Comprehensive Income
‘Comprehensive income’ and ‘other comprehensive income’ are two components of the income statement... Read More
Disclosures are very useful to users of financial statements, especially when analyzing a company’s performance. Coincidentally, the disclosure and presentation requirements are very similar under IFRS and US GAAP.
Under IFRS, the following financial statement disclosures concerning inventories are required:
The inventory-related disclosures under US GAAP are quite similar to those under IFRS. However, the second and third requirements from the bottom of the above list are irrelevant since US GAAP prohibits the reversal of prior-year inventory write-downs. In addition, US GAAP requires disclosure of significant estimates applicable to inventories and any material amount of income that results from the liquidation of LIFO inventory.
Question 1
Under US GAAP, which of the following is least likely a relevant disclosure relating to inventories?
- The accounting policies adopted in measuring inventories.
- The amount of inventories recognized as an expense during the period.
- The circumstances which led to the reversal of a write-down of inventories.
Solution
The correct answer is C.
Under US GAAP, the circumstance which led to the reversal of a write-down of inventories is not a relevant requirement because US GAAP does not permit the reversal of prior-year inventory write-downs.
Options A and B give relevant disclosure requirements.
Question 2
The financial disclosure information required by the IFRS, but not US GAAP is:
- Information related to inventory write-downs.
- Information related to inventory write-down reversals.
- Information related to the carrying amount of each inventory section.
Solution
The correct answer is B.
US GAAP does not require the disclosure of write-down reversals because it does not allow for the reversal of write-downs.