Lifo Assumes That Inventory Costs Flow In The Order Incurred The Major Differences Between GAAP and IFRS

You are searching about Lifo Assumes That Inventory Costs Flow In The Order Incurred, today we will share with you article about Lifo Assumes That Inventory Costs Flow In The Order Incurred was compiled and edited by our team from many sources on the internet. Hope this article on the topic Lifo Assumes That Inventory Costs Flow In The Order Incurred is useful to you.

The Major Differences Between GAAP and IFRS

GAAP, or Generally Accepted Accounting Principles, are the accounting rules used to present the financial statements of public or private companies, nonprofit organizations, and government entities in the United States. IFRS or International Financial Reporting Standards are designed so that companies around the world can compare their financial statements. Both bodies have similarities and differences with each other. The United States is the only place that uses GAAP, which can make it difficult to compare numbers with an international company. However, many large companies in the United States also use IFRS to compete internationally. There are five main differences between GAAP and IFRS. These are revenue recognition, financial assets, asset impairment, intangible assets and inventories.

When it comes to revenue recognition, GAAP uses concepts while IFRS uses standards, making the two difficult to compare. With GAAP, revenues may need to be amortized over a period of time, but under IFRS, revenues can be recognized immediately. Windfalls are also treated differently between the two bodies. Under GAAP, revenue cannot be recognized until the amount is settled. For IFRS, potential revenue can be recognized when the amount can be accurately estimated and it is probable that the revenue will benefit the business.

GAAP discusses the treatment of financial assets multiple times in different sections. However, IFRS has only two standards dealing with financial assets, one for disclosures and one for other matters. One of the main parts of dealing with financial assets is their classification. GAAP uses legal form in the classification, while IFRS organizes them based on their nature. Another big part of dealing with financial assets is when to remove them from financial statements. GAAP removes an asset when control over it is relinquished. IFRS examines whether there has been a transfer of assets with awards granted.

GAAP uses a two-step process when testing for impairment. The first step is to decide whether the book value of the asset is greater than the undiscounted future cash flows. If so, move on to the next step, which is calculating the reduction. The reduction is equal to the amount whose book value exceeds the recoverable amount. For IFRS, impairment is decided if the book value is greater than the discounted cash flows or the adjusted fair value less any costs of disposal.

Both GAAP and IFRS consider intangible assets to be non-monetary assets that do not have any physical substance. There are three main differences between these two bodies when it comes to dealing with intangible assets. The first includes development costs. Under GAAP, development costs are recognized as an expense when incurred. Under IFRS, development costs are capitalized. When GAAP deals with advertising costs, they are either expensed when incurred or expensed when the advertising is first placed. When IFRS treats advertising costs for intangible assets, all costs are recognized as an expense when incurred. Using GAAP, revaluation is not allowed for intangible assets, but under IFRS, revaluation to fair value of intangible assets is allowed.

Another problem that the two bodies solve differently is inventory. When GAAP is used, the LIFO costing method is acceptable, but under IFRS, LIFO is not acceptable. This creates a challenge if GAAP converges with IFRS as taxpayers are required to use the same accounting method for financial reporting and taxation. Companies currently using LIFO could be in breach of the compliance requirement if they are forced to change their costing method due to the change in IFRS. GAAP recognizes inventory at the lower of cost or market value, while IFRS recognizes inventory at the lower of cost or net realizable value. GAAP also states that lower of cost or market adjustments cannot be reversed, while IFRS says that under certain conditions, lower of cost or market adjustments must be reversed.

Although there are numerous differences between GAAP and IFRS, the two bodies have the same general purpose of trying to ensure that all of a company’s financial records are accurate. There has been much debate about whether the United States should move to International Financial Reporting Standards, which would make it easier to compare our financial data with foreign companies. We don’t know if that day will come.

Video about Lifo Assumes That Inventory Costs Flow In The Order Incurred

You can see more content about Lifo Assumes That Inventory Costs Flow In The Order Incurred on our youtube channel: Click Here

Question about Lifo Assumes That Inventory Costs Flow In The Order Incurred

If you have any questions about Lifo Assumes That Inventory Costs Flow In The Order Incurred, please let us know, all your questions or suggestions will help us improve in the following articles!

The article Lifo Assumes That Inventory Costs Flow In The Order Incurred was compiled by me and my team from many sources. If you find the article Lifo Assumes That Inventory Costs Flow In The Order Incurred helpful to you, please support the team Like or Share!

Rate Articles Lifo Assumes That Inventory Costs Flow In The Order Incurred

Rate: 4-5 stars
Ratings: 3899
Views: 30841078

Search keywords Lifo Assumes That Inventory Costs Flow In The Order Incurred

Lifo Assumes That Inventory Costs Flow In The Order Incurred
way Lifo Assumes That Inventory Costs Flow In The Order Incurred
tutorial Lifo Assumes That Inventory Costs Flow In The Order Incurred
Lifo Assumes That Inventory Costs Flow In The Order Incurred free
#Major #Differences #GAAP #IFRS

Source: https://ezinearticles.com/?The-Major-Differences-Between-GAAP-and-IFRS&id=7394747

Related Posts