MORNIN’ JOE INTERNATIONAL
DISCUSSION QUESTIONS
1.
U.S. GAAP Term IFRS International Term
Statement of comprehensive income Statement of comprehensive income
Balance sheet
Interest expense
Net income
Trading investments
Excess of issue price over par
Examples: Accumulated other comprehen
sive income, treasury stock, unrealized
gain (loss) on available-for-sale invest
ments
Notes payable
Wages and salaries payable, payroll taxes
payable
*Note: U.S. GAAP and IFRS have converged on the title and disclosure requirements for other
comprehensive income
items, such as Unrealized Gain (Loss) on Available-for-Sale Investments.
2. The nature of an expense is how the expense would naturally be recorded in a journal entry
reflecting the economic benefit received for that expense. An example is wages expense. The
function of an expense identifies the purpose of the expense, such as selling expense or ad
ministrative expense.
3. If an expense is classified by function on the income statement, then the natural classification
must be disclosed in the footnotes. Both classifications cannot be commingled on the income
statement.
4. Under U.S. practice, the term provision usually denotes an expense, as in provision
for income taxes (income tax expense). International practice uses the term provision
to denote a liability. Thus, an income tax provision would be income taxes payable.
5. First, under IFRS, LIFO is prohibited, whereas it is acceptable under U.S. GAAP. Second, in
using a lower-of-cost-or-market valuation, IFRS define “market” as net realizable value. U.S.
GAAP, in contrast, defines “market” as replacement cost in most circumstances.
,6. A biological asset is an agricultural asset, such as a forest, a vineyard, a farm, or livestock.
These assets must be identified separately and valued using fair value. They can be separately
disclosed in a note.
7. IFRS allow some property, plant, and equipment accounts to be valued at either historical
cost or fair value. This is in contrast to U.S. GAAP, which requires historical cost for all
property, plant, and equipment.
8. A share premium is an international term for “excess of issue price over par value.”
9. A reserve under IFRS denotes an element of stockholders’ equity. Most reserve items are ac
cumulated other comprehensive income. The term reserve typically denotes a liability in the
United States, such as “reserve for restructuring.”
MJ–1
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Mornin’ Joe International
IFRS ACTIVITIES
IFRS Activity 1
a.
Turnover is a European and British term for “Sales” or “Revenue.” It is com
monly the first line of the income statement.
b. The most striking aspect of this income statement is the lack of detail. The state
ment begins with “Turnover,” and the second line is “Operating profit.” None of
the operating expenses that appear in a GAAP statement, including cost of
goods sold, are shown on the statement. These items of expense are provided in
the notes under both functional and natural classifications. There is wide lati
tude in the choice of subtotals and items included (or not included) in the in
come statement under IFRS. The items that are shown are financing costs and
investment income, affiliate earnings, and unique charges and credits. These are
required disclosures on the face of the statement. This income statement nearly
represents the minimal disclosure allowed on the face of the statement under
IFRS.
c.
,The subtotal for net finance costs is presented at the top of the column. This
is a European presentation approach that would not be found in most U.S.
financial statements. In U.S. financial statements, subtotals are at the bottom
of the column.
IFRS Activity 2
a.
The statement of financial position (balance sheet) of LVMH is clearly ordered
differently than a U.S. company statement of financial position (balance
sheet) would be. On the asset side of the statement of financial position
prepared under IFRS (balance sheet), the non-current items are listed prior to
the current items. Within the non-current items, intangible assets are listed
first, followed by property, plant, and equipment. On Mornin’ Joe’s statement
of financial position (balance sheet), the intangible assets are listed last, not
first.
Within the current assets, the least liquid current assets are listed first. Thus,
inventories are identified first, followed by accounts receivable and cash. On
Mornin’ Joe’s statement of financial position (balance sheet), the current
assets begin with cash, followed by accounts receivable and inventories.
MJ–2
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Mornin’ Joe International
IFRS Activity 2 (Concluded)
For LVMH, the equities are listed first on the liabilities and equity side of the
statement of financial position (balance sheet). The liabilities are listed after
the equities. The liabilities begin with non-current liabilities, followed by
current liabilities. So again, the statement of financial position (balance sheet)
is listing long-term elements first. On Mornin’ Joe’s statement of financial
position (balance sheet), the liabilities precede the stockholders’ equity, and
the current liabilities precede the noncurrent liabilities.
In the Stockholders’ Equity section of the statement of financial position for
, LVMH (balance sheet), treasury shares (treasury stock) are identified sepa
rately but are not placed as the last line of the Stockholders’ Equity section,
as would be the case under U.S. GAAP.
Retained earnings do not appear to be identified separately on the LVMH
statement. “Other reserves” clearly includes retained earnings, as can be de
termined by the size of the balance. The current period’s “net profit, group
share” (synonymous with net income under GAAP) is included as a separate
line item in the Stockholders’ Equity section, rather than being included in the
ending balance of retained earnings.
b.
c.
LVMH Term
Statement of financial position
Mornin’ Joe U.S. GAAP Term
Balance sheet
Share capital
Share premium
Common stock
Excess of issue price over par
Other reserves
Provisions
Retained earnings
Accrued liabilities, such as wages
and salaries payable
The revaluation reserve is the adjustment to stockholders’ equity for accumu
lated unrealized gains and losses from changes in fair market value for
selected assets, such as available-for-sale investments. This account is simi
lar to “Unrealized gain (loss) on available-for-sale investments,” which is
discussed in Chapter 15. However, under IFRS, fair market valuation is avail
able for a wider selection of assets than under U.S. GAAP. For example,
LVMH values its vineyards at fair value.
DISCUSSION QUESTIONS
1.
U.S. GAAP Term IFRS International Term
Statement of comprehensive income Statement of comprehensive income
Balance sheet
Interest expense
Net income
Trading investments
Excess of issue price over par
Examples: Accumulated other comprehen
sive income, treasury stock, unrealized
gain (loss) on available-for-sale invest
ments
Notes payable
Wages and salaries payable, payroll taxes
payable
*Note: U.S. GAAP and IFRS have converged on the title and disclosure requirements for other
comprehensive income
items, such as Unrealized Gain (Loss) on Available-for-Sale Investments.
2. The nature of an expense is how the expense would naturally be recorded in a journal entry
reflecting the economic benefit received for that expense. An example is wages expense. The
function of an expense identifies the purpose of the expense, such as selling expense or ad
ministrative expense.
3. If an expense is classified by function on the income statement, then the natural classification
must be disclosed in the footnotes. Both classifications cannot be commingled on the income
statement.
4. Under U.S. practice, the term provision usually denotes an expense, as in provision
for income taxes (income tax expense). International practice uses the term provision
to denote a liability. Thus, an income tax provision would be income taxes payable.
5. First, under IFRS, LIFO is prohibited, whereas it is acceptable under U.S. GAAP. Second, in
using a lower-of-cost-or-market valuation, IFRS define “market” as net realizable value. U.S.
GAAP, in contrast, defines “market” as replacement cost in most circumstances.
,6. A biological asset is an agricultural asset, such as a forest, a vineyard, a farm, or livestock.
These assets must be identified separately and valued using fair value. They can be separately
disclosed in a note.
7. IFRS allow some property, plant, and equipment accounts to be valued at either historical
cost or fair value. This is in contrast to U.S. GAAP, which requires historical cost for all
property, plant, and equipment.
8. A share premium is an international term for “excess of issue price over par value.”
9. A reserve under IFRS denotes an element of stockholders’ equity. Most reserve items are ac
cumulated other comprehensive income. The term reserve typically denotes a liability in the
United States, such as “reserve for restructuring.”
MJ–1
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Mornin’ Joe International
IFRS ACTIVITIES
IFRS Activity 1
a.
Turnover is a European and British term for “Sales” or “Revenue.” It is com
monly the first line of the income statement.
b. The most striking aspect of this income statement is the lack of detail. The state
ment begins with “Turnover,” and the second line is “Operating profit.” None of
the operating expenses that appear in a GAAP statement, including cost of
goods sold, are shown on the statement. These items of expense are provided in
the notes under both functional and natural classifications. There is wide lati
tude in the choice of subtotals and items included (or not included) in the in
come statement under IFRS. The items that are shown are financing costs and
investment income, affiliate earnings, and unique charges and credits. These are
required disclosures on the face of the statement. This income statement nearly
represents the minimal disclosure allowed on the face of the statement under
IFRS.
c.
,The subtotal for net finance costs is presented at the top of the column. This
is a European presentation approach that would not be found in most U.S.
financial statements. In U.S. financial statements, subtotals are at the bottom
of the column.
IFRS Activity 2
a.
The statement of financial position (balance sheet) of LVMH is clearly ordered
differently than a U.S. company statement of financial position (balance
sheet) would be. On the asset side of the statement of financial position
prepared under IFRS (balance sheet), the non-current items are listed prior to
the current items. Within the non-current items, intangible assets are listed
first, followed by property, plant, and equipment. On Mornin’ Joe’s statement
of financial position (balance sheet), the intangible assets are listed last, not
first.
Within the current assets, the least liquid current assets are listed first. Thus,
inventories are identified first, followed by accounts receivable and cash. On
Mornin’ Joe’s statement of financial position (balance sheet), the current
assets begin with cash, followed by accounts receivable and inventories.
MJ–2
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Mornin’ Joe International
IFRS Activity 2 (Concluded)
For LVMH, the equities are listed first on the liabilities and equity side of the
statement of financial position (balance sheet). The liabilities are listed after
the equities. The liabilities begin with non-current liabilities, followed by
current liabilities. So again, the statement of financial position (balance sheet)
is listing long-term elements first. On Mornin’ Joe’s statement of financial
position (balance sheet), the liabilities precede the stockholders’ equity, and
the current liabilities precede the noncurrent liabilities.
In the Stockholders’ Equity section of the statement of financial position for
, LVMH (balance sheet), treasury shares (treasury stock) are identified sepa
rately but are not placed as the last line of the Stockholders’ Equity section,
as would be the case under U.S. GAAP.
Retained earnings do not appear to be identified separately on the LVMH
statement. “Other reserves” clearly includes retained earnings, as can be de
termined by the size of the balance. The current period’s “net profit, group
share” (synonymous with net income under GAAP) is included as a separate
line item in the Stockholders’ Equity section, rather than being included in the
ending balance of retained earnings.
b.
c.
LVMH Term
Statement of financial position
Mornin’ Joe U.S. GAAP Term
Balance sheet
Share capital
Share premium
Common stock
Excess of issue price over par
Other reserves
Provisions
Retained earnings
Accrued liabilities, such as wages
and salaries payable
The revaluation reserve is the adjustment to stockholders’ equity for accumu
lated unrealized gains and losses from changes in fair market value for
selected assets, such as available-for-sale investments. This account is simi
lar to “Unrealized gain (loss) on available-for-sale investments,” which is
discussed in Chapter 15. However, under IFRS, fair market valuation is avail
able for a wider selection of assets than under U.S. GAAP. For example,
LVMH values its vineyards at fair value.
