Summary Business Accounting

Question:

Barrett Inc. paid $50,000 of property taxes in January that constitute the entire property tax bill for the

year.

Which of the following is true concerning how Barrett would account for those taxes in interim periods?

a. Under IFRS, Barrett would expense the entire $50,000 in the last quarter of the year.

b. Under U.S. GAAP, Barrett would expense the entire $50,000 of property taxes when the tax was paid

in the first quarter of the year.

c. Under U.S. GAAP, Barrett would finish the first quarter of the year with a prepaid property taxes asset

of $30,000.

d. Unlike IFRS, Barrett would start the third quarter of the year with a prepaid property tax asset of $0.



Answer:



d. IFRS recognizes interim expenses more discretely than does U.S. GAAP, such that the

expense is recognized in the period in which it occurs rather than being accrued as a prepaid

expense asset when an amount is paid and then amortized to expense over the year.

Therefore, under IFRS Barrett would recognize the entire $50,000 as expense in the first

period, and not accrue any prepaid expense asset. Under U.S. GAAP Barrett would accrue an

asset when it made the tax payment and then reduce the asset by $12,500 each interim period

while recognizing $12,500 of expense each interim period.