Question

Answer each of the following related to international accounting standards.

a. Accounting for plant assets involves cost determination, depreciation, additional expenditures, and disposals. Is plant asset accounting broadly similar or dissimilar between IFRS and U.S. GAAP? Identify one notable difference between IFRS and U.S. GAAP in accounting for plant assets.

b. Describe how IFRS and U.S. GAAP treat increases in the value of plant assets subsequent to their acquisition (but before their disposition).

Short answer

1. U.S GAAP allows the recording of non-monetary exchange while it is not allowed under IFRS.
2. IFRS allows reporting an increase in the value of plant assets, while it is not allowed under U.S GAAP.

Step-by-step solution

Definition of Accounting Standards

Theprinciples and the proceduresthatguidethe financial reporting of the business entity are known as accounting standards. Such standards ensure that theaccounting information iscorrectandrelevant.

Difference between the plant asset accounting under IFRS and U.S GAAP

The main difference between the IFRS and U.S GAAP in accounting for plant assets is that U.S GAAP allows reporting the non-monetary exchange of plant assets. At the same time, it is not allowed under IFRS.

Treatment of increase in the value of plant assets after their acquisition under IFRS and GAAP

Under IFRS: Under IFRS, the business entity uses a revaluation model when the fair value of the asset increases. The business entity will credit the increase in the value of an asset after acquisition to other comprehensive income. It will be reflected in the balance sheet as a revaluation surplus in the Equity section.

Under GAAP: The business entity reporting financial information under GAAP does not account for any increase in the value of the plant assets. Instead, it is allowed to record only impairment charges when the value of a plant asset declines.