Final answer:
IFRS allows revaluation of long-lived assets and favors a component approach to depreciation, while GAAP does not permit revaluation and typically depreciates assets as a single unit. Both standards require impairment testing but have different implications on financial statements.
Step-by-step explanation:
The International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) are two sets of accounting standards that differ in how they account for the values of long-lived assets.
Under IFRS, revaluation of assets such as property, plant, and equipment is allowed and can lead to higher asset values on the balance sheet if the fair market values have increased. Any revaluation increase is recognized in other comprehensive income and accumulated in equity under revaluation surplus, unless it reverses a revaluation decrease of the same asset previously recognized in profit or loss.
In contrast, GAAP does not allow for the revaluation of long-lived assets to fair market value, except for certain investment-type properties. As a result, long-lived assets under GAAP are generally reported at cost, reduced by accumulated depreciation and impairment losses. If these assets are impaired, the impairment loss is recognized in the income statement, and the asset is written down to its recoverable amount.
Furthermore, the two frameworks diverge on the method and rate of depreciation. While IFRS favors a component approach to depreciation, GAAP typically depreciates the asset as a single unit, unless each part has a significant cost. Amortization of intangible assets may also show differences between IFRS and GAAP, with IFRS allowing an indefinite useful life if an asset's life cannot be reliably estimated, whereas GAAP requires a specific amortization period.