Analyze the Balance Sheet: Differences between Apple's and Philips GAAP IFRS Footnotes.
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The case requires you to analyze the balance sheet for the two companies in more detail.
Is there a difference in approach to valuation by US GAAP and IFRS? Discuss and note two or three specific differences. In addition, briefly
- Distinguish between an expense (expired cost) and an asset.
- Distinguish between current and long-term assets.
- Distinguish between current and long-term liabilities.
- Review Apple?s balance sheet and provide two examples of each of the above categories.
- Discuss retained earnings and how income or loss and dividends affect this account. Review Apple?s retained earnings account and explain how it changes between the two past years.
- Comment on at least three differences between Apple?s and Philips? balance sheets.
- Does Apple or Philips have more debt?
- Which of the two companies is the bigger one? Explain your reasoning.
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Solution Summary
Your tutorial is 697 words and also includes two references to the annual reports used, cut-and-paste exhibits for the 2011 balance sheet of Apple and Philips, and a partial equity section for Apple to make inclusion in a final report easy.
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Is there a difference in approach to valuation by US GAAP and IFRS? Discuss and note two or three specific differences.
Yes, there are differences between US GAAP and IFRS for valuation of items on the balance sheet. I will discuss differences in how they handle impairments, research and development and asset valuation.
1. IMPAIRMENTS
First, long term assets that are impaired can only be written down under U.S. GAAP. Under IFRS, once an asset is impaired, it is possible to write it back up if there is a recovery of value. U.S. GAAP does not permit recovered value to be recognized; impairments are permanent.
2. RESEARCH AND DEVELOPMENT
In US GAAP, research and development is considered a period cost. That is, it is expensed when it is incurred, without regard to the possibility of future results. Under IFRS, research is a period expense but development is capitalized
3. ASSET VALUATION
In US GAAP, assets are valued at the "exit value." That is, the price that you could get from selling it to market participants. This creates a bit of a problem when there are no market participants as happened at the end of 2008! When active trading is missing, there is a hierarchy used for valuation. First, you use actively traded asset values for items that are similar ...
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