An asset is classified as an asset with indefinite useful life if there is no probable limit to the period over which it will benefit the firm. 3.3 Intangible assets and goodwill 126 3.4 Investment property 139 3.5 Associates and the equity method (Equity-method investees) 146 ... it compares US GAAP to IFRS Standards, highlighting similarities and differences. At the start of each chapter is a brief summary of the ���d�x��n�4N��ݳyK�D�7H���j*4��8��ߟ�$��n׍C�?e�9 [̫i�$�Ay)1ĵ�ԃtQS�S.J�o�3|{u����+K%#p��:��4r�vC�H�"���� c�~�X:��a����������e�  IFRS vs U.S. GAAP Victoria Harris American Public University Acct 610 There are two sets of accounting standards that are used worldwide. A major distinction between the GAAP and IFRS is and how they affect the accounting processes. Except for goodwill, IFRS also allows for the reversal of impairments recognized for intangible assets, and goodwill impairment is assessed similar to the assessment of impairment of intangible assets under US GAAP; in a single step. The general principles detailed above are common to both IFRS and US GAAP and are useful in determining the broad procedures for accounting and disclosure of intangible assets. Essentially they comprise of assets that do not have physical presence and are represented by items like goodwill, brands and patents. The goodwill appropriated to the CGU is reduced pro rata. In this case the excess of fair value over the purchase price is allocated on a pro rata basis to all assets other than current assets, financial assets, assets that have been chosen for sale, prepaid pension investments and deferred taxes. Goodwill is not amortised any longer under IFRS procedures and is considered to be an asset with indefinite life. IFRS vs. U.S. GAAP: An Overview . Accounting of Goodwill arises in the case of acquisitions where the purchase price exceeds the net cost of purchased tangible assets, the monetary difference being attributed to goodwill and other intangible assets. The computation for this is fairly simple and constitutes of determining the fair value of goodwill by allocating fair value to the various assets and liabilities of the reporting unit, similar to the procedure used for the determination of goodwill in a business combination. IFRS and US GAAP classify intangible assets, other than goodwill, into assets with limited useful life and assets with indefinite useful life. In such a way, the asset can be assessed and given a monetary value. The test is a one stage process wherein the recoverable amount of the CGU is calculated on the basis of the higher of (a) the fair value less costs to sell or (b) the value in use, and then compared to the carrying amount.  IFRS vs U.S. GAAP Victoria Harris American Public University Acct 610 There are two sets of accounting standards that are used worldwide. Goodwill is thus not seen as a steadily wasting asset but one with indefinite life; and with a value linked to the performance of the unit. Capitalisation of development costs is allowed only when development efforts result in the creation of an identifiable asset, e.g. Assets with finite life are amortised over their useful life. Excerpt from Case Study : Introduction There are a number of different areas of difference between US GAAP and IFRS. First, there is little connection between the costs incurred for creation of intangibles and their value. US GAAP however stipulates that all Research and Development costs be immediately charged to expenses. Thus, it is incumbent on preparers, auditors, and regulators to be aware of the differences that currently exist between IFRS Standards and U.S. GAAP. If the estimate of fair value is needed, the fair value is determined and then compared to the carrying amount. Owners’ equity is reported at the bottom. Intangible assets. The IFRS enjoins companies to distinguish between goodwill and other identifiable intangible assets. Another significant change in the treatment of goodwill has arisen out of the requirement for treating all business combinations as purchases. With IFRS, intangible assets are only recognized if they have a definite future economic benefit to your business. The fact that most intangible assets (other than goodwill) are amortised over their expected useful lives requires the determination of the expected useful life of each of the assets acquired. M/s Radebaugh, Gray and Black state that intangible assets need to be identifiable, under the control of the company and capable of providing future economic benefits. Free resources to assist you with your university studies! However, while significant work has been done on harmonising IFRS with US GAAP and many pending issues are being currently addressed, a number of accounting topics are still treated differently by these two systems. Disclaimer: This work has been submitted by a university student. �@Oç`�y����(e`~�9o���n%Ul���O����^>�.�c_�u�n��2�-��� �}}\�JwJ���ʢ�N7e`2��� This is not an example of the work produced by our Essay Writing Service. As such the value of other intangible assets like Research and Development, Patents, Trademarks, Brands and others need to be removed from the goodwill basket to arrive at the residual goodwill value. IFRS reverses the order of liquidity and starts with non-current assets, and places owners’ equity in the middle, between assets and liabilities. ��,�#��X`���2Ɖ� Second, it is also difficult to predict the extent of benefits that intangibles will be able to deliver. 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