Difference to valuation by US GAAP vs IFRS: Apple Philips
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Is there a difference in approach to valuation by US GAAP and IFRS?
Discuss and note two 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 597 words plus four references. There are two exhibits for the 2011 balance sheet of Apple and Philips.
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Detailed Balance Sheet Analysis
VALUATION DIFFERENCES
US GAAP and IFRS differ in how they value some assets and some liabilities. Here are some examples:
1. RECORDING LOSSES IN VALUE
When an asset has lost value (impaired), the book value is reduced under US GAAP and IFRS. However, IFRS permits recovery of prior write downs. US GAAP does not. This can result in very different valuations or book values for long term assets.
2. R&D
Development costs are capitalized and amortized under IFRS. In US GAAP, new product or project development is considered a period cost. That is, it is expensed when it is incurred, without regard to the possibility of future results.
3. FINDING ASSET VALUES
When valuation is needed (because the transaction was in a prior period or bulk purchase prevents knowing the value of individual items purchased) there are differences in US GAAP and IFRS. US GAAP specifies using an "exit value." That is, the price to sell to market participants. When there are no active trades, you have to resort to either looking at similar assets that are traded or using a fair value model using internal inputs. That is, use the cash ...
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