Acquisition of subsidiaries

IFRS US GAAP
Relevant Guidance
IFRS 3, 10 and 13 ASC 805 and 810-10
Acquisition Method
An acquirer can obtain control of an acquiree Similar to IFRS (ASC 805-10-25-11)

without the transfer of consideration in the

following circumstances:

 Acquiree repurchases its own shares such that

an investor (the acquirer) obtains control

(IFRS 3.43a)

 Minority veto rights lapse which had

previously kept the acquirer from controlling

the acquiree (IFRS 3.43b)

 Acquirer and acquiree agree to combine their

business by contract alone (IFRS 3.43c)

A parent and its subsidiaries generally use the Like IFRS, the difference between the reporting

same reporting date when preparing date of a parent and its subsidiary cannot be

consolidated financial statements. If this is more than about three months. However, unlike

impracticable, then the difference between the IFRS, use of the same reporting date need not

reporting date of a parent and its subsidiary be impracticable; adjustments may be made for

cannot be more than three months. Adjustments the effects of significant transactions and

are made for the effects of significant events between these dates, or disclosures

transactions and events between the two dates. regarding those effects are provided.
All business combinations are accounted for Similar to IFRS (ASC 805-10-05-4).

using the acquisition method (IFRS 3.4). The

acquisition method requires an entity to (IFRS

3.5):

 Identify the acquirer

 Determine the acquisition date

 Recognize and measure the identifiable assets

acquired, liabilities assumed, and

noncontrolling interests in the acquiree

 Recognize and measure goodwill or a gain on

a bargain purchase
Other matters
Uniform accounting policies are used Unlike IFRS, uniform accounting policies

throughout the group. within the group are not required.

The acquirer in a business combination can Unlike IFRS, NCI are generally measured

elect, on a transaction-by-transaction basis, to initially at fair value.

measure ‘ordinary’ NCI at fair value, or at their

proportionate interest in the net assets of the

acquiree, at the date of acquisition. ‘Ordinary

NCI’ are present ownership interests that entitle

their holders to a proportionate share of the

entity’s net assets in the event of liquidation.

Other NCI are generally measured at fair value.

NCI in the statement of financial position are Like IFRS, non-redeemable NCI in the

classified as equity but are presented separately statement of financial position are classified as

from the parent shareholders’ equity. equity but are presented separately from the

parent shareholders’ equity.

An entity recognizes a liability for the present Unlike IFRS, there is specific guidance on the
value of the exercise price of put options held accounting for put options held by NCI, which

by NCI, but there is no detailed guidance on the results in a liability recognized at fair value or

accounting for such put options. redemption amount, or the presentation of NCI

as ‘temporary equity’, depending on the terms

of the arrangement and whether the entity is an

SEC registrant.
Losses in a subsidiary may create a deficit Like IFRS, losses in a subsidiary may create a

balance in NCI. deficit balance in NCI.

Profit or loss and comprehensive income for Like IFRS, profit or loss and comprehensive

the period are allocated between shareholders income for the period are allocated between

of the parent and NCI. shareholders of the parent and NCI.

Intra-group transactions are eliminated in full. Intra-group transactions are generally

eliminated in full, like IFRS. However, for a

consolidated VIE, the effect of eliminations on

the consolidated results of operations is

attributed entirely to the primary beneficiary,

unlike IFRS.
Pro rata spin-offs (demergers) are generally Unlike IFRS, pro rata spin-offs are accounted

accounted for on the basis of fair values, and a for on the basis of book values, and no gain or

gain or loss is recognized in profit or loss. In loss is recognized. Unlike IFRS, non-pro rata

our view, non-pro rata spin-offs may be spin-offs are accounted for on the basis of fair

accounted for on the basis of fair values (gain values (gain or loss recognized in profit or

or loss recognized in profit or loss) or book loss).

values (no gain or loss recognized)

Changes in the parent’s ownership interest in a Changes in the parent’s ownership interest in a

subsidiary without a loss of control are subsidiary without a loss of control are
accounted for as equity transactions and no accounted for as equity transactions and

gain or loss is recognized. generally no gain or loss is recognized, like

IFRS.
Subsidiaries are generally consolidated. As an Subsidiaries are generally consolidated, like

exception, investment entities generally IFRS. As an exception, investment companies

account for investments in subsidiaries at fair generally account for investments in

value. subsidiaries at fair value, like IFRS. However,

unlike IFRS, there are additional exceptions for

certain other specialized industries.

On the loss of control of a subsidiary, the assets On the loss of control of a subsidiary that is a

and liabilities of the subsidiary and the carrying business (which is more restrictive than IFRS),

amount of the NCI are derecognized. The the assets and liabilities of the subsidiary and

consideration received and any retained the carrying amount of the NCI are

interests (measured at fair value) are derecognized. Like IFRS, the consideration

recognized. Amounts recognized in OCI are received and any retained interests (measured

reclassified as required by other IFRSs. Any at fair value) are recognized. Amounts

resulting gain or loss is recognized in profit or recognized in accumulated OCI are

loss. reclassified, like IFRS, with all amounts being

reclassified to profit or loss, unlike IFRS. Any

resulting gain or loss is recognized in profit or

loss, like IFRS.

An entity with one or more subsidiaries There are no exemptions, other than for

presents consolidated financial statements investment companies, from preparing

unless specific criteria are met. consolidated financial statements if an entity

has one or more subsidiaries.

Consolidation is based on what can be referred Consolidation is based on a controlling

to as a ‘power-to-direct’ model. An investor financial interest model, which differs in

‘controls’ an investee if it is exposed to (has certain respects from IFRS. -For non-variable

rights to) variable returns from its involvement interest entities, ‘control’ is the continuing

with the investee, and has the ability to affect power to govern the financial and operating

those returns through its power over the policies of an entity. -For variable interest

investee. Although there is a practical entities (VIEs), control is the power to direct

distinction between structured and non- the activities that most significantly impact the

structured entities, the same control model VIE’s economic performance and either the

applies to both. obligation to absorb losses of the VIE, or rights

to receive benefits from the VIE, that could

potentially be significant to the VIE.

For a structured entity, voting rights are not the A VIE is an entity for which the amount of

dominant factor in assessing whether the equity investment at risk is insufficient for the

investor has power over the investee. entity to finance its own operations without

additional subordinated financial support, or

the equity investment at risk lacks one of a

number of specified characteristics of a

controlling financial interest. A VIE may or

may not be a structured entity under IFRS.

Control is assessed on a continuous basis. Like IFRS, control of a VIE is assessed on a

continuous basis. Unlike IFRS, control of a

non-VIE is reassessed only when there is a

change in voting interests in the investee.

Control is usually assessed over a legal entity, Like IFRS, control is usually assessed over a
but can also be assessed over only specified legal entity and, in the case of VIEs, can also

assets and liabilities of an entity (a ‘silo’) if be assessed over only specified assets and

certain conditions are met. liabilities of an entity (a ’silo’) if certain

conditions are met. Unlike IFRS, control is

assessed over only legal entities in the voting

interest model.
In assessing control, an investor considers both In assessing control, an investor considers

substantive rights that it holds and substantive ‘substantive’ kick-out rights held by others,

rights held by others. To be ‘substantive’, rights which is narrower than the guidance under

need to be exercisable when decisions about the IFRS. For non-VIEs, kick-out rights can be

relevant activities are required to be made, and substantive if they are exercisable by a simple

the holder needs to have a practical ability to majority of the investors, like IFRS. For VIEs,

exercise those right unlike IFRS, kick-out rights that are not

exercisable by a single investor or related party

group (unilateral kick-out rights) are not

considered substantive
The assessment of power over an investee In assessing control over a VIE investee, the

includes considering the following factors: explicit factors to consider are more extensive

-determining the purpose and design of the than those noted under IFRS. Such factors are

investee; not relevant for non-VIEs, unlike IFRS.

-identifying the population of relevant

activities;

-considering evidence that the investor has the

practical ability to direct the relevant activities,

special relationships, and the size of the

investor’s exposure to the variability of returns

of the investee.
In assessing whether the investor is exposed to Unlike IFRS, US GAAP does not define

the variability of returns of the investee, returns for the purpose of determining whether

‘returns’ are broadly defined and include: an investor has control over a VIE.

-distributions of economic benefits; Nevertheless, the decision maker must have the

-changes in the value of the investment; and obligation to absorb losses of the VIE, or rights

-fees, remunerations, tax benefits, economies of to receive benefits from the VIE, that could

scale, cost savings and other synergies. potentially be significant to the VIE
An investor that has decision-making power The VIE consolidation model does not have a

over an investee and exposure to variability in separate test to assess the link between power

returns determines whether it acts as a principal and obligations/benefits. For non-VIEs, the

or as an agent to determine whether there is a investor with a controlling financial interest

link between power and returns. If the decision consolidates its investee without a

maker is an agent, then the link between power principal/agent evaluation.

and returns is absent and the decision maker’s

delegated power is treated as if it were held by

its principal(s)

Revaluation of land use rights

IFRS US GAAP
Relevant Guidance
IAS 16 and 40 ASC 60
Depreciation
Depreciation of individual components is Component depreciation is permitted, but is

required when the components’ lives are not used often.

different.
Major overhaul costs
Costs of performing a major overhaul are Various alternatives are available to account

required to be capitalized if the overhaul for the costs of performing a major overhaul,

represents a replacement of a previously including: (a) expensing the costs as incurred,

identified component (if the future economic (b) accounting for the overhaul as a separate

benefits are probable and reliably measurable. component and (c) deferring the costs and

amortizing them over the period of benefit.

Revaluation
An entity may elect to apply the revaluation Revaluation is not allowed.

model, which allows the entity to measure

property, plant and equipment at fair value. If

elected, the model must be applied to entire

classes of assets.
Investment Property
Investment property is defined as property held No specific guidance exists.

to earn rentals or for capital appreciation, or Generally, real estate companies and operating

both. companies account for investment-type

An entity is permitted to record investment property using historical cost.

property at fair value, with changes in fair Investor entities generally account for their

value recognized in the income statement. investments in investment-type property at fair

The option to account for the property at fair value.

value applies to leased property. No option exists to account for the leased

property at fair value.

Impairment of long lived intangible assets

IFRS U.S GAAP
Relevant guidance
IAS 36 ASC 350
Unit of account
When possible, the impairment test should be In general, the unit of account is an individual

carried out at the individual asset level. If the asset. However, in rare cases, the unit of

test cannot be performed at the individual asset account may be a combined group of separately

level, it should be performed at the CGU level. recorded long-lived intangible assets that are

essentially inseparable from one another.

Recognition and measurement of impairment loss
An impairment loss is recognized for the An impairment loss is recognized for the

amount by which the carrying value of the amount by which the carrying amount of the

intangible asset exceeds its recoverable intangible asset exceeds its fair value.

amount. The recoverable amount is the greater

of : (a) the fair value less costs to sell and (b) An entity has the option to first assess

the value in use (i.e., the present value of future qualitative factors to determine whether it is

cash flows expected to be derived from the necessary to estimate the fair value of a long

asset(s). The option to assess qualitative factors lived intangible asset. An entity electing this

to determine if further impairment testing is option only has to estimate the fair value of a

required does not exist in IFRS. long lived intangible asset if its qualitative

assessment indicates it is more likely than not

that the asset is impaired. If the estimate of fair

value is needed, the fair value is determined

and then compared to the carrying amount.

Reversal of impairment loss
For long lived intangible assets on which an Prohibited.

impairment loss has been recognized in the

past, an entity must perform an annual review

for indicator of reversal. If such an indicator

exists, the entity estimates the recoverable

amount of the asset(s) in question and

previously recognized impairment losses are

reversed in an amount that increases the

carrying amount of the asset(s) up to the new

recoverable amount, subject to a ceiling of the

amount necessary to restore the carrying

amount of the asset(s) to what its initial

carrying amount would have been if the prior

impairment loss(es) had not been recognized

(that is, what the carrying amount would have

been after adjusting for regular depreciation

expense that would have been recognized.)

Exchanges in Assets
IFRS US GAAP
The cost of an item of property, plant, and In GAAP there is only one way to initially

equipment acquired in exchange for a record a fixed asset and that is the cost method.

nonmonetary asset or a combination of

monetary and nonmonetary asset is The cost method involves recording the

measured at fair value. acquisition cost of the fixed asset, plus the

costs of bringing the fixed asset to the

However, the exchange is recognized at condition and location required for its use. That

carrying amount under the following would include interest on any loans, physical

circumstances: construction of the asset, demolition of any

a.The exchange transaction lacks commercial pre-existing structures, renovation of a pre-

substance. existing structure, administrative and technical

i. Commercial Substance- a new notion activities in designing the asset and obtaining

and is defined as the event or permits, and administrative activities incurred

transaction causing the cash flows of during construction.

the entity to change significantly by

reason of the exchange. Provision for nonmonetary exchanges

ii. An exchange transaction has  A nonmonetary exchange uses the fair

commercial substance when the cash market value of the asset given up in

flows of the asset received differ the transaction or the asset received,

significantly from the cash flows of the whichever is more clearly evident.

asset transferred.

b. The fair value of the asset given or the COMMERCIAL SUBSTANCE

fair value of the asset received is not reliably a. A nonmonetary exchange has commercial

measurable. substance if:

- Future cash flows are expected to

EXCHANGE WITH COMMERCIAL significantly change as a result of the

SUBSTANCE exchange.

If a property is acquired in an exchange, the b. Future cash flows are expected to

cost of the property is equal to the following: significantly change if:

a. Fair value of asset given plus any cash - Configuration of future cash flows of

payment- on the part of the payer. acquired asset is significantly different from

b. Fair value of asset given minus any cash that of asset transferred. 

received – on the part of the recipient. - Configuration refers to Risk, Timing, and

Amount of future cash flows.

EXCHANGE WITH NO COMMERCIAL - Entity-specific value of acquired asset

SUBSTANCE is significantly different from that of asset

a. If the exchange transaction lacks transferred.

commercial substance, the acquired item of - Significance of difference is in relation to

PPE is measured at the carrying amount of the fair values of exchanged assets.

the asset given.

b. No gain or loss is recognized when the FOR EXCHANGES THAT LACK

exchange lacks commercial substance. COMMERCIAL SUBSTANCE:

a. If FV of asset surrendered < BV of asset

TRADE IN surrendered

a. A form of Exchange       - Recognize loss 

b. It is when a property is acquired by       - Use FV (which is lower than BV) as cost

exchanging another property as part basis of acquired asset

payment and the balance payable in cash or b.  If FV of asset surrendered > BV of asset

any other form of payment in accordance surrendered

with agreed terms.       - Do not recognize gain 

c. Trade in involves a nondealer acquiring the       - Use BV (which is lower than FV) as cost

asset from a dealer. basis of acquired asset

d. Usually involves a significant amount of

cash and therefore, transaction has BOOT: MONETARY CONSIDERATION

commercial substance. If the amount of "monetary consideration"

e. The new asst is recorded at the following included is:

order of priority: - 25% or more of the fair value of exchange

1. Fair Value of asset given plus cash - then, the exchange is considered as a

payment "monetary exchange"

2. Trade in value f asset given plus cash

payment (in effect, this is the fair value If the amount of "monetary consideration" <

of the asset received.) 25% of fair value of exchange

1. The party that pays "monetary

consideration"

- No gain is recognized

2. The party that receives "monetary

consideration"

- Recognized gain = total gain x ratio 

- ratio = amount of monetary consideration /

value of total consideration received

Recognition of Loss

"Loss on the exchange" is recognized in full

amount.
 Capitalization of interest on investment in associates
IFRS US GAAP
Definition
An associate is an entity over which the Similar to IFRS, although the term ‘equity

investor has significant influence – that is, the investment’ rather than ‘associate’ is used. US

power to participate in, but not control, an GAAP does not include unincorporated

associate’s financial and operating policies. entities, although these would generally be

Participation by an investor in the entity’s accounted for in a similar way.

financial and operating policies on the entity’s

board demonstrates significant influence. A

20% or more interest by an investor in an

entity’s voting rights leads to a presumption of

significant influence.
Equity Method
An investor accounts for an investment in an Similar to IFRS if the equity method is applied.

associate using the equity method. The investor In addition, an entity can elect to adopt the fair

presents its share of the associate’s post-tax value option for any of its equity method

profits and losses in the income statement. The investments. If elected, equity method

investor recognizes in equity its share of investments are presented at fair value at each

changes in the associate’s equity that have not reporting period, with changes in fair value

been recognized in the associate’s profit or being reflected in the income statement.

loss. The investor, on acquisition of the

investment, accounts for the difference between

the cost of the acquisition and investor’s share

of fair value of the net identifiable assets as

goodwill. The goodwill is included in the

carrying amount of the investment. The

investor’s investment in the associate is stated

at cost, plus its share of post-acquisition profits

or losses, plus its share of post-acquisition

movements in reserves, less dividends received.

Losses that reduce the investment to below zero

are applied against any long-term interests that,

in substance, form part of the investor’s net

investment in the associate – for example,

preference shares and long-term receivables

and loans. Losses recognized in excess of the

investor’s investment in ordinary shares are

applied to the other components in reverse

order of priority in a winding up. Further losses

are provided for as a liability only to the extent

that the investor has incurred legal or

constructive obligations to make payments on

behalf of the associate.

Accounting Policies
An investor’s financial statements are prepared The investor’s financial statements do not have

using uniform accounting policies for like to be adjusted if the associate follows an

transactions and events; adjustments are made acceptable alternative US GAAP treatment,

to the associate’s policies to conform to that of although it would be acceptable to do so.

the investor.
Potential voting rights
Considers the existence and effects of potential Generally not considered.

voting rights on currently exercisable or

convertible instruments.

Related party disclosures

IFRS US GAAP
Allows a partial exemption from the disclosure Requires disclosure of all material related party

requirements for transactions between transactions, other than compensation

government-related entities as well as with the arrangements, expense allowances and other

government itself. similar items in the ordinary course of

business.
There are no special recognition or Generally, there are no special recognition or

measurement requirements for related party measurement requirements for related party

disclosures. disclosures: however, unlike IFRS, certain

Codification topics/subtopics have specific

guidance.
Key management personnel compensation is Management compensation is not required to

disclosed in total and is analysed by be disclosed in the financial statements;

component. however, SEC registrants are required to

provide compensation information outside the

financial statements for specified members of

management and the board.

In certain cases, government-related entities There is no partial disclosure exemption for

are allowed to provide less detailed disclosure government-related entities that prepare

of related party transactions. financial statements in accordance with the US

 GAAP. However, such entities’ financial

statements will often be prepared in accordance

with US governmental accounting standards,

rather than in accordance with US GAAP.

CENTRAL PHILIPPINE UNIVERSITY

COLLEGE OF BUSINESS AND ACCOUNTANCY
Jaro, Iloilo City

COMPARISON OF IFRS AND US

GAAP

Submitted by:

CASTILLON, YSABELA ROSE

DE JUAN, MILLEN JOY
DESEO, JAY EMMANUEL
 DIAZ, JEFF
DELA CRUZ, NICOLE
EDUQUE, ESTHER JOY
ESCOSAR, SELINNA
ESTRADA, AIRON
GALVE, KYLE MARIE
GATILOGO RICA ELOISE

Submitted to:

TERESITA CRUCERO