Per the textbook, the FASB has not taken a position on the use of push-down acco

Question

Per the textbook, the FASB has not taken a position on the use of push-down accounting. Take a position on whether push-down accounting provides the most relevant information for both internal and external financial statement users. Provide support for your rationale.

Compare the key differences between U.S. GAAP and IFRS’s position on both intangible research and development costs and tangible depreciable assets. Indicate the key benefits and drawbacks to financial statement users of each method (i.e., U.S. GAAP and IFRS). Next, determine the method that provides the most relevant information to financial statement users. Provide support for your rationale.

Explanation / Answer

ANS;

Introduction

Push down accounting in recording both tangible and intangible assets of a company is a new basis of accounting. And in this basis, all tangible and intangible assets such as goodwill, patents, leases and copy rights are adjusted to their fair their fair value rather market value at the time in which the assets are acquired. This adjustment has an offsetting adjustment on the subsidiary equity account which results into an agreement between the totals of both the equity accounts and the investment parents’ account. Generally, push down accounting basis requires that the assets (tangible and intangible) be allocated a fraction of the cost price rather the acquisition cost of the entity- company which is usually equal to the asset’s market value at the date of acquisition. Different companies have different policies regarding their operations and the recording and reporting their outcomes in terms of interim financial statements and end of year statements. All these are done in tandem with the international standards and the GAAP. However, any deviation from the recognized standards must be well documented and proper reasons explained as coupled with the significance of the change. FASB even though lacks standing on this new accounting basis, in my view, push down accounting basis may be adopted by corporate businesses. This is because, in the nature of environment in which businesses operate is so dynamic and a gain users of the financial statements have increased need for what the state of the company is at the instance in which their need arise. And as such adjusted values of the assets to the market prices would represent fair state of the situation and would provide useful and reasonable information rather than recording some of these assets with no physical substance at the historical costs and not adjusting them to their fair values.

Question 2

The stand of various practices vary rather differ in some ways concerning the treatment of certain issues in accounting. There are international standards, principles generally accepted concerning the treatment of accounting items. Different companies too may differ with one another on the principles and policies that guide their practices. The U.S GAAP and the IFRS differ on the treatment of intangible research and development costs and tangible depreciable assets. Under GAAP research and development costs are expensed as they get incurred. However, if the costs are addressed to different standards they may not be expensed. These development costs may include new computer software or any other intangible asset. Once the technical feasibility is conformed, the costs are capitalized. On the other hand, IFRS requires that the research and development costs be capitalized once the technical and economical fitness can be proven. Under this practice, revaluation of these assets to the fair value is accepted unlike it is in GAAP that revaluation is not allowable rather not permitted.

With regard to depreciable assets, GAAP accepts the depreciation of various components of the asset even though this is not a common practice. According to IFRS component depreciation is only if the assets have components that differ in the patterns of their benefits.

Benefits of IFRS

IFRS is more focused on investors and provide accurate, timely and a vast information through the financial statements

Losses are recognized immediately

The users of IFRS in the European Unions are able to compare their cases

IFRS uses standardized financial reporting

The users of IFRS have better access to the foreign capital market investments since information regarding these are given in the statements.

Drawbacks of IFRS

IFRS is quite a complex method of reporting financial statements to be used.

It’s quite expensive and costly since training on how to use and read as well as interpret the data given therein

It may take a lot of time to harmonized and fully incorporated into the system.

Fair value concept is likely to cause volatility of as they are reported.

GAAP and its benefits

GAAP is widely used. It’s easy to comprehend and to practice

It does not require much training to be able to use and interpret the data provided in the financial statements

Since assets are recorded at their costs there is no likelihood asset cost volatility

Provide relevant and most needed information to both internal and external users

Help instill trust in the users

Drawback

Since GAAP vary e.g.in Australia it’s them that make the principles as opposed to U.S in which the principles are made by FASB. These make GAAP to have limited applicability in different countries. Besides many corporations may only use GAAP to the extent that it suits them.

In my opinion, the method that provides the most relevant information to the users is the IFRS my rational is based on its advantages discussed above.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.