IFRS Vs. GAAP

IFRS vs. GAAP
Teddrick Smith
ACC/ 291
Professor Marlo
October 27, 2014

IFRS vs. GAAP In the world of finance recording, reporting, and responsibility for both are a few of the most important standards to uphold. These ideas or standards are recognized throughout the business world as a necessity to doing business properly. There are two groups or associations that have set up an all-inclusive list of these standards. They are Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS). These two groups of standards are similar in many ways and also very different. These similarities and differences are going to be discussed as well as component depreciation, revaluation
Component depreciation is a depreciation method that accounts for the separate depreciation figures for any part of an individual asset that can depreciate. This means that separate or individual components are to have a separate depreciation value from the main or principle asset. An example of this would be a construction company buying a new fork lift. This fork life is considered and recorded as an asset. The fork lift has many components that can wear out or break well before the fork life is in non-working order. The tires, hose, wire harnesses, and the engine are all examples of components that have a depreciation value aside from the value of the principle asset itself. The difference is the estimated useful life of the individual parts is what calls for the separate depreciation values or component depreciation. Under the International Financial Reporting Standards it is required to use the component method of depreciation. This method is used a lot less frequently under the Generally Accepted Accounting Principles (GAAP). The Revaluation of Assets will be discussed
The difference between these two accounts is that an expense will be used during the day to day money raising activities that businesses do daily. Furthermore, a cost can be considered an expense as well except for the fact that it will not be reported as an expense if the value of the asset that was purchased will not depreciate. The purchase of land is a good example related to a cost. The cost or value of the land does not depreciate therefore it is recorded as a cost or in the cash account. It will be recorded as an asset because the value of the land can never be used up which is the case with expenses. An expense is usually money gone, not money invested. An expense almost never yields a return. An example of this would be a company purchasing a truck it intends on using for delivery purposes. Since the truck is going to be used for business, the value of the truck is recorded as an asset Truck on the balance sheet. Then, at some point the truck will be used to its maximum ability or is no longer functioning or irreparable. This is when the company scraps or salvages the truck and the truck is then recorded as a Depreciation Expense because the company will no longer get any use out of it. Contingent liabilities will be discussed in detail