Comparison between U.S. GAAP and International ... - Grant Thornton

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Comparison between U.S. GAAP and International Financial Reporting Standards 38 4. Assets 4.1 Property, plant and equipment IFRS U.S. GAAP Relevant guidance: IAS 16, 23, and 36 Relevant guidance: ASC 360, 410, 835, 845, and 908; SFAC 5; SEC SAB Topic 5:CC Introduction The objective of IAS 16 is to prescribe the accounting treatment for property, plant and equipment so that users of the financial statements can discern information about an entity’s investment in its property, plant and equipment and the changes in such investment. The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be recognised in relation to them (IAS 16.1). Property, plant and equipment are tangible items that are (IAS 16.6): • Held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and are • Expected to be used during more than one period Similar to IFRS. Similar to IFRS. Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction (IAS 16.6). Unlike IFRS, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (ASC Master Glossary, “Fair Value”). Initial recognition The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if (IAS 16.7): • It is probable that future economic benefits associated with the item will flow to the entity; and • The cost of the item can be measured reliably IAS 16.16-.22 contain detailed rules on the elements of costs. IAS 23 establishes criteria for the recognition of interest as a component of the carrying amount of a selfconstructed item of property, plant and equipment (IAS 16.22). The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If Similar to IFRS. Cost is the amount of cash, or its equivalent, paid to acquire an asset, commonly adjusted after acquisition © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
Comparison between U.S. GAAP and International Financial Reporting Standards 39 IFRS payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognised as interest over the period of credit unless such interest is capitalized in accordance with IAS 23 (IAS 16.23). IAS 16.16(c) requires the initial recognition to include an estimate of the costs of dismantling and removing the item and site restoration. This applies when the entity has an obligation as a consequence of using the item for a purpose other than production of inventory. U.S. GAAP for amortization or other allocations (SFAC 5.67a). Upon recognition of a liability for an asset retirement obligation under ASC 410-20, an entity increases the carrying amount of the related long-lived asset by the same amount as the liability. Asset exchanges IAS 16.24-.26 deal with assets acquired in an exchange for non-monetary asset(s), or a combination of monetary and non-monetary assets (and whether the new asset is recognised at its fair value or the carrying amount of the asset given up – the emphasis is on substance over form). Exchanges of nonmonetary assets are generally recorded at fair value. However, if the exchange lacks commercial substance, fair value is not determinable, or it’s an exchange transaction to facilitate sales to customers, the exchange is recorded using a carryover basis (ASC 845-10-30-1 through 30-3). Subsequent costs IAS 16.13 requires that subsequent expenditure on components is added to cost (and the replaced element derecognised). Day-to-day servicing costs are expensed (IAS 16.12). Costs of major periodic inspections should be capitalised (IAS 16.14) and the previous inspection cost is derecognised. Cost of routine maintenance is expensed as incurred. Major inspections and overhauls may be expensed as incurred (direct expensing method) or capitalized and amortized to the next major inspection or overhaul (built-in overhaul and deferral methods) (ASC 908-720-25-3; ASC 908-360-35-4 through 35-6). Revaluations Revaluations are permitted (as an alternative to the cost model), but not required, but if revalued must be done on a class-by-class basis (IAS 16.29): • Revalue to fair value (usually market value) if fair value can be measured reliably (IAS 16.31) • Revaluations shall be sufficiently regular that the carrying amount does not differ materially from fair value at the end of the reporting period (IAS 16.31 and .34) • IAS 16.32 clarifies that property revaluation is usually determined from market-based evidence by appraisal that is normally undertaken by professionally qualified valuers If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued (IAS 16.36). If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the increase Unlike IFRS, revaluation is not permitted except for impairment (see Section 4.4, “Impairment”). Restoration of a previous impairment loss is prohibited. Property, plant and equipment should not be written up by an entity to reflect appraisal, market or current values which are above cost to the entity, except in special cases such as quasi-reorganizations (ASC 852-740-45-3 and 45-19 through 45-21). Unlike IFRS, revaluation is not permitted except for impairment (see Section 4.4, “Impairment”). Restoration of a previous impairment loss is prohibited. © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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Comparison between U.S. GAAP and International ... - Grant Thornton

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