...(3)Use “probable” to define the criteria for recognition. Financial statements elements (1)List revenues, expenses, gains, losses and comprehensive income as the elements related to performance. (2)Define an asset as a future economic benefit. (3)Use “probable” to define assets and liabilities. (4)Don’t allow the values of most assets to be adjusted upward. Figure 2: Differences in 会计事项 会计事项 US GAAP 强制性规定 选择性规定 Balance Sheet Marketable Investment Securities Classified as held-to-maturity, trading and available-for-sale. LIFO, FIFO and the average cost method. Inventory Once an inventory write-down occurs, any subsequent recovery of value is ignored. Subsequent recovery of value can be included. Trading securities are known as held-for-trading securities. FIFO and the average cost method. IFRS 强制性规定 选择性规定 Case 1 Property and Equipment Don’t permit upward revaluations. Permit upward revaluations. Property and equipment are reported at fair value at the revaluation date less the accumulated depreciation since revaluation. The equity method can be used and proportionate consolidation is preferred. The firm must expense costs...
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...about the initiative to wipe out the LIFO inventory technique seems that is not a piece of cake. Actually is so controversial that is putting companies, which are using LIFO in real problems. Some of the reason that companies had been using LIFO is because the benefits of paying less tax and also for book purposes. What I think about the three options of eliminate LIFO either for financial accounting or tax purposes, or not allowing it for financial accounting purposes but allowing it for tax purposes by removing the conformity requirement or allowing it for financial reporting and tax purposes by conforming IFRS to US standards in some way my response is “Eliminate LIFO”. So, Last-in-first-out (LIFO) is an inventory accounting technique which allocates the most recent inventory prices to cost of goods sold and the oldest inventory prices to items remaining in the inventory. In a period of increasing prices, this assumption assigns the recent and higher prices to cost of goods sold and the older lower prices to inventory. LIFO can have a significant cumulative downward effect on the inventory’s value. The cost of goods sold for any particular year equals the sum of beginning inventory, plus purchases, less ending inventory. Thus, a lower ending inventory increases cost of goods sold and reduces taxable income. Under current tax law, companies are allowed to use LIFO for tax purposes only if it also uses LIFO for financial reporting purposes. LIFO inventories means that the last...
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...similarities that promote a convergence of the two standards. Both are based on the principle that cost is the primary basis of accounting including costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Also, they contain similar definitions of inventory: Assets which (1) are held for sale in the ordinary course of business (2) are in the process of production for such sale, or (3) in the form of materials or supplies to be consumed in the production process or in the rendering of services. Under the ASC 330-10-30, initial measurement cost formulas are: • Specific Identification • First-in, First-out (“FIFO”) • Weighted-Average Cost • Last-in, First-out (“LIFO”) Whereas IFRS does not allow the costing method use of last-in-first-out. Inventory is subsequently measured at the lower of cost or market (ASC 330-10-35). Market is defined as current replacement cost, which is limited to a ceiling of NRV, floor of NRV less normal profit margin. When a write-down occurs, a new cost basis is established. 2. What are the IAS 2 rules for the initial and subsequent measurement of inventory? Under IFRS, the initial measurement cost formulas are: • Specific Identification • First-in, First-out ("FIFO") • Weighted-Average Cost Inventory is subsequently measured at the lower of cost or net realizable value (NRV). NRV represents the estimated selling price in the ordinary course of business, less...
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...------------------------------------------------- Top of Form Grading Summary | These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the "Details" section below. | Date Taken: | 1/29/2012 | Time Spent: | 2 h , 45 min , 16 secs | Points Received: | 129 / 150 (86%) | | Question Type: | # Of Questions: | # Correct: | Essay | 7 | N/A | | | Grade Details | 1. | Question : | (TCO D) A classmate is considering dropping his accounting class because he cannot understand the rules of debits and credits. Explain the rules of debits and credits in a way that will help him understand them. Cite examples for each of the major sections of the balance sheet (assets, liabilities and stockholders' equity) and the income statement (revenues and expenses). | | | Student Answer: | | Debits and Credits are pretty simple. Everyone knows the famous saying " what goes up most come down." It's the same theory in that if you have a debit or credit, you will have the a debit or credit on the other end. Think as debit as when you use your debit card, you have money withdrawing from your personal checking; therefore you have money leaving the account. Credit is basically how the lenders give you money to use; therefore you have money coming in to your account. | | Instructor Explanation: | Accounting is based on the double-entry system. This system records the dual effect of...
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...--Future value of annuity due = (1+r) * P(((1+r)^n - 1)/r) --Bonds: Dr. Cash, Cr. Discount, Cr. Bonds Payable (par value) First entry for first payment of interest: Dr. Interest Expense, Cr. Cash, Cr. Discount on bonds payable --Cash: coin, currency, available funds on deposit at bank, money order, certified checks, cashier’s checks, personal checks, bank drafts, and saving accounts. Inclunding Cash equivalents: T-bill, commercial paper, money mkt funds. Restricted: plant expansion, retirement of long term debt, compensating balances. Cash equivalents are short-term, highly liquid investments that are both (a) readily convertible to known amounts of cash, and (b) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates --Reconciliation: bank: add: deposit transit, deduct: outstanding checks, Book: add: collections not recorded, deduct: book charges not recorded (example!!!!!) --Net realizable value: A/R-AFDA ---Dr. Bad debt exp Cr. AFDA --Write off: Dr. AFDA Cr. A/R Recovery: Dr.A/R Cr.AFDA, Dr. Cash CrA/R --A/R Turnover: evaluate liquidity of A/R, measure the number of time on avg a company collect A/R, Net sales/avg trade receivables --direct write off: no matching, receivable not stated at cash realizable value, not GAAP --allowance method: % of sales, % of receivables, GAAP requires % of sales: better matching of exp and rev, any balance in AFDA is ignored % of receivables: not matching...
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...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. Simply put, U.S. GAAP allows companies to evaluate their inventory using the LIFO method, as long as they use the method for both tax purposes and accounting/reporting purposes, whereas IFRS does condone LIFO at all. In a time of rising prices in most industries, companies that assume LIFO in the United States have a higher cost of goods sold, depressing...
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...IAS 2 International Accounting Standard 2 Inventories This version includes amendments resulting from IFRSs issued up to 17 January 2008. IAS 2 Inventories was issued by the International Accounting Standards Committee in December 1993. It replaced IAS 2 Valuation and Presentation of Inventories in the Context of the Historical Cost System (originally issued in October 1975). The Standing Interpretations Committee developed SIC-1 Consistency—Different Cost Formulas for Inventories, which was issued in December 1997. Limited amendments to IAS 2 were made in 1999 and 2000. In April 2001 the International Accounting Standards Board (IASB) resolved that all Standards and Interpretations issued under previous Constitutions continued to be applicable unless and until they were amended or withdrawn. In December 2003 the IASB issued a revised IAS 2, which also replaced SIC-1. IAS 2 was amended by IFRS 8 Operating Segments (issued November 2006). The following Interpretation refers to IAS 2: • SIC-32 Intangible Assets—Web Site Costs (issued March 2002 and subsequently amended). © IASCF 961 IAS 2 CONTENTS paragraphs INTRODUCTION IN1–IN17 INTERNATIONAL ACCOUNTING STANDARD 2 INVENTORIES OBJECTIVE SCOPE DEFINITIONS MEASUREMENT OF INVENTORIES Cost of inventories Costs of purchase Costs of conversion Other costs Cost of inventories of a service provider Cost of agricultural produce harvested from biological assets Techniques for the measurement of cost Cost formulas...
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...| IFRS | U.S. GAAP | Marketable Investment Security (STI)(The int. inc, realized G/L when sold, and div inc are reported in the I/S) | Same as GAAPExcept for the trading sec, it is called Held-for-trading sec.Quantitative (amount)/qualitative (managing) Disclosure: credit risk, liquidity risk, and market risk. | Held-to-maturity sec (debt sec with intent to be owned)B/S: Amortized cost (FV- unamort. Discount/+ua. premium)I/S: No effect (except sold or disposed)Trading sec (debt/eq sec.—derivatives/shares) (more transparent)B/S: Fair ValueI/S: Unrealized gain/loss (before sold, changes in FMV)Available-for-sale sec (d/eq neither holding nor selling) (more likely to be misinterpreted)B/S: Fair ValueI/S: No effect (ur. G/L goes to other comprehensive inc) | Inventory | FIFO/Weighted ave costB/S: lower of the cost or NRVWrite-down to the value is allowed | FIFO/LIFO/WACB/S: lower of the cost or MVWrite-down is forbidden If LIFO is used, LIFO reserve (COGSLIFO-COGSFIFO) should be disclosed in the footnotes. | PP&E | B/S: org cost-A.dep; if it was written-up, use FMV-A.depIf the future up will be within the extent of the past down, it was NI; otherwise, the part exceeds the org cost will be Eq, and vice versa. | B/S: org cost-A.dep; written-up is forbidden | Intercorporate Investment | All the same as GAAPExcept for the Significant influence (joint venture)Proportionate Consolidation Method is preferred. Pro-rata share of the investee’s NI, Assets, and liabi are reported...
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...investment impairments is different from IFRS to GAAP. US GAAP does not permit the reversal of an impairment charge related to available-for-sale debt and equity investments, whereas IFRS allows reversals due to a subsequent recovery. Nokia reverses any increase in the fair value of investment in a subsequent period, and includes this reversal in the income statement. Another difference between the two reporting standards is in accounting for inventories. Under IFRS you cannot account for inventories using LIFO, whereas under GAAP you are permitted to use LIFO. Under GAAP inventories are valued at their Lower of Cost or Market, where Market is the replacement cost, limited to a “ceiling” and “floor”, and under IFRS inventories are stated at the Lower of Cost or Net Realizable Value, it does not use a ceiling or floor to determine Market. Under GAAP when inventory is written down using lower of cost or market, the new basis is considered its cost, therefore, inventory may not be written back up to its original cost in a subsequent period. Under IFRS, the write down may be reversed in a subsequent period up to the amount of the previous write down. Under IFRS a one-step approach is used to review for asset impairment. A fair value test is used to measure the impairment loss; it does not use the first-stage recoverability test used under GAAP – by comparing the asset’s carrying value to its undiscounted expected future cash flows. And IFRS permits asset revaluation, whereas under GAAP...
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...|FRAMEWORK | | |U.S. GAAP |IFRS |Similarities | |Purpose of Framework |The FASB framework resides lower in hierarchy. |Management is explicitly required to |Both the frameworks are similar in | | |Management is not required to prioritize it if no|prioritize the IASB framework if there is |their purpose to assist in developing| | |standard is available. |no standard or interpretation available. |and assisting standards. | |Objectives of |It provides different objectives for business |It gives one objective for different |Both frameworks have a broad focus to| |financial statement |entities versus non business entities. |business entities. |provide relevant information to a | | | | |wide range of users. | |Underlying assumptions|Although it recognizes, but not given much |Give importance to accrual and going | | | |prominence is given to accrual and going concern |concern basis...
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...FINANCIAL REPORTING ANALYSIS CHAP - 22 Standard-setting bodies are professional organization of accountants & auditors that establish financial reporting standards. Regulatory authorities are govt. agencies that have legal authority to enforce compliance with financial reporting standards. Difference Between GAAP & IFRS GAAP (FASB) | IFRS (IASB) | Under U.S GAAP firms can choose to report comprehensive income in the statement of shareholder’s equity. | Under IFRS the income statement can be combined with “other comprehensive income” & presented as a single statement of comprehensive income. Alternatively presented separately. | CHAP – 24 GAAP (FASB) | IFRS (IASB) | FASB framework includes revenue, expenses, gains, losses and comprehensive income. | IASB framework lists income and expenses as elements related to performance. | FASB defines an asset as a future economic benefit. It also uses word probable in its definition of assets and liabilities. | IASB defines it as a resource from economic benefit is expected to flow. | FASB does not allow the upward valuation of most assets. | ------------- | U.S GAAP has traditionally been more rules-based, but the common conceptual framework is moving towards an objective-oriented approach. | IFRS is largely a principles-based approach. | Companies must disclose their accounting policies and estimates in the footnotes and Management’s Discussion Analysis. | Companies must disclose their accounting...
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...| Ruckman, Inc.: Converting from U.S. GAAP to IFRS | ACTG 4240 – Assignment #4 | | Fannie Fang, Yingqi Gu, Ya Wang | 1/24/2013 | | Ruckman Part I Solutions Page 1. For each of the 16 items listed below, briefly describe the difference in GAAP treatment and IFRS treatment. Just start with this form and type in your responses in the appropriate cells. You don’t need to give too much detail, just enough so your client can tell the difference. 2. In the “Needed to Convert?” column, very briefly describe the information you would need in order to convert the U.S. GAAP statements to comply with IFRS. If you were going to make a journal entry, what measurement or other information would you need? Please follow the bullet format I used below, if feasible. For an example – see “Inventory Flow assumption” below, which I completed for you. | Item | GAAP | IFRS | Needed to Convert to IFRS? | | Income Statement Items | 1 | Revenue | * Contingent amounts generally not being recorded as revenue until it’s resolved. * The residual method is precluded * The amount allocable to a delivered item is limited to the amount that is not contingent on the delivery of additional items. * Utilizing a multiple element account model or an incremental cost model to account for customer loyalty program. * When there is a loss on the first element but a profit on the second element, the company may defer the remaining costs until delivery of the second element...
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...FINANCE –EXAM 3 1. The Hasting Company began operations on January 1, 2003 and uses the FIFO method in costing its raw material inventory. An analyst is wondering what net income would have been if the company had consistently followed LIFO (instead of FIFO) from the beginning, 1/1/2003. He has the following information available to him: What would net income have been in 2004 if Hastings had used LIFO since 1/1/2003? Top of Form $ 110,000 $ 150,000 $ 170,000 $ 230,000 2. A customer is currently suing a company. A reasonable estimate can be made of the costs that would result from a ruling unfavorable to the company, and the amount involved is material. The company's managers, lawyers, and auditors agree that there is only a remote likelihood of an unfavorable ruling. This contingency: Top of Form Should be disclosed in a footnote. Should be disclosed as a parenthetical comment in the balance sheet. Need not to be disclosed. Should be disclosed by an appropriation of retained earnings. 3. The ABC Company operates a catering service specializing in business luncheons for large corporations. ABC requires customers to place their orders 2 weeks in advance of the scheduled events. ABC bills its customers on the tenth day of the month following the date of service and requires that payment be made within 30 days of the billing date. Collections from customers have never been an issue in the past. ABC should recognize revenue from its catering services at...
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...liabilities on balance sheet Under US GAAP, for deferred tax asset, current or non-current classification is required. In the perspective of IFRS reporting rules, all deferred tax asset amounts should be classified as non-current in balance sheet. Referring to the footnote on Income Taxes (page 80 of 10k), Colgate included 284 of deferred tax asset in other current asset in compliance with US GAAP, while under IFRS, the 284 current deferred tax asset should be reclassified as non- current asset. 2. Costing method for inventory Referring to Colgate’s footnote on summary on significant accounting policies, the company accounts for inventories using both the first-in, first-out (FIFO) method (80% of inventories) and the last-in, first-out (LIFO) method (20% of inventories) (page 55 of 10k). There’s a significant difference for inventory costing method...
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...Chapter 3 ANSWERS TO QUESTIONS Q31 A primary objective of financial reporting is to provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions. An accounting system is the means by which a company records and stores the financial and managerial information from its transactions so that it can retrieve and report the information in an accounting statement. A doubleentry system standardizes the method that a company uses to record changes in its accounts resulting from various transactions or events. For each transaction or event that a company records, the dollar amount of the debits entered in all the related accounts must be equal to the total dollar amount of the credits. These debit or credit entries affect two or more accounts in the assets, liabilities, and stockholders' equity (including the temporary accounts). All normal accounts on the left side of the accounting equation (assets) are increased by debits and decreased by credits whereas accounts on the right side of the equation (liabilities and stockholders' equity) are increased by credits and decreased by debits. A permanent account is an account whose balance at the end of the accounting period is carried forward into the next accounting period. Examples: Cash, Accounts Payable, Capital Stock. A temporary account is an account that is used temporarily to determine the change in retained earnings that occurred during...
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