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

More documents

Recommendations

Info

Comparison between U.S. GAAP and International Financial Reporting Standards 54 IFRS the production process or in the rendering of services IAS 2 applies to all inventories except (IAS 2.2) • Work in progress arising under construction contracts, including directly related service contracts (see IAS 11) • Financial instruments (see IAS 32, IAS 39, and IFRS 9) • Biological assets related to agricultural activity and agricultural produce at point of harvest (see IAS 41) U.S. GAAP • In process of production for such sale • To be currently consumed in the production of goods or services to be available for sale Measurement of inventories Inventories shall be measured at the lower of cost and net realisable value (IAS 2.9). Net realisable value is the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale (IAS 2.6). Unlike IFRS, inventories are measured at the lower of cost or market (but with a ceiling of net realizable value and a floor of net realizable value less normal profit margin) (ASC Master Glossary, “Market”). IAS 2 does not apply to the measurement of inventories held by (IAS 2.3): • Producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products, to the extent that they are measured at net realisable value in accordance with well-established practices in those industries • Commodity broker-dealers who measure their inventories at fair value less costs to sell Cost of inventories The cost of inventories shall comprise all costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition (IAS 2.10). Abnormal amounts of wasted materials, labour, or other production costs are excluded from the cost of inventories and recognised as expenses in the period which they are incurred. (IAS 2.16). The allocation of fixed production overheads to the costs of conversion is based on the normal capacity of the production facilities (IAS 2.13). Similar to IFRS, costs include all costs incurred in the normal course of business in bringing the product or service to its present location and condition (ASC 330-10-30-1). Similar to IFRS, ASC 330 states that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current period charges. In addition, the allocation of fixed production overheads to the costs of conversion should be based on the normal capacity of the production facilities (ASC 330-10-30-3 and 30-7). © 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 55 IFRS Borrowing costs IAS 23 identifies limited circumstances where borrowing costs are included in the cost of inventories (IAS 2.17). Depending on the circumstances, inventories may be qualifying assets if it takes a substantial period of time to get them ready for their intended use or sale (IAS 23.5 and .7). An entity may purchase inventories on deferred settlement terms. When the arrangement effectively contains a financing element, that element, for example a difference between the purchase price for normal credit terms and the amount paid, is recognised as interest expense over the period of the financing (IAS 2.18). U.S. GAAP Interest costs Interest costs are not capitalized for inventories that are routinely manufactured or otherwise produced in large quantities on a repetitive basis (ASC 835-20-15-6). Cost formulas The cost of inventories shall be assigned by using the first-in, first-out (FIFO) or weighted average cost formula. Specific identification may be used in certain situations. The last-in, first-out (LIFO) method is not permitted (IAS 2.23-.27 and BC9-BC21). An entity shall use the same cost formula for all inventories having a similar nature and use to the entity. For inventories with a different nature or use, different cost formulas may be justified (IAS 2.25). The cost-flow assumption must be the one which, under the circumstances, most clearly reflects periodic income. FIFO, LIFO, and weighted average are permitted. Unlike IFRS, LIFO is a permitted costing method. (ASC 330-10-30-9). The U.S. income tax rules require that LIFO must be used for book purposes if it is used for tax purposes. Unlike IFRS, the same cost formula need not be applied to all inventories having a similar nature and use ASC 330-10-30-13 through 30-14. Net realisable value Inventories are usually written down to net realisable value item by item. In some circumstances, however, it may be appropriate to group similar or related items (IAS 2.29). A new assessment is made of net realisable value in each subsequent period. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realisable value because of changed economic circumstances, the amount of the write-down is reversed (i.e. the reversal is limited to the amount of the original write-down) so that the new carrying amount is the lower of the cost and the revised net realisable value (IAS 2.33). Unlike IFRS, a reversal of a write-down for an increase in market value is not permitted ASC 330-10-35-14. Recognition as an expense When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the period in which the related revenue is recognised (IAS 2.34). Similar to IFRS. © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
Page 1 and 2:
Comparison between U.S. GAAP and In
Page 3 and 4: Comparison between U.S. GAAP and In
Page 53: Comparison between U.S. GAAP and In
Page 105 and 106:
Page 107 and 108:
Page 109 and 110:
Page 111 and 112:
Page 113 and 114:
Page 115 and 116:
Page 117 and 118:
Page 119 and 120:
Page 121 and 122:
Page 123 and 124:
Page 125 and 126:
Page 127 and 128:
Page 129 and 130:
Page 131 and 132:
Page 133 and 134:
Page 135 and 136:
Page 137 and 138:
Page 139 and 140:
Page 141 and 142:
Page 143 and 144:
Page 145 and 146:
Page 147 and 148:
Page 149 and 150:
Page 151 and 152:
Page 153 and 154:
Page 155 and 156:
Page 157 and 158:
Page 159 and 160:
Page 161 and 162:
Page 163 and 164:
Page 165 and 166:
Page 167 and 168:
Page 169 and 170:
show all

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

Create successful ePaper yourself

Delete template?

Save as template?