Question

All of the following are differences between IFRS and GAAP in accounting for liabilities except:

a) When a bond is issued at a discount, GAAP records the discount in a separate contra liability account. IFRS records the bond net of the discount.

b) Under IFRS, bond issuance costs reduce the carrying value of the debt. Under GAAP, these costs are recorded as an asset and amortized to expense over the terms of the bond.

c) GAAP, but not IFRS, uses the term “troubled-debt restructurings.”

d) GAAP, but not IFRS, uses the term “provisions” for contingent liabilities which are accrued.

Short answer

Option (d) is the correct option.Option (d) doesn’t state the difference between IFRS and GAAP in accounting for liabilities.

Step-by-step solution

Meaning of IFRS

IFRS, also known as International Financial Reporting Standards,isa collection of accounting standards that statehow specific events ortransactions should be listed in financial statements. They areadvanced and maintained by the International Accounting Standards Board (IASB).

Explanation of correct option

Generally Accepted Accounting Principles (GAAP) use the term “contingencies”; whereas, International Financial Reporting Standards (IFRS)use the term “provisions.”However, in both cases, gained contingencies are not listed till they are recognized.

Explanation for incorrect options

Option (a): A contra liability account offsets the amount of liability acquired by a firm on its balance sheet. It may be produced due to the issuance of bonds or other debt securities. IFRSrequirebond issue costs to be netted against the bond’s book value.

Option (b): Bond issuance costs are the remittances relative to the issuance of bonds by an issue to itsinvestors. These costs are first capitalized and then charged to expense over the duration of the bonds. When a bond is issued at a discount, the book value is less than the par value of the bond.

Option (c): A troubled-debt restructuring is regarded to have taken place when concessions are granted by the lender that would have not generally regarded the cause of the economic crisis of the debtor. The recording of troubled-debt restructuring involves various payment instruments, comprising notes payable, bonds, and accounts payable.