GAAP vs. IFRS: Long Lived Assets

Alright now let's discuss some of the main differences between gap and differs when it comes to our long term assets. So remember Gap. These are the rules in the US, right? The generally accepted accounting principles. Those are set by the Financial Accounting standards Board and they create gap here in the US. And those are the rules we focus on when we're taking this course. But internationally we've got the International Accounting Standards Board creating ciphers, the international financial reporting standards. For the most part they're very similar but we've got some differences as well. Let's go ahead and talk about long lived assets here. So similarities. Let's go through these first. The definitions are generally the same right? We're gonna have our property plant and equipment which is, you know, our land, our land improvements, buildings and then we have intangibles as well, right property plant, equipment and intangibles are patents the same basic definitions here and when we acquire um in gap and offers, we always use our historical cost principle when we acquire something. I first has some more leniency later on when were subsequently valuing stuff, but always on the date of acquisition, we're gonna be using our historical cost principle. We talked about construction, we talked about it briefly when we're talking about the initial cost of a long lived asset and if you're constructing, say a building, you could capitalize some of the interest. So some of the cost of interest that could go into the value of the building as well if you need it when you were creating the building constructing it so that can happen under gap and offers, they have similar rules there, we don't really get too deep into the details in this class about it, but that is a similarity. Next we have ordinary repairs versus capital improvements. Remember ordinary repairs? Well, we just expense those with the capital improvements. Those get capitalized into the account as an asset. When we make a big change to the asset. So that's the same as well. For the most part, we've got the same depreciation methods. When we talked about straight line, double declining units of activity, that's that's gonna be the same. And when we have a change in method, used that methodology. We talked about that as well. That's the same as well. So you can see there's a lot of similarities, but we're gonna have quite a few differences over there as well. So when we get rid of assets, the disposals, and we talk about the gains on the sale, the losses on the sale, we account for that just the same as well as well as our non monetary exchanges, say, when we trade in an old truck for a new truck or trading trucks, right? Or trading assets in that sense without actually buying or selling a new one. Well, we treat those rules pretty much the same as well. Let's talk about some of the main differences Well in gap. We use the term salvage value when we're talking about the remaining value at the end of the useful life of an asset where I first uses residual value. Well we tend to use all sorts of terms. You'll probably hear residual value used throughout this course as well. They get thrown around interchangeably quite often. So that's not a big deal there. And the big one here, we've talked about this before is the revaluation. Ifor's allows subsequent revaluation to fair value. So if we bought something at the historical cost, remember when we at the date of acquisition? We had our historical cost principle over here. So we bought an asset For 100,000 we recorded at 100,000 but differs lets you change that value later on. If you want to do a fair value principle, it allows you to change it to the market value. So if the value has gone up or down you can adjust that value on your balance sheet. Okay. And this is allowed for PPE and intangibles. Gap does not allow you to do this subsequent subsequent revaluation and this is one of the biggest differences between gap and offers is the use of the fair value principle on our long lived assets. Okay. Lifers also uses what we call component depreciation. So if you have one asset that might have different useful lives within that asset, maybe one part has a five year useful life and another part 10 year useful life. Well you would use component depreciation and depreciate each component separately, gap doesn't have any specific rules about component depreciation and we don't really get into those details in this course. Lastly, we have the capitalization of R and D costs. So remember when we talked about research and development costs, Well, when we talk about it from a gap standard, they're always expensed. We always expense them. But it allows you to capitalize, which means turn into an asset, some of those costs once you reach the development phase of the asset. Okay, So you research and now you find that it's technologically feasible that hey, we are going to be able to actually create this product. Now you reach the development stage, will you start being able to capitalize those costs again? These are issues that are pretty much beyond the scope of this class, but it's nice to be at least exposed to these differences between gap and differs. Okay, so that's about it. When it comes to long lived assets, let's go ahead and move on to the next video