Since we cannot summarize all the differences in the space of this article, here we illustrate fixed assets as an example to analyze the difference between three accounting systems.

Capitalization threshold

China's GAAP: Fixed assets related to production and operations of an enterprise with estimated service life of more than one year are capitalized. Other fixed assets above 2,000 yuan with service life of more than two years should be capitalized.

IAS: Enterprises have the discretion to determine a threshold above which expenditures are capitalized. Fixed assets are those tangible assets that are expected to be used during more than one period.

Cost

China's GAAP: Cost in China's GAAP is similar to IAS except that the cost includes purchase taxes rather than non-refundable purchase taxes.

IAS: The cost of an item of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes, and any directly attributable costs of bringing the asset to working condition for its intended use.

Carrying value

China's GAAP: Tangible fixed assets are stated at cost deducting accumulated depreciation. Subsequent revaluations are generally not allowed.

IAS: Tangible fixed assets are stated at cost deducting accumulated depreciation. Fixed assets may be carried at a revalued amount, being its fair value at the date of the revaluation deducting any subsequent accumulated depreciation and subsequent accumulated impairment losses.

Disposal costs at the end of fixed assets' service life

China's GAAP: In general, estimated costs to dispose of the fixed assets at the end of their service life are not accounted as part of the fixed assets.

IAS: The cost of fixed assets includes its dismantlement, removal or restoration-the obligation that the entity incurs as a consequence of installing and using the items.

Major overhauls

China's GAAP: Major overhauls should be expended when incurred. However, if future economic benefit in excess of the originally assessed standard of performance can be demonstrated, the amount not in excess of the fixed assets' recoverable amount can be capitalized. It should be depreciated over a period between two major overhauls.

IAS: Except when the enterprise has identified as a separate component of the asset, it is usually recognized as an expense when incurred as it is made to restore or maintain the future economic benefits that an enterprise can expect from the originally assessed standard of performance of the asset.

Depreciation

China's GAAP: Based on the facts, circumstances and management judgments, enterprises can determine the estimated service life and salvage value of fixed assets. Depreciation can be made based on various methods including the straight-line method, physical use depreciation method, sum-of-the-years' digit method and double-declining balance method.

IAS: It is similar to China's accounting regulations.

Differences between China's GAAP and U.S. GAAP on fixed assetsCapitalization threshold

China's GAAP: As stated above, fixed assets related to production and operations of an enterprise with estimated service life of more than one year are capitalized. Other fixed assets above 2,000 yuan with service life of more than two years should be capitalized

U.S. GAAP: Enterprises determine their own materiality threshold above which expenditure is capitalized.

Borrowing costs

China's GAAP: Borrowing costs on project-specific borrowings should be capitalized as part of the cost of constructing a tangible fixed asset.

U.S. GAAP: Interest expense is capitalized during construction based on the amount of investment in a project, without regard to source of financing, but limited to total amount of interest expense incurred.

Major overhauls

China's GAAP: Costs of major overhauls may be accrued over the period leading up to the overhaul, or may be capitalized and expended over the period leading up to the next overhaul.

U.S. GAAP: Normally expended as incurred except when the enterprise has identified as a separate component of the asset, an amount representing major inspection or overhaul and has already depreciated that component to reflect the consumption of benefits which are replaced or restored by the subsequent major inspection or overhaul.

Impairment

China's GAAP: Carried at the lower of net book value and the recoverable amount on a single item basis, the recoverable amount is the higher of net selling price and present value of estimated future cash flows from continuous use and ultimate disposal.

U.S. GAAP: Tested for impairment when circumstances indicate possible impairment, the test is based on asset groupings where cash flows can be identified. Impairment is recognized only if undiscounted expected future cash flows are below book value. Impairment is measured based on fair value.