US GAAP generally does not allow for upward revaluation after a company has recognized impairment on...
US GAAP generally does not allow for upward revaluation after a company has recognized impairment on an asset, while IFRS does allow upward revaluation of certain assets, up to the asset's original cost adjusted for depreciation. Which method of accounting do you think is better? Why?
Homework Answers
Generally in US GAAP , upward revaluation is not allowed under any circumstance even if the market price of the asset exceeds its book value.However it is compulsory to account the impairment costs under FASSB statement 144.It is calculated by deducting accumulated depreciation from the original cost of the asset.
But in countries like India,UK etc where IFRS is followed, upward revision is followed to bring the value of assets on par with market values.These are done mainly for assets like real estate,land etc whose values may increase or decrease due to many factors.Moreover land is a non depreciable asset.In US this is not at all allowed because of the fear of higher capital gain tax arising out of capital appreciation of fixed assets.
In my opinion,IFRS system is better because:
- Generally the value of lands increase over time which results in capital appreciation which need to be accounted.
- Capital appreciation also results in more payment of taxes
- The value of assets will be valued at current rate(market value).Therefore any change in value of assets over time may be recorded.
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