IFRS Flashcards
Are there any “Extraordinary Items” in IFRS?
No. The use of the term “Extraordinary” to identify gains and losses is only found in GAAP, not in IFRS
How are L-T Liabilities Stated in GAAP vs IFRS?
Under GAAP, if refinancing occurs prior to the issuance of the financial statements, the Liability is Non-Current if payment will NOT be made within the current year. Under IFRS, refinancing must occur Prior to the balance sheet date OR the liability is reported as a Current Liability. The refinancing occurred after the balance sheet date but before the issuance date so the rule is only met for US GAAP and not IFRS. So as a result the L/T Liability is stated as:
Non-Current Liability for GAAP and Current Liability for IFRS
What cost flow assumptions are available to companies that prepare financial statements (FS’s) under IFRS?
Only FIFO and Averaging are allowed.
Also, LIFO is allowed under US GAAP and is often chosen because (in inflationary times) it reports a lower amount of taxable income. LIFO is not allowed under IFRS because it is not viewed as a realistic assumption and because of several weaknesses that characterize its application.
How is $4,000 as Interest Expense on a Non-Current Debt reported on a STMT of C/F’s?
Under US GAAP, the $4,000 outflow is reported as an Operating Activity whereas under IFRS, it can be reported as Operating Activity but can also be reported as a Financing Activity as well.
Also, Interest Expense and Revenue and Dividend Revenue are all viewed as Operating Activities under GAAP. Dividends Paid are classified as a financing activity. However, under IFRS, Interest Expense and Dividends Paid can be reported as either Operating Activities or as Financing Activities. Interest revenue and dividend revenue can be reported as either Operating Activities or as Investing Activities.
For Long Term Contract Big Projects, which methods are preferably used under GAAP vs .IFRS?
Under GAAP, all profits on a long-term contracts are recognized when the job is completed (Completed Contract Method) if the percentage of completion method cannot be applied for any reason.
Under IFRS, all profits on a long-term contract are recognized once all costs have been recovered (Cost Recovery Method) if the percentage of completion method cannot be applied
Describe Capital Leases under GAAP vs. IFRS
None of the 4 criteria that GAAP has established for a Capital Lease(TT; BPO; 75 or 90) have been met in this situation since there is no title transfer, bargain purchase option, the life of the lease is less than 75 percent of the life of the asset, and the PV of the future cash flows seems to be less 90 percent of the asset’s fair value.
However, under IFRS, the life of the lease only has to be a “major portion” of the expected life of the asset. The lease is six years and the asset has a life of ten years. The lease makes up 60 percent of the life of the asset and that could qualify as a major portion.
What kind of Interest Rates are associated with Capital Leases under IFRS for both Co.’s involved(Lessor and Lessee)?
Under GAAP, the 2 parties often use different interest rates for a Capital Lease. Under IFRS, they generally use the same rate – the “Implicit Interest Rate” built into the contract.
Contingent Loss Recognition Rules Under IFRS vs GAAP:
Under IFRS, a contingent loss must be recognized if it is more likely than not. This loss meets that criterion (51% Chance). Under US GAAP, a Contingent Loss must be recognized if it is probable. This loss does not meet that criterion. Probable is defined as “likely” which is a higher threshold than 51 percent.
How do you record Convertible Bonds under IFRS vs GAAP?
According to IFRS, any amount extra that is received for a bond because of its “Convertibility” is recorded as Equity rather than as a Liability. Thus, $96,000 is shown as a Liability (Bonds Payable) and $10,000 as Equity. According to GAAP, the entire amount received is reported as a Liability until such time as to when the bond is actually converted.
What is the R&D treatment under both GAAP and IFRS?
Research expenditures are recognized immediately as expenses under both GAAP and IFRS. For US GAAP, development costs are also expensed as incurred. However, under IFRS, development costs are capitalized if certain requirements are met including a belief that future economic benefits are probable and that the product being developed is technically and commercially feasible.
