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Global Convergence through IFRS – Part V

Please check out Global Convergence with IFRS – Part IV that starts to discuss the differences between US GAAP and IFRS


We are looking at more differences here:


3. Plant Property & Equipment or Long Lived assets


With respect to PPE, long lived assets or otherwise known as fixed assets, many of the requirements are very similar. Measurement with respect to the cost, capitalized interest, depreciation or asset held for sale have similar requirements between US GAAP and IFRS. Here are some differences:


Area of comparison



Property held for investment

Property held for investment is not separately classified.

IAS 40 specifically requires investment property held for earning rent or capital appreciation to be disclosed separately

Revaluation of asset

Not permitted

Can be done for an entire class of assets

Borrowing costs

While measuring borrowing costs into the asset value, exchange rate differences cannot be included

While measuring borrowing costs into the asset value, exchange rate differences can be included


4. Intangible Assets and Impairment of Assets


Area of comparison



Development costs

These are normally expensed.

Development costs are capitalized when

technical and economic feasibility of a project

can be demonstrated in accordance with

specific criteria like demonstrating technical feasibility,

intent to complete the asset, and ability to

sell the asset in the future.

Computer software development costs

Development costs related to computer software for external use is capitalized once technological feasibility is established as per FAS 86. In case of development for internal use, only the costs for application development stage can be capitalized

No specific rule or standard

Advertisement and promotional costs

Advertising and promotional costs are expensed. Direct response

advertising may be capitalized if the specific criteria in SOP 93-07 Reporting on Advertising Costs are met

Advertising and promotional costs are expensed as incurred.

Revaluation of intangibles

Not permitted

Revaluation other than goodwill is permitted. But it would require an active market for the specific type of intangible asset


5. Leases


Area of comparison



Separation of Land and Building

If the fairvalue of land is more than 25% at the beginning, the land and building should be separately considered

No 25% test, land and building are always classified separately

Output contracts

Output contracts are leases

Output contracts are not leases

Gain on sale/leaseback

Gain on sale/leaseback not recognized in current earnings, but deferred and amortized, unless seller retains use of much of asset, in which case gain is recognized (immediate recognition of loss also commonly required)

Gain on sale/leaseback amortized over term of financing lease, but recognized at once if operating leaseback

Capital Lease

Capital lease is required if one of the four condition is met (clear example of rule based approach) 

(a) if it transfers ownership to the lessee at the end of the lease term, (b) if transfer of ownership at the end of the lease term seems likely because the lessee has a “bargain purchase” option, (c) if it extends for at least 75 percent of the asset’s life, or (d) if the present value of the contractual minimum lease payments equals or exceeds 90 percent of the fair market value of the asset at the time the lessee signs the lease

Not rule based. Capital lease treatment if risks and rewards are transferred to lessee; also if property is special purpose for lessee use


We compared three more areas in this blog, will continue to discuss some more differences in next blog.


Check out the earlier parts in this blog series – Global convergence through IFRS – Part I , Global convergence through IFRS – Part II  and Global convergence through IFRS – Part III

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