Fiat

GAAP IFRS

Accounting treatment Effect on financial statement Accounting treatment Effect on financial statement

1. Write-off of deferred costs

Certain costs (start-up & expansion) deferred and amortised Profit is More evenly spread Expensed when incurred Lower profit at the start when the expenses are incurred

Costs incurred in connection with share capital increases Deferred and amortised Profit is More evenly spread Deducted directly fr proceeds of the increase and debited to stockholders’ equity

2. Valuation of investments in other companies not held as current assets

Equity investments under financial fixed assets Historical cost, written down if impairment loss. Impairment loss can be reversed Can’t recognise increases in value of the asset Historical cost OR Fair values If fair value used, can recognise increases in value of asset (?)

Makes financial statements more relevant but also opens possibility for manipulation - Research fair values & how they are determined & reviewed - can this be used to manipulate asset-related ratios?

e.g. of journal entry:

An entity acquires land for $75 000. Asset is revalued to $100 000. Tax rate is 30%

DR CR

Land 25,000

Asset Reval’n Reserve 25,000

Asset Reval’n Reserve 7,500

Deferred Tax Liability 7,500

NB for increment the ARR must be the after tax adjustment.

Investments in subsidiaries Historical cost OR fair value

If there are reasons to believe

that all or part of the cost cannot be recovered, the carrying amount

must be reduced to the recoverable amount of the investment in accordance with IAS 36.

If this loss is subsequently reduced or is

entirely recovered, the carrying amount is increased back up to the newly estimated recoverable amount,which may not exceed the amount that would have been determined if no impairment loss had been recorded. Any restoration of the carrying amount is recorded immediately in the income statement. On the basis of current analyses, the...