US GAAP is based on rules while IFRS is based on principles. Companies have more discretion on the information to include in their financial statements under IFRS. However, since the GAAP is based on specified rules, companies have to abide by those rules and they do not have as much discretion. GAAP does not recognize any reversals once inventory is written down. However, this is permissible under IFRS. Both systems are similar in that they recognize and require the same financial statements, which include the income statements, balance sheets, and cash flow statements. I would choose IFRS because of the implications it has. The system is used in more than one hundred countries around the world. Many companies have ventured to different countries and the US has many foreign owned companies. This necessitates the need to have a common accounting standard. Since GAAP is recognized and used in the US, it limits a person because it means that one can only practice accounting when in the country. However, IFRS is more flexible in this regard.

Lump-sum Purchase

Companies can use a lump sum price when they acquire a group of assets. However, the accountant has to record each item acquired under its fair market value. When using the relative fair market value method, accountants assign a percentage price for each individual asset from the lump sum. This percentage is determined by dividing the market value for that asset and the total market value of all the acquired assets. The price for the individual assets have to be determined for accounting purposes, as it is included in financial statements. Company LSK acquired a facility at $500,000. The facility was inclusive of the building and the equipment. The estimated value of the building is $250,000. The estimated cost of the equipment is $100,000. the total of the values of the property and the equipment is $350,000, while the actual price is $500,000. Both prices will be included when accounting for the costs.

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