Noncurrent Assets & Liabilities (18.4) Flashcards
Describe PP&E
Property, plant, and equipment (PP&E) are tangible assets used in the production of goods and services. P&E includes land and buildings, machinery and equipment, furniture, and natural resources.
What are the two ways cost of PP&E can be reported
Under IFRS, PP&E can be reported using the cost model or the revaluation model.
Under U.S. GAAP, only the cost model is allowed.
Describe the cost model (can be used by IFRS or GAAP)
Under the cost model, PP&E other than land is reported at amortized cost. Land is not depreciated.
PP&E must be tested for impairment.If impaired, the asset is written down to its recoverable amount and a loss is recognized in the income statement. Loss recoveries are allowed under IFRS but not under U.S. GAAP.
How is amortized cost calculated
historical cost - accumulated depreciation - amortization - depletion - impairment losses
How is historical cost calculated
Historical cost includes the purchase price plus any cost necessary to get the asset ready for use, such as delivery and installation costs
Define impairment of an asset
An asset is impaired if its carrying value (balance sheet value) exceeds the recoverable amount.
Under IFRS, the recoverable amount of an asset is the greater of fair value less any selling costs, or the asset’s value in use (Value in use is the present value of the asset’s future cash flow stream.)
Describe investment property & how cost is reported under IFRS and GAAP
Under IFRS, investment property includes assets that generate rental income or capital appreciation. U.S. GAAP does not have a specific definition of investment property.
Under IFRS, investment property can either be reported at amortized cost (just like PP&E) or fair value. Under the fair value model, any change in fair value is recognized in the income statement.
Describe deferred taxes
deferred taxes are the result of temporary differences between financial reporting income and tax reporting income.
Deferred tax assets are created when the amount of taxes payable exceeds the amount of income tax expense recognized in the income statement.
Deferred tax assets can also be created by unused tax losses from prior periods, which have value because they can be used to reduce taxes in subsequent periods.
