Financial Accounting A
Accounting for Property, Plant & Equipment using IFRS and US GAAP
Dr. Mufeed Rawashdeh
Project done by:
Punit Hiro Lalwani
Hitesh Kumar Bilochi 3949345
Date: 29th November, 2011
Table of Contents
Property, Plant & Equipment
Interest incurred during construction of asset
| 6 - 7
Direct & indirect costs incurred in self-constructed assets
| 8 - 9
| Valuation/Reporting of Property, Plant & Equipment’s in the Balance Sheet
| 10 - 11
| Example of Annual Reports for US GAAP and IFRS
| 12 - 13
Implication of Differences – 1) Interest Incurred 2) Componentization 3) Subsequent of Valuation
| 14 - 15
| Conclusion and Recommendation
| 17 - 18
This Financial Accounting report contains information on a few key areas in accounting for Property, Plant & Equipment, using two slightly different standards which are the US Generally Accepted Accounting Principles (US GAAP) and International Financial Reporting Standards.
The objective of this report is to state how these two standards are slightly different in terms of accounting for items of PP&E such as Interest/Borrowing Costs during the asset is being prepared for intended use, How direct and indirect costs are allocated or measured for assets constructed by the company itself, and how their fixed assets are valued at balance sheet, after initial recognition of cost.
Both the standards, are pretty similar, yet have some key points which conflict with each other. These points carry a degree of importance in terms of accounting. Each point is beneficial as well as It has its drawbacks, depending upon the scenario put in place. Moreover, the above mentioned content is even widely exhibited by including Annual reports of two companies – one IFRS, and the other US GAAP reports, to show a practical example of dealing with Property, Plant and Equipment items in the balance sheet.
IFRS is a set of guidelines and rules formed by the International Accounting Standards Board (IASB) that companies and organizations can follow when compiling financial statements. The creation of international standards allows investors, organizations and governments to compare the IFRS-supported financial statements with greater ease. International Standards help investors to deal with comparing financial statements with more convenience. The International Financial Reporting Standards were previously called the International Accounting Standards (IAS).
Generally Accepted Accounting Principles (GAAP) is the accounting standard used by the Organizations in the United States which is the common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information. GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analysing companies for investment purposes
Property, Plant & Equipment (PP&E)
Property, plant and equipment are tangible assets that:
1. are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and 2. are expected to be used during more than one period.
Property, plant and equipment does not include:
1. biological assets related to agricultural activity, or 2. mineral rights and mineral reserves, such as oil, natural gas and similar non-regenerative resources
The entity shall recognise the cost of an item...
References: AICPA. (2011), ‘IFRS for SME’s – US GAAP comparison – wiki’, [online], Available: http://wiki.ifrs.com/Property-Plant-and-Equipment, [Accessed 24 November 2011]
Business Dictionary.(2011), ‘International Financial Reporting Standards (IFRS)’, [online], Available: http://www.businessdictionary.com/definition/International-Financial-Reporting-Standards-IFRS.html, [Accessed 24 November 2011]
FASB. (2011), ‘Accounting Standards Codification’, [online], Available: http://asc.fasb.org/subtopic&trid=2127351&analyticsAssetName=section_page_subtopic&nav_type=section_page, [Accessed 24 November 2011]
Google Inc Annual Report, (2010), Available: http://wwww.investor.google.com/pdf/20101231_google_10K.pdf
[Accessed 24th November 2011]
Puma Annual Report, (2010), Available: http://ir2.flife.de/data/puma/igb_html/index.php?bericht_id=1000004&index=&lang=ENG [Accessed 24th November 2011]
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