international acc chapter1&نهائي 4

CHAPTER 1
INTRODUCTION TO
INTERNATIONAL
ACCOUNTING
Chapter Outline
1.International accounting is an extremely broad
topic.
A. At a minimum it focuses on the accounting
issues unique to multinational corporations,
especially with respect to foreign operations.
B. At the other extreme it encompasses the
study of the various functional areas of accounting
in all countries of the world, as well as the activities
of a number of supranational organizations.
Chapter Outline
2. There are several accounting issues encountered by companies involved in
international trade.
A. One issue is the accounting for foreign currency-denominated export
sales and import purchases. An important issue is how to account for
changes in the value of the foreign currency-denominated account
receivable (payable) that occur as exchange rates fluctuate.
B. A related issue is the accounting for derivative financial instruments,
such as forward contracts and foreign currency options, used to hedge the
foreign exchange risk associated with foreign currency transactions.
c. Determining the correct amounts to include in consolidated financial
statements for the assets, liabilities, revenues, and expenses of foreign
operations. The consolidation of a foreign subsidiary involves a two-step
process: (1) restate foreign GAAP financial statements into parent company
GAAP and (2) translate foreign currency amounts into parent company
currency. Determining the appropriate translation method and deciding
how to report the resulting translation adjustment are important questions.
Answers to Questions
Q . No1
what`s the definition of International accounting?
International accounting can be defined as One of
accounting branches that reflect the latest stages of
the evolution of thought accounting to out its from
the domain of regional accounting practices to
encounter an international dimension problems
Q . No2
What accounting issues arise for a company as a result of
engaged in international tread (imports and exports)?
Companies engaged in international trade with imports
and exports denominated in foreign currencies are faced
with the accounting issue of translating foreign currency
amounts into the company’s reporting currency and
reporting the effects of changes in exchange rates in the
financial statements.
Q . No:3
What financial reporting issues arise as a result of making a
foreign country (foreign direct investment)?
Financial reporting issues that result from foreign direct
investment are:
(a) conversion of foreign GAAP to parent company GAAP and
(b) translation of foreign currency to parent company
reporting currency to prepare consolidated financial
statements. In addition, supplementary disclosures about
foreign operations might be required.
Q . No:4
What would be the advantages of having a single set of
accounting standards used worldwide?
A single set of accounting standards used worldwide would
have the following benefits for multinational corporations:
• Reduce the cost of preparing consolidated financial
statements
• Reduce the cost of gaining access to capital in foreign
countries
• Facilitate the analysis and comparison of financial statements
of competitors and potential acquisitions
CHAPTER 4
INTERNATIONAL
FINANCIAL REPORTING
STANDARDs
Q . No:5
What s the different between IFRSs and U.S. GAAP with respect to the recognition and
measurement of assets?
• A variety of differences exist between IFRSs and U.S. GAAP

with respect to the recognition and measurement of assets.
A. Inventory – IFRSs require inventory to be reported on the
balance sheet at the lower of cost or net realizable value; U.S.
GAAP requires the lower of cost or replacement cost. U.S. GAAP
allows the use of LIFO; IFRSs do not.
B. Property, plant and equipment – subsequent to acquisition,
IFRSs allow fixed assets to be reported on the balance sheet
using a cost model (historical cost less accumulated depreciation
and impairment losses) or a revaluation model (fair value at the
balance sheet date less accumulated depreciation and
impairment losses); U.S. GAAP requires the use of the cost
model.
C. Impairment of assets – an asset is impaired under IFRSs when its
carrying amount exceeds its recoverable amount, which is the greater
of net selling price and value in use. Value in use is calculated as the
present value of future cash flows expected from continued use of
the asset and from its disposal. An asset is impaired under U.S. GAAP
when its carrying amount exceeds the undiscounted future cash flows
expected from the asset’s continued use and disposal.
1. Measurement of impairment loss – the impairment loss under
IFRSs is the difference between carrying amount and recoverable
amount; under U.S. GAAP, the impairment loss is the amount by
which carrying amount exceeds fair value. Recoverable amount and
fair value are likely to be different.
2. Reversal of impairment loss – if subsequent to recognizing an
impairment loss, the recoverable amount of an asset is determined to
exceed its new carrying amount, IFRSs require the original
impairment loss to be reversed; U.S. GAAP does not allow the
reversal of a previously recognized impairment loss.
D. Borrowing costs – the benchmark treatment in IFRSs is to expense
all borrowing costs when incurred, the allowed alternative is to
capitalize borrowing costs to the extent they are attributable to the
acquisition, construction, or production of a qualifying asset. The
benchmark treatment is not allowed under U.S. GAAP; interest must
be capitalized as part of a qualifying asset when certain criteria are
met.
E. Leases – both IFRSs and U.S. GAAP distinguish between operating
and finance (capitalized) leases. U.S. GAAP provides “bright line”
tests to determine when a lease must be capitalized; IFRSs do not.
F. Development costs – when certain criteria are met, IFRSs require
development costs to be capitalized as an asset and then amortized
over their useful life; U.S. GAAP requires development costs to be
expensed as incurred. An exception exists in U.S. GAAP for software
development costs.
Exercise:1
To determine the amount at which inventory should be reported

on the December 31, year 1,balance sheet, Mohamed Osama
company compiles the following information for its inventory of
product Z on hand at that date:
Y2 y1
20.000 Historical cost
18000 14.000 Replacement cost
17.000 Estimated selling price
2.000 Estimated cost to sell
18000 net Realizable value
required:
-determine the impact on year 1 and year 2 to product Z and
Journalize it: (1) under IFRSs and (2) under U.S.GAAP.
solution
IFRSs y1 y2 U.S. GAAP
Historical cost 20,000 Physical Historical cost 20,000 Physical
15,000 14000
Estimated selling price 17,000 Replacement cost 14,000 18000
Costs to complete and sell 2,000
Net realizable value 15,000 18000
Inventory loss 5,000 +3000 Inventory loss 6,000 no
recovery
the adjustment
U.S. GAAP IFRSs

Inventory loss 6000 Inventory loss 5000 y1
Inventory 6000 Inventory 5000
No adjustment necessary Inventory 3000 y2

recovery of Inventory loss 3000
Exercise:2 ‫بالمحاضرة ليكونهناك اكثر من تمرين وأكثر من فكرة‬ ‫قد تتغيير االرقام عن المشروح‬
Ahmed company acquired a depreciable asset at
the beginning of year 1 at a cost of $12 million. At
December 31, year 1 , ahmed gathered the
following information related to this asset:
y2 y1
10,000,000 Carrying amount ( net of accumulated depreciation)
8,000,000 8,250,000 Fair value of the asset( net selling price)
8,500,000 9,000,000 Sum of future cash flow from use of the asset
7,000,000 8,500,000 Present value of future cash flow from use of the asset
required:
-determine the impact on year 1 and year 2 to the
asset and Journalize it: (1) under IFRSs and
(2) under U.S.GAAP.
IFRSs U.S. GAAP
Carrying amount 10,000,000 Carrying amount 10,000,000
Net selling price( fair value) 8,250,000 8,000,000 Net selling price ( fair value) 8,250,000 8,000,000
Discounted future cash flows 9,000,000 7,000,000 Future cash flows 9,000,000 8,500,000
Value in use (larger amount) 8,500,000 8,000,000 Value in use (larger amount) 9,000,000 8,500,000
Impairment loss 1,500,000 500,000 Impairment loss 1,750,000 No
y1(10-8.5) y2(8.5-8) y1 (10-8.25) y2(8.25-8.5) impairment
loss
the adjustment
U.S. GAAP IFRSs

impairment loss 1,750,000 impairment loss 1,500,000 y1
asset 1,750,000 asset 1,500,000
No adjusted ( because book value 8.25 impairment loss 500,000 y2

less than a largest amount 8.5 , then we asset 500,000
can’t recognized at an impairment loss )

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CHAPTER 1

• A variety of differences exist between IFRSs and U.S. GAAP

To determine the amount at which inventory should be reported

U.S. GAAP IFRSs

No adjustment necessary Inventory 3000 y2

U.S. GAAP IFRSs

No adjusted ( because book value 8.25 impairment loss 500,000 y2

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