A.2. GAAP vs IFRS and Income Measurement Flashcards

The matching principle.

• Cause and effect
• Systematic and rational allocation
• Immediate recognition

Increases in equity resulting from transactions and other events and circumstances affecting the company that do not result from revenues or investments by owners.

Decreases in equity resulting from transactions and other events and circumstances affecting the company that do not result from expenses or distributions made to owners of the company.

• Revenues and expenses result from delivering or producing goods or providing services.
• Gains and losses result from exchange transactions such as sales of assets used in a productive capacity; holding gains and losses; and loss events such as natural catastrophes.

All of the following must be met:

• Management commits to a plan to sell the asset or disposal group.
• The asset or disposal group to be sold is available for immediate sale.
• An active program to locate a buyer or buyers and other actions required to complete the plan to sell the asset or disposal group have been initiated.
• The sale is probable within one year unless events beyond the company’s control occur.
• The asset or disposal group is being actively marketed at a reasonable price in relation to its fair value.
• Actions required to complete the plan to sell the asset or disposal group make it unlikely that the plan will be withdrawn or significantly changed.

At the lower of carrying amount or fair value less cost to sell.

If a write-down is necessary, an impairment loss is recognized for the write-down to fair value less cost to sell.

A gain should be recognized but only to the extent of cumulative losses previously recognized for that asset or disposal group.

Assets should be presented as held for sale. If any liabilities associated with the held-for-sale assets will be transferred along with the assets, the liabilities should be presented separately on the balance sheet as liabilities held-for-sale.

In income from continuing operations before taxes.

Net of tax in the period in which the gain or loss occurred, below income from continuing operations.

An involuntary disposal occurs when an asset is stolen or otherwise destroyed, condemned, or seized by the government for a public purpose.

Comprehensive income is the change in equity (net assets) of a company from non-owner sources that arise during a period from transactions and other events.

Comprehensive Income (Loss) = Net Income (Loss) + Other Comprehensive Income (Δ in Accumulated OCI)