Question

Answer each of the following questions related to international accounting standards.

a. Explain how the accounting for merchandise purchases and sales is different between accounting under IFRS versus U.S. GAAP.

b. Income statements prepared under IFRS usually report an item titled finance costs. What do finance costs refer to?

c. U.S. GAAP prohibits alternative measures of income reported on the income statement. Does IFRS permit such alternative measures on the income statement?

Short answer

Answer

1. IFRS and U.S. GAAP perform the same accounting method for reporting sales and merchandise purchases.
2. Finance cost under IFRS generally includesinterest expenses.
3. Yes, IFRS permits the alternative measures on the income statement.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Income Statement

A financial statement that reports or evaluates the financial performance of a business entity by reporting its revenue and expenses is known as an income statement.

Accounting for merchandise purchase and sales under IFRS and U.S. GAAP

IFRS and U.S. GAAP both perform the same accounting function to account for the sale and purchase of merchandise. Both provide similar directions and guidance to record purchase and sale of merchandise. Both of them uses similar debit, credit system, and accrual accounting. Even the closing entries are similar for both GAAP and IFRS.

Finance cost in the income statement

Finance cost reported in an income statement includes the cost incurred for borrowing money to build or acquire assets. It also includes interest and all other charges incurred to acquire a loan.

Alternative measure on the income statement under IFRS

Yes, IFRS permits a business entity to use alternative measures on an income statement. It allows a business entity to segregate the expenses based on function or nature, but under GAAP, expenses can only be segregated based on function.