Question

"Push-down Accounting and the Recording of Both Tangible Assets and Intangible Assets" Please respond to the following:

Per the textbook, the FASB has not taken a position on the use of push-down accounting. Take a position on whether push-down accounting provides the most relevant information for both internal and external financial statement users. Provide support for your rationale.

Compare the key differences between U.S. GAAP and IFRS’s position on both intangible research and development costs and tangible depreciable assets. Indicate the key benefits and drawbacks to financial statement users of each method (i.e., U.S. GAAP and IFRS). Next, determine the method that provides the most relevant information to financial statement users. Provide support for your rationale.

Answer 1

Answer

Pushdown accounting Under US GAAP, an acquired entity can elect to apply pushdown accounting in its separate financial statements when an acquirer entity obtains control of it or later. However, an entity's election to apply pushdown accounting is irrevocable. Under Push down accounting all tangible and intangible assets of the acquired company are adjusted to their fair value, which is the price at which these items would sell on the open market. In other words, the gains and losses associated with revaluation are "pushed down" onto the subsidiary's income statement and balance sheet. If the parent company pays an amount in excess of fair value, the subsidiary carries the excess on its books as goodwill, an intangible asset. FASB even though lacks standing on this new accounting basis, in my view, push down accounting basis may be adopted by corporate businesses. This is because, in the nature of environment in which businesses operate is so dynamic and users of the financial statements have an increased need for what the state of the company is at the instance in hich their need arise. And as such adjusted values of the assets to the market prices would represent fair state of the situation and would provide useful and reasonable information rather than recording some of these assets with no physical substance at the historical costs and not adjusting them to their fair values Kev differences between U.S. GAAP and IFRS's position on both intangible research and development costs and tangible depreciable assets The U.S GAAP and the IFRS differ on the treatment of intangible research and development costs and tangible depreciable assets. Under GAAP research and development costs are expensed as they get incurred. However, if the costs are addressed to different standards they may not be expensed. These development costs may include new computer software or any other intangible asset. Once the technical feasibility is conformed, the costs are capitalized. On the other hand, IFRS requires that the research and development costs be capitalized once the technical and economical fitness can be proven. Under IFRS, revaluation of these asets to the fair value is accepted unlike it is in GAAP that revaluation is not allowable rather not permitted With regard to depreciable assets, GAAP accepts the depreciation of various components of the asset even though this is not a common practice According to IFRS component depreciation is only if the assets have components that differ in the patterns of their benefits key benefits and drawbacks to financial statement users of each method (i.e., U.S. GAAP and IFRS) IFRS is more focused on investors and provide accurate, timely and a vast information through the financial statements. Losses are recognized immediately. The convergence to IFRS has improved the comparability of financial statements in the EU. IFRS uses standardized financial reporting. The users of IFRS have better access to the foreign capital market investments since information regarding these are given in the statements. Drawbacks of IFRS: IFRS is quite a complex method of reporting financial statements to be used. It's quite expensive and costly since training on how to use and read as well as interpret the data given therein. It may take a lot of time to harmonized and fully incorporated into the system. GAAP and its benefits: GAAP is widely used. It's easy to comprehend and to practice It does not require much training to be able to use and interpret the data provided in the financial statements Since assets are recorded at their costs there is no likelihood asset cost volatility. Provide relevant and most needed information to both internal and external users Drawback: Since GAAP vary e.g.in Australia it's them that make the principles as opposed to U.S in which the principles are made by FASB. These make GAAP to have limited applicability in different countries. Besides many corporations may only use GAAP to the extent that it suits them In my opinion, the method that provides the most relevant information to the users is the IFRS my rational is based on its advantages discussed above