurant Ltd is to offer variety, quality, and affordable food to all segment of the society thereby tapping into customers neglected by big food and restaurants. As such, the business plan preparation aims at raising capital of approximately $30,000. In addition, the business plan aim at raising additional finances required to purchase necessary equipments, launch Mac at-home food and restaurant Ltd website, and other finances required for the first fiscal year operations. The finances already acquired are $35,000 from micro-loan initiative, $13,000 loan from bank, $5,000 government loan, and $30, 000 from the five company investors. The company aims at tapping into the high demand in the food and restaurant industry because of increased demand of the food services over the internet and place where they can enjoy various food services at...
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...levels: company-wide, industry, and globally. Looking on a company-wide basis, a lack of transparency on the part of individual organizations can lead to fraud and unethical practices, whereas a demonstration of strong transparency reduces the impact and likelihood of scandals. Enron, a leading energy and natural gas provider was accused of an accounting fraud in 2001. One of the primary reasons that led to this scandal was Enron’s usage of special purpose entities (SPEs) to cover up debt that the company was taking upon. By hiding additional debt, the company looked favourable as an investment because of low risk. Additionally, creditors were impressed with the low debt to equity ratio and were open to the idea of lending Enron money in case the need arose. SPEs were also used to cover up any losses that the company was experiencing. As a result, the parent company, Enron, consistently reported...
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...Relations > Deloitte Foundation Global site selector Go Search Search Top searches Top searchesBookmark Email Print this page Increase font Alliances Catalyst for Innovation Community Involvement Corporate Responsibility Deloitte’s sponsorship of the U.S. Olympic Committee Inclusion Deloitte University Ethics & Independence Deloitte Life Growth Through Acquisition History Investor Confidence Leadership University Relations Deloitte Foundation Faculty Resources Faculty and Ph.D. Support Life, Inc. Student Events The Trueblood Case Studies DOWNLOAD For a complete index of Cases and Addendum summary please click the download button above. The Trueblood Series cases and solutions are available in Adobe PDF format below. Solutions are password protected for faculty use only. Access to solutions by other unauthorized individuals is strictly prohibited. To find out how to obtain access to the case solutions, please contact us via e-mail or mail a request on your school letterhead to: Deloitte Foundation Ten Westport Road Wilton, CT 06897 Due to the...
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...Solution of the Case: a) If a company uses LIFO, the value of closing stock will be lesser than the value calculated under FIFO method and the closing stock will be lesser in LIFO due to the higher cost of sales which in turn would result in lesser gross profit. This is transferred to Profit & Loss Account/Income Statement/Statement of Financial Performance which in turn would result in lesser net profit & high tax savings as tax would be levied on lesser Net Profit. Here Golf Challenge Corp. can use FIFO method to comply with the loan financing requirements and also because in FIFO method Net profit margin & current ratio would be higher as compared to LIFO method. LIFO usually produces higher cost of goods sold than does FIFO because more recently purchased goods (usually higher priced) are assumed sold first. Net Profit Margin= Net Profit after Tax (In FIFO Net profit would be more due to value in Sales Revenue higher closing stock which result in higher net profit, For publicly traded companies on the S& P 500, the Average net profit margin is 8.5 percent) Current Ratio=Current Assets (Higher Closing stock value is included in current assets, Current Liabilities generally ratio should be higher than 1.33:1 as per Industry ...
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...1.Abstract The balance sheet is necessary because it shows what the business has (assets) and what the business owes against those assets (liabilities). The difference between the assets and the liabilities shows the net worth of the business. The net worth of the business is important in that it is a measurement of the time the business is expected to stay in financial power. The balance sheet also provides the business with information on how best it is able to pay its debts. Underwriters also use the information in the balance sheet (working capital) to assess the business' ability to finance its operations. The balance sheet is necessary for the managers. It assists the managers of businesses in making decisions regarding purchasing of equipments for the business. Business managers depend on the balance sheet to analyze whether buying certain equipment on debt is the right move for the business at that time. Business managers need the balance sheet so as to decide the best source of credit for the business at that time. The balance sheet shows the accounting equation in a physical representation. The balance sheet also shows the owner's equity for example, it shows the value of the stock and the number of shares outstanding. The balance sheet is also used by the government agencies to make sure that the business is complying with the set laws. It also provides information to any potential lenders of the business on the credit worthiness of the business. When a group of...
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...1.1 Origin of the Report As part of the term paper of Evening Masters of Business Administration (EMBA) course requirement, we are assigned the topic “Carbon Accounting” by our course teacher for accomplishing our report. 1.2 Objectives of the report ➢ To attain the skill of report writing. ➢ To achieve deep knowledge about Carbon Accounting. ➢ To fulfill the partial requirement of our course of Accounting for Managers. 1.3 Methodology of the report This study was a descriptive research where we have been analyzed mainly secondary data to understand the Carbon Accounting and its application. All the data has gathered for report writing during term. Information collected to furnish this report is mainly from secondary in nature such as related books, journals, periodicals and Websites etc. 1.4 Limitations of the report We have tried our level best to find out the opportunity of work for overcoming the limitation but due to shortage of time, official compulsion and lack of availability of required data it was not possible to collect huge information about the topic. Other limitation is our report is mostly text based. 1.5 What is Carbon Accounting? Carbon accounting refers generally to processes undertaken to "measure" amounts of carbon dioxide equivalents emitted by an entity. It is used by nation states, corporations and individuals. It is the process of measuring, monitoring, benchmarking and reporting an organization Greenhouse Gas Emissions in a defined...
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...Egypt 's Accounting and Auditing Standards and the adoption of International Accounting Standards Brief history of accounting in Egypt Historically, Egyptian accounting was not capital-market oriented but rather followed the principles of macro-accounting with huge government intervention aimed at tightly controlling the economy -- and was closely connected with accounting for tax purposes. Economic liberalisation began in the mid 1990s – with aspirations aimed at creating a guided free market economy – this involved the reactivation of the stock exchange market in 1995 and a privatisation programme. The transition posed challenges for the Government, private sector institutions and accountants alike. Increasing the role of the private sector required changes to and reforms of accounting systems in order to support better decision-making, attract investments, stimulate economic development, and enhance foreign investors’ confidence in the market. Egyptian accounting and auditing standards (1997–2002) As part of the reform process, the Government of Egypt pursued a policy of harmonising (EAS- Egyptian Accounting Standards) with IAS, while ensuring that specific characteristics of the Egyptian operating environment were taken into account. As a result of Ministerial Decision No. 503, in October 1997 Egypt established the Permanent Committee for Accounting and Auditing Standards to issue EAS that were to be based on IAS, yet modified to suit the local arena. Although official...
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...2006). The complication arises when the firm does business in multiple countries. How can corporations be compared based upon their financials, which one are accurate, and how can investors then deal with multiple standards, which ones are accurate? The answer to these questions lies within the adoption of the International Financial Reporting Standards, or IFRS. IFRS are currently required or accepted in over 100 countries worldwide, and it looks certain that the number of countries to embrace IFRS will continue to rise over the coming years (Daske, Hail, Leuz& Verdi, 2008). It was already noticed that, IFRS issued by the IASB have been extremely doing well in terms of their acceptance and application on a worldwide basis. IFRS is the standards which is being developed and supported by the IASB. IFRS give a meaning as a set of international accounting standards that states how certain transactions and events should be reported in financial statements. Contrast to U.S. GAAP, which is a rules-based accounting standard, IFRS is upon using principles based rather than hard set rules. As a result of this fundamental difference, IFRS allows management to use greater preference and...
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