Assets that will last for more than a year are all subject to deprecation Essay

Building, autos, equipment, machinery, computing machines are all topic to deprecation since they are assets that will last for more than a twelvemonth. Therefore, every accounting period deducts a fraction of the plus ‘s cost that is being used up. Companies are able to describe the part that is being used up as Deprecation Expense. A company is allowed to deprecate an plus following the same method in both IFRS and US GAAP. The methods that are used in both are straight-line, accelerated, units-of-production. All these methods are really consecutive forwards and no important alterations have been made. When deprecating the plus over its utile life no specific method is required. It is up to the company to make up one’s mind which method they want to enter the depreciation disbursal. IFRS and US GAAP have the same attack on the construct of utile life. The IAS 16, defines utile life as “ the period over which an plus is expected to be available for usage by an entity ” ( Depreciation and IFRS. ) .

It farther provinces it could besides be defined as “ the figure of production or similar units expected to be obtained from the plus by an entity ” ( International Accounting Standard 16 Property, Plant and Equipment ) . In respects to the utile life of an plus, it is depreciated in a systematic manner. This means the Numberss of utile old ages would be consistent unless a company decides the plus is traveling to go disused sooner or later than they though. In this instance, there would be a alteration prospectively in the accounting estimations which is clearly stated in both IAS 8 Accounting Policies, Changes in Accounting Estimates and Error Corrections and FAS 154 Accounting Changes and Error Corrections. This non merely affects the utile life ; a alteration in estimation can happen from residuary value and even the deprecation method.

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Now that we discussed the depreciation of the plus, the following subject is impairment. When a company becomes cognizant that the recovery of the carrying sum through a sale or usage of an plus would non be possible therefore the company would necessitate to enter the bead of the plus ‘s value on their books. Both US GAAP and IFRS by and large agree when this issue arises that the plus should be recorded at its just value. This entry to the company ‘s books is called damage. Periodic analyses of a company ‘s assets must be performed under both US GAAP and IFRS if at that place seems to be an indicant that damage may be.

The proper revelation of the damage is valuable to fiscal statement users. In kernel, an impairment loss must be recognized on the company ‘s fiscal statements if the plus ‘s carry value is greater than its recoverable sum. This scenario typically occurs when there is a bead in the plus ‘s market value, a spike in costs, or even inauspicious legal factors. The new transporting value would go the plus ‘s just value and depreciation would be recorded over the plus ‘s staying utile life. If there was an impartment loss a compensation for it can non countervail against the transporting sum under both accounting theoretical accounts. Although both US GAAP and IFRS have a similar construct of impairment their methodological analysiss that are used to find impairment differ.

The 3rd subject about is about the similarities between US GAAP and IFRS in mention to disposal. Disposal is defined as the difference between the merchandising monetary value and the carrying sum. The difference can ensue in a addition or loss on the plus. An illustration of this would be the undermentioned. On July 1, 2010, George Inc. sells a piece of machinery for $ 22,000. The machinery had cost $ 60,000 and there was an estimated 5-year life. The expected salvage value was $ 10,000.

Accumulated depreciation had a balance of $ 35,000 as of January 1, 2010. The company used the straight-line method. After taking into consideration these Numberss the addition on the disposal would be $ 2000 addition. The ground is because we would take the depreciation disbursal which is the cost subtracted by the salvage value and divided by the estimated utile life. In order to acquire the transporting value we would acquire the cost and deduct the accrued balance that was on history. Once we find the carry value of $ 20,000 we subtract the merchandising monetary value of $ 22,000 from it. Furthermore, as per SFAS No.153, if there was a addition on the exchange of nonmonetary plus the company is required to acknowledge it if it had a commercial substance. This statement is applicable to IFRS and US GAAP.

IFRS 5 Non-Current Assetss Held for Sale and Discontinued Operations and FAS 144 discuss how to manage Assetss that are for sale. Under US GAAP and IFRS, the plus would be evaluated at the just value minus the costs to sell or at the lower of the assets transporting sum. As stated earlier, the exchange of nonmonetary assets are related in a similar manner under APB 29 Accounting for Nonmonetary Exchanges which was amended by FAS 153 and IAS 16. It states that if there was a gain/loss due to a commercial substance it should be recognized and the just value of the plus which should be faithfully measured.

Cost in both accounting theoretical accounts have a have similar acknowledgment standards. Both province that costs should be included in the cost of the plus if the “ future economic benefits are likely and can be faithfully measured ” ( IAS Plus: IAS 38, Intangible Assets ) . The capitalisations of general administrative, start-up costs, overhead costs and regular care are non allowed in both theoretical accounts. However, both theoretical accounts indicate that the cost of leveling, taking, and reconstructing the site of an plus should be a portion of the plus ‘s cost. Furthermore, there is a demand in both theoretical accounts which requires an entry for the proviso for an plus retirement when there is a legal duty. Besides, if there is a alteration to an bing Restoration duty it is added to or deducted from the cost of the plus. Then the plus would be depreciated over its staying utile life.

FAS 34 Capitalization of Interest and IAS 23 Borrowing Costs discusses the capitalisation of borrowing cost. Borrowing cost is referred to as involvement and other costs that a company additions in consequence of borrowing financess. This includes but non limited to involvement disbursal, finance charges and certain exchange difference that consequence in foreign currency. Capitalized involvement is the sum of involvement that could hold been avoided if the money was used to pay the company ‘s debt instead than building the plus. However, there seems to be a misconception that merely involvement related straight to an plus must be capitalized.

All the involvement a company incurs could be capable to capitalisation no affair the intent of the financess are for. In March 2007, IAS 23 was issued and indicates that it “ requires the capitalisation of borrowing costs that are straight attributable to the acquisitions, building or production of a qualifying plus ” ( IAS Plus: IASB Agenda – Convergence of IFRSs and US GAAP – IAS 23 Borrowing Cost ) . Under both accounting theoretical accounts the qualifying plus is by and large defined likewise. Furthermore, the acknowledgment of borrowing cost as an disbursal instantly does non show a faithful representation of the cost associated with the plus. Although there are a figure of similarities between the two theoretical accounts, there are differing positions in respects to the demand to capitalise these costs and the specific costs.


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