Q1IFRS - Intermediate Accounting (Kieso)

Question

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to the accounting for inventories

Step-by-Step Solution

Answer

The similarities mentioned in step 1 and differences are mentioned in step 2.

Step1: Similarities between IFRS and GAAP

• Under both approaches, inventories purchased are considered at purchase costs, and subsequent inventories purchased are evaluated at NRV. 
• Treatment of ownership of goods in transit, special sales agreements, and consignment goods are the same. 

Step2: Differences between IFRS and GAAP

• IFRS is principle-based, and GAAP is detailed guidelines for the accounting and reporting of inventories. 
• LIFO inventory valuation can be used in GAAP. However, it cannot be used in IFRS. 
• There is no exception to the LCNRV rule under IFRS. 
• Under GAAP, inventories reported at LCNRV cannot be reversed to the original cost. However, in the case of IFRS, it can be reversed. 
• Under IFRS, both biological assets are recorded at the net realizable value at the time of harvesting, whereas the same is not followed in the case of GAAP.