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IAS 18 U.S GAAD REVIEW

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IAS 18 U.S GAAD REVIEW

Introduction

International accounting standard 18 reports when to distinguish and how to quantify income. Income is termed as a gross capital influx of economic advantages within the arising period from normal activities of a business when influx results to equity increment as opposed to profits as a result of equity contributions from proprietors. IAS 18 sums account depending on the following events and trades;

  • Total sales of goods and services
  • Benefits earned by entity assets

Revenue recognition depends on the probability of anticipated economic profits influx to the capital and such profits can be consistently measured. Similarly, IAS 18 isolates situations requiring those criteria met, thereby, recognizing revenue. IAS 18 also offers practical direction on how to apply such criteria. Income is therefore quantified at a fair value depending on returns received.

Comparison between income realization and recognition in the IFRS

A firm running a profitable business turns the inventory into liquid asset selling goods or rendering services, a scenario that shows how revenue is recognized. When these sales are entered into books of account then the revenue has been measured. Revenue recognition conditions one to only enter revenue when earned rather than when cash is summed. For instance, a lawn mowing service provider finishes mowing a firm’s park charging $150. The service provider can realize revenue immediately after completion of mowing, even though the company does not pay for the service for weeks.

Another example is when a firm purchases land. Given the appreciation value of the land, the firm realizes revenue. However, this revenue is not measured or entered into books of account unless the company sells that land or develops income-generating structures like residential apartments. In such cases, income earned from rent or lease paid by tenants monthly or over a period will only be measured upon payment and not prior.

A retailer buys bulk goods and breaks them down to fit consumer needs. Upon the purchase of these goods, the retailer realizes a maximum profit from the sales. However, there is no telling whether the stock will empty in a given period for the realized income to be measured. In such a scenario, revenue will be recorded or measured as per sales made.

 

Differences in the categorization of contingent liabilities between U.S. GAAP and IFRS

DefinitionsAccording to the Master Glossary, contingency is well-defined as a prevailing form, state, or set of environments involving ambiguity as to likely achievement or cost to a unit that will eventually be determined when one or more forthcoming dealings happen or flop to happenIAS 7 states provision as a liability of uncertain timing or amount.( IAS7 para 10)

 

Threshold of recognition In recognition of loss contingency, loss should be approximate.Provision is on the basis of likelihood. A positive possibility of more than 50% is taken into account.
measurementContingencies are realized when in reasonable estimates.Provisions to be realized they must be reliable.
Discounting and riskLoss contingency is usually not discounted not unless the average cost of liability are permanent or can be determinedFuture cash influx to settle an expenditure is discounted by pretax set rate that showcases current assessments of risks, time factor and material effects.
Best estimate Continued range of probable results and no specific point on the range the center point  is taken as best estimatethe least end of range is considered as the best estimate
Uncertainty To acquire IAS 7 realization and measurement standards are included in deferred taxesTo acquire ASC 740 realization and measurement guide to uncertainty exists during acquisition date sums both deferred and current taxes.

 

 

 

 

References

Barth, M. E., Landsman, W. R., & Lang, M. H. (2008). International accounting standards and accounting quality. Journal of accounting research, 46(3), 467-498.

 

Hung, M., & Subramanyam, K. R. (2007). Financial statement effects of adopting international accounting standards: the case of Germany. Review of accounting studies, 12(4), 623-657.

  Remember! This is just a sample.

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