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Differences and Similarities between International Financial Reporting Standards and Generally Accepted Accounting Practices

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Both GAAP and IFRS allows applies similar depreciation approaches such as straight-line and unit – of activity methods. However, in IFRS requires part of assets with a significant depreciable part that has a different useful life to be depreciated independently whereas in GAAP such practices are not implemented. Assets revaluation is a business technique of establishing the actual value of fixed assets of the business following major variations in fair market value as required by the IFRS in order to establish the fair value of fixed assets owned by the business. Revaluation is essential when the business intends to regain the original capital assets of the business by replacing the depreciated value when they intend to acquire external borrowings when disposing of its assets and during mergers and acquisitions. According to Shamrock (2012), development expenses refer to resources utilized or consumed by the business during the creation of new products or services.

For example, administrative salaries, rent, utility bill, etc. On the other hand, development cost is used to refer to resources used in the acquisition of new items for the business but has not been consumed.

For example, labor, overhead cost, material cost, etc. According to IFRS contingent liability, refers to liabilities payable by the company in the future and whose period of payment are out of control of the business. For example, a legal suit filed by an employee against the company after sustaining injuries at the workplace whose period is dependent on the court’ s decision. IFRS recognizes liabilities as current or fixed depending on their liquidity. Current liabilities are settled within a period of one year while fixed liabilities are obligations that extend beyond one year.

Liabilities are recorded after assets in order of liquidity. IFRS applies “ effective-interest method for amortization of bond discounts and premiums” while in GAAP amortization is not required. Unlike GAAP, IFRS does not use a discount account to show the bond at its net amount.

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