Question

IFRS and GAAP rules to account for long-lived asset values differ in that ______. (Check all that apply.)

a) IFRS allow development costs to be capitalized
b) IFRS allow asset values to be increased to fair values

Answer 1

IFRS permits the capitalization of development costs and allows long-lived assets to be revalued to fair value, whereas GAAP generally expenses development costs and doesn't allow upward revaluation of assets.

Step-by-step explanation:

The International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) differ in their accounting treatments for long-lived assets. One notable difference is that IFRS do allow for the capitalization of development costs provided certain criteria are met. This means that under IFRS, companies can add to the cost of an asset any internally generated development costs that can be attributed to the development of the asset, turning them into capital expenses. On the other hand, GAAP tends to be more conservative by expensing most development costs. Another significant distinction concerns the revaluation of long-lived assets. Under IFRS, companies are permitted to increase the reported value of an asset to its fair value under certain circumstances in the event that the fair value of the asset increases above its book value. This revaluation approach contrasts with GAAP, which traditionally does not allow the upward revaluation of long-lived assets to reflect fair market values; GAAP maintains the historical cost principle, with impairment testing being used to ensure that asset values are not overstated on the balance sheet.