IAS 31 – Interests in Joint Venture

IAS 31 – Interests in Joint Venture

Objective: To prescribe the accounting treatment required for interests in joint ventures.  [  B  +  C  => A + "An Agreement For Control" ] Applies to all investments in which investor has joint control,

unless the investor is:

1. Venture Capital Firm

2. Mutual Funds.

3. Unit Trust.

The key characteristic of a joint venture is a contractual arrangement to share control. Joint venture may be classified as jointly controlled operations, jointly controlled assets or jointly controlled entities.

1. Joint Controlled Operation – Venture recognizes the assets it controls and expenses and liabilities it incurs and its share of income earned, in both separate and consolidated financial statement.

2. Jointly Controlled Assets Venture – recognizes its share of the joint assets, liabilities, share of expenses, income from the sale, or the use of its share of the output of the joint venture.

3. Jointly Controlled Entities -  two accounting policies are permitted:

A. Proportionate consolidation under this method the ventures' balance sheet include its share of the assets that controls jointly and its share of the liabilities for which it is jointly responsible the income statement includes its share of income and

B. Equity methods – that applies on Investment in Associates IAS 28.

The Differences and Similarities between US GAAP Law and IFRS 

Significant Differences:

IFRS	US Law  GAAP
Jointly controlled entities may be accounted for either by proportionate consolidation or using the equity method	Unlike IFRS generally jointly controlled entities are accounted for using the equity method. Proportionate consolidation is allowed only in certain industries for unincorporated ventures.	Joint Controlled Entity Method
IFRS	US Law  GAAP
Significant influence is when an entity holds 20%-50% of the voting rights of another entity.	Like IFRS significant influence is when an entity holds 20%-50% of the voting rights of another entity.	Significant Influence
A joint venture is an entity, asset or operation that is subject to contractually established joint control	Unlike IFRS US GAAP does not define a joint venture other than a corporate joint venture.	A Joint Venture Entity
Jointly controlled entity's accounting policies must be consisted with those of its investor.	Unlike IFRS jointly controlled entity's accounting policies do not needed to be consisted with those of its investor.	Accounting Policies
The reporting date of an jointly control entity may not differ from the investor's more than three months. Adjustment are made for the effects of significant events and transaction between the two dates	Like the reporting date of an jointly control entity may not differ from the investor's more than three months. Adjustment are made for the effects of significant events and transaction between the two dates	The Reporting Date of joint Venture Entities'
Unrealized profit or losses on transaction with jointly controlled entities are eliminated to the extent of the investor's interest in the investee.	Like IFRS unrealized profit or losses on transaction with jointly controlled entities are eliminated to the extent of the investor's interest in the investee.	Transaction between joint Venture Entity's

IAS 40 – Investment Property

IAS 40 – Investment Property

Objective: the accounting treatment for investment property and related disclosures.

 Investment property is a land or buildings held to earn rentals or for capital appreciation or both, whether by the owner or under finance lease. IAS 40 does not apply to owner-occupied property or property that is being constructed or developed for future use as investment property or property held for sale in the ordinary course of the business. IAS 40 permits to an entity to choose either the fair value model or the cost model.

1. Fair value model investment property is measured at fair value and changes in fair value recognized in the income statement.

2. Cost model investment property is measured at depreciated cost less any accumulated impairment. Fair value of the investment property must still be disclosed.

The chosen measurement model must be applied to all of the entity investment property. Changes from one model to the other is permitted if it will be result in more appropriate presentation, and if fair value cannot be determine then the cost model is used. A property interest held by lessee under an operating lease can qualify as investment property provided that lessee use the fair value model.

Disclosures include

1. Method of determining fair value.

2. Extent of use of independent value's in determining fair value.

3. Criteria that were used to classify property as investment property.

4. Amount recognized in profit and loss.

The Differences and Similarities between US GAAP Law and IFRS 

Significant Differences & Similarities:

IFRS	US Law  GAAP
Investment property is property held to earn rental income or for capital appreciation or for both.	Unlike IFRS there is no specific definition of investment property.	Definition of Investment Property
Property held by a lessee under operating lease may be classified as investment property if the definition of investment property otherwise is met and the lessee measures investment property at fair value.	Unlike IFRS property held by a lessee under an operating lease cannot be recognized in the balance sheet.	Property held by Lessee Under Operating Lease
A portion of a dual-use property is classified as investment property only if the portion could be sold or leased out under a finance lease. Otherwise entire property is classified as property, plant and equipment, unless only an "insignificant" portion is held for own use.	Unlike IFRS there is no guidance on how to classify dual-use of property. Instead the entire property is accounted for as property, plant and equipment.	Dual-Use of  Property
Investment property is recognized initially at cost	Like IFRS Investment property is recognized initially at cost	Recognition
Disclosure of the fair value of all investment property is required, regardless of the measurement model used.	Unlike IFRS, there is no requirement to disclose the fair value of investment property.	Disclosure of Fair Value
Subsequent expenditure is capitalized only when it is probable that it will give rise to future economic benefits.	Like IFRS subsequent expenditure is capitalized only when it is probable that it will give rise to future economic benefits.	Expenditure
IFRS	US Law  GAAP
Transfers to or from investment property can be made only when there has been a change in the actual use of the property Changes in intention are not relevant.	Unlike IFRS investment property is accounted for as property plant and equipment, and there no transfers to or from an "investment property" category.	Transfers to or from Investment property

IAS 28 – Investments in Associates

IAS 28 – Investments in Associates

Objective: To prescribe the investor's accounting for investment in associates.

Applies to all investments in which the investor has a significant influence unless the investor is:

1. Venture Capital Firm.

2. Mutual Funds.

3. Unit Trust.

Investor must use the equity method for all investments in associates over which it has significant influence, A Significant Influence will be if investment held, directly or indirectly, has more than 20% of the associate. Under the equity method, the investment is initially recorded at cost, and it is subsequently adjusted by the investors share of the investees' post acquisition change in net assets, When loss or profit reflects in the investor's income statement.

Associates accounting policies must be the same as those of the investor. Equity accounting is required in the separate financial statement of the investor even if consolidated accounts are not required, however the investor does not apply the equity method when presenting separate financial statement then the investment will be either at cost or fair value.

         

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The Differences and Similarities between US GAAP Law and IFRS 

Significant Differences:

IFRS	US Law  GAAP
The definition of an associate is based on significant influence, which is the power to exercise significant influence over the financial and operating policies of entity.	Like IFRS significant influence is the ability to significantly influence the operating and financial policies of an investee. The term "equity-method investee" is used to describe what would be an associate under IFRS.	Definition of Associate is:
IFRS	US Law  GAAP
Associates generally are accounted for using the equity method	Like IFRS Equity-method investees are accounted for using the equity method, or Fair value unlike IFRS.	Measurement
An associate's or jointly controlled entity accounting policies must be consisted with those of its investor.	Unlike IFRS an equity-method investee's or jointly controlled entity's accounting policies do not needed to be consistent with those of its investor	Accounting Policies
The reporting date of an associate may not differ from the investor's more than three months. Adjustment are made for the effects of significant events and transaction between the two dates	Like IFRS the reporting date of an associate may not differ from the investor's more than three months. Adjustment are made for the effects of significant events and transaction between the two dates	The Reporting Date
When an equity accounted investee incurs losses, the carrying amount of the investor's interest is reduced to zero. Further losses are recognized by the investor only to the extent that the investor has an obligation to fund losses.	Like IFRS when equity method investee incurs losses, the carrying amount of the investor's is reduced to zero. Like IFRS further losses are recognized by the investor only to the extent that the investor has an obligation to fund losses. However unlike IFRS further losses are recognized if the investee is expected to return to profitability imminently or if a subsequent further investment in the investee is made.	Associate Losses
Unrealized profit or losses on transaction with associates are eliminated to the extent of the investor's interest in the investee.	Like IFRS unrealized profit or losses on transaction with associates are eliminated to the extent of the investor's interest in the investee.	Transaction between the Associate and the Investor

IAS 2 – Inventories

 IAS 2 – Inventories               

Objective:  to give the accounting treatment for Inventories, including cost determination and expense recognition.

Inventories will be stated in the amount of cost or realisable value the lower. Cost of Inventories include: purchase cost, conversion cost (materials, labor, and overhead) and cost to bring the inventory to its present location and condition. When inventory items that are not-interchangeable (103) specific cost to specific individual items are required. For inventory items that are interchangeable, cost is determined on either FIFO, or Average Basis, LIFO is not permitted. When inventories are sold, the amount that should be recognized as an expense is related to the period in which the revenue recognized.

The Differences and Similarities between US GAAP Law and IFRS 

Similarities: 

Both US GAAP and IFRS the accounting principles stated inventories at cost. And both define inventory as assets held for sale in the ordinary course of business, In the process of production for such sale, or to be consumed in the production of goods or services. Also under both US GAAP and IFRS the cost of inventory include  all direct expenditures that is required to prepare the inventory for sale, including allocable overheads, while selling costs are excluded from the cost of inventories,    as are most storage costs and general administrative costs.

Significant Differences:

IFRS	US Law  GAAP
LIFO is prohibited. the same cost formula must be applied to all inventories in similar nature or in use to the entity.	LIFO is an acceptable method the same cost formula is not required to use on all inventories in similar nature or in use to the entity.	Costing methods
IFRS	US Law  GAAP
Inventory is carried at the lower of: (1) cost  (2) Realizable value Realizable value: estimated of the net amounts of inventories that are expected to realize, This amount may be equal to fair value or not	Inventory is carried at the lower of: (1) cost  (2) Market Market is defined as: current replacement cost as long as the market is not great than net realizable value- that is estimated selling price less costs of completion and sale.	Measurement
Previously recognized impairment losses can be reversed up to the amount of the original impairment loss.	Any write down of inventory to: lower of cost or market price, cannot be reversed.	Reversal of Inventory write-downs
Permanent markdown affect average gross margin use. Reduction of the carrying cost of inventory below the lower of cost or net realizable value is not allowed.	Permanent markdowns do not affect the gross margin, such markdowns; reduce the carrying cost of inventory to net realizable value.	Permanent inventory markdowns