Interpretation and Application of AASB for Financial Reporting

This study is based on the interpretation and application of AASB while preparing and presenting Financial information, meeting with the technical requirements and interpretation of the various concepts of the chosen accounting standards with a view to addressing the basic issues in the financial reporting along with the application of the applicable accounting standards, knowledge of the accounting concepts and professional judgment for solving the routinely found accounting problems with the help of practical problem-solving approach.

Accounting
Assignment
2019

1
By student name
Professor
Date: 17thSeptember, 2019.
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Executive Summary
Our study is based on the interpretation and application of AASB while preparing and presenting
Financial information, meeting with the technical requirements and interpretation of the
various concepts of the chosen accounting standards with a view to addressing the basic issues
in the financial reporting along with the application of the applicable accounting standards,
knowledge of the accounting concepts and professional judgment for solving the routinely found
accounting problems with the help of practical problem solving approach.
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Contents
Solution to Question No.1...........................................................................................................................2
solution to question No. 2...........................................................................................................................7
solution to question No.3............................................................................................................................8
Conclusion.................................................................................................................................................10
References.................................................................................................................................................10
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Solution to Question No.1
Based on the revaluation model of the AASB :116 “The property, plant and equipment
which are having the reliable estimate of their fair value shall be carried at a revalued amount
after the initial recognition of the same”. This fair value value of the property, Plant and
equipment shall be calculated taking the fair value as on the revalued date from which any sort
of accumulated depreciation and incurred accumulated impairment losses are to be
deducted(Abdullah & Said, 2017).It further stays that revaluation shall be taken on a regular and
continuous basis for assuring the fact that the discrepancy between the carrying amount and the
fair value of the property at which the plant and equipment are valued at the end of the period of
accounting.
Such revaluation may result into the increase or decrease in the carrying amount of the asset for
which the separate treatment has been suggested. The increase in th carrying amount should have
the place of its recognition in the other comprehensive income part subsequently getting
accumulated with the equity with the appropriate heading of the revaluation surplus.But the
treatment may vary in the case when it should have the place of its recognition in the statement
of profit and Loss only to the extent that it reverses a revaluation decrease of the same asset
previously recognized in profit or loss.
On the other hand decrease in the carrying amount resulting from revaluation of the Property,
Plant and Equipment shall have the place of its recognition in the in profit or Loss Account.But it
may again vary by recognising the same in other comprehensive income to the extent of any
credit balance existing in the revaluation surplus in respect of that item of the Property, Plant and
Equipment.Because of this treatment amount accumulated in the equity under the heading of
revaluation surplus shall get reduced.
There are two methods based on which adjustment is made in the carrying amount of the assets
stated below-
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A consistent adjustment is made in the gross carrying amount of the asset by revaluating the
carrying amount of the asset. For example the gross carrying amount can be restated after taking
the observable market amount into reference and change in the carrying amount can be
propotionated accordingly. The second approach is that the gross carrying amount is reduced by
the accumulated depreciation.
Workings:
Carrying amount of the asset as on 30th June, 2016= Actual cost – Depreciation
=$170000-$30000
=$140000
Fair value of the property as on 30th June,2016 =$120000
Hence the revalued amount shall be = $120000
Decrease in the carrying amount of the Property, plant and equipment = $140000-$120000
=$20000
In the given case there has been a decrease in the carrying amount of the asset, hence this
decrease should be recognized in the income statetment.
Working : Calculation of the Amount of depreciation
Deprecation as per Straight Line method = Actual cost- residual value/ Useful life of the asset
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=$170000-$20000/5
=$30000
The carrying amount of the asset as on 30th June,2017 =$120000
The fair value of the asset as on 30th June,2017 = $110000
Amount of decrease in the carrying amount as on 30thJune, 2017 = $120000-$110000
=$10000
Carrying amount of the asset as on 30th June,2018 = $110000
The fair value of the asset as on 30th June,2018 = $88000
Decrease in the carrying amount = $110000-$88000
=$22000
The carrying amount of the asset as on 30th June,2018 = $88000
The fair value of the asset
Journal Entries in the books of Rhodes limited
Date Particulars Amount (Dr) Amount9Cr)
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30.06.2016 Profit & Loss
A/c…..Dr.
$20000
To Property, Plant and
equipment
$20000
30.06.2016 Depreciation
A/C….Dr.
$30000
To Property, Plant &
Equipment
$300000
30.06.2016 Profit & Loss
A/C….Dr.
$30000
To Depreciation $30000
30.06.2017 Profit & Loss
A/C…..Dr
$30000
To Depreciation $30000
30.06.2017 Depreciation
A/C….Dr.
$30000
To Property, Plant &
Equipment
$300000
30.06.2017 Profit & Loss
A/c…..Dr.
$10000
To Property, Plant and
equipment
$10000
30.06.2018 Depreciation
A/C….Dr.
$30000
30.06.2018 To Property, Plant &
Equipment
$300000
Profit & Loss
A/C…..Dr
$30000
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To Depreciation $30000
Profit & Loss
A/c…..Dr.
$22000
To Property, Plant and
equipment
$22000
31.12.2018 Cash A/C………..Dr. $80000
To Profit & Loss A/C $9000
To Property, Plant &
Equipment
$71000
31.12.2018 Profit & Loss
A/c…..Dr.
$11000
To Property, Plant and
equipment
$11000
Solution to question No. 2
As per AASB-137 it has been suggested that the rcognition of provision in the books of
accounts of a company in the case when there is significant uncertainty associated with the
amount and the timing of obligation to be settled down.
It further states that the provision shall be recognized when :
1. The present obligation has taken place because the entity had a past obligation.
2. For the settlement of such obligation shall lead into the outflow of resources that has
economic benefits.
3. Such obligation can be measured reliably(Cayon, et al., 2017).
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Determination of the amount of provision to be recognized in the books of Brunswick Metals
Limited as on 30thJune, 2018
( Figures are in $)
Cost probability Actual Amount of Liability
$800000 60% $480000
As the probability of 60% is the highest amount of tentative loss to be suffered by the company,
hence the amount of obligation to be considered is the $480000.
Discounted rate to be used here in the given case is 4%.
Total amount of liability = $480000
Provision to be recognized in the books = $480000/(1+4/100)
=$461538.5
Again as per the criteria to choose the appropriate discount rate the major points to be included
are it should be the risk free rate for which the rate of the government bond may be preferred.
Second important factor while taking decision about the selection of the discount rate is that it
needs to be a rate reflecting the current market trend . It should not include the inflation rate
twice(Coate & Mitschow, 2017).
Hence applying the aforementioned criteria in the give case of Brunswick Metals limited the
discount rate of 4% is appropriate.
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Solution to Question No.3
a. i. The definition of the intangible assets requires that it should be identifiable so as to
distinguish the same from Goodwill. There are basically three criteria associated with the
definition of intangible resources and these are the existence of future economic benefits,
identifiability and control over resource (Delone & Mclean, 2004) .
If we go for applying the first criteria to the bitcoins of the Christchurch limited then it
can be seen that these bitcoins meet the identifiability criteria as they can easily be
distinguished from the Goodwill of the business. Second criteria of control over the
resource is also met by the cryptocurrency of the entity. Again the third criteria of gaining
future economic benefit from the bitcoin is also true. Hence as all of the criteria of the
definition of intangible assets as prescribed by the Australian Accounting standard board
has been met, hence these are intangible assets.
ii. The criteria for the recognition of the intangible assets as per Australian accounting
standard Board states that the intangible asset shall be entered in the books only if-
1. There should be releiable estimate available for the determination of the cost of the
asset.
2. The future economic benefits expected to be generated by such assets shall incurr to
the organisation.
From data provided in the question it is quite evident the market of the
cryptocurrency is quite volatile one. Hence in such case it is quite difficult to measure
the cost of such cryptocurrency reliably. Hence it is unable to meet the criteria
prescribed for the recognition of intangible assets.
b. i. As per the criteria prescribed by the AASB 18 an intangible asset should be initially
recognition at its cost. Further it says that in case of annon profit making entity which has
acquired the same asset at free of cost shall recognize the same at its fair value(Hellmann,
et al., 2019).
It further says that the subsequent recognition of the asset shall be made either be based at
cost model or it can be based on the model of revaluation. The cost model says the asset
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to be recognised at cost less accumulated depreciation less impairment losses. Whereas
the model in which revaluation of the model takes place, it talks about the subsequent
recognition at its revalued figure that is nothing but the asset fair value.(Sherwood, 2019).
Applying the above criteria in the given case the Bitcoin would have been recognized
initially at its cost and subsequent recognition shall be based on either of the two models.
ii. In the given case useful life of bitcoin should be considered a finite period(Michaela,
2017).
Conclusion
From the above it is clear that the AASB has prescribed the basis for presentation and
preparation of the financial statements for which various AASB has ben separately prescribed to
deal with each and every item. The above solution provides a deep insight into the same.
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References
Abdullah, W. & Said, R., 2017. Religious, Educational Background and Corporate Crime Tolerance by
Accounting Professionals. State-of-the-Art Theories and Empirical Evidence, pp. 129-149.
Boghossian, P., 2017. The Socratic method, defeasibility, and doxastic responsibility. Educational
Philosophy and Theory, 50(3), pp. 244-253.
Cayon, E., Thorp, S. & Wu, E., 2017. Immunity and infection: Emerging and developed market sovereign
spreads over the Global Financial Crisis. Emerging Markets Review.
Coate, C. & Mitschow, M., 2017. Luca Pacioli and the Role of Accounting and Business: Early Lessons in
Social Responsibility. s.l.:s.n.
Delone, W. & Mclean, E., 2004. Measuring e-Commerce Success: Applying the DeLone & McLean
Information Systems Success Model. International Journal of Electronic Commerce, 9(1).
Hellmann, A., Perera, H. & Patel, C., 2019. Contextual issues of the convergence of International
Financial Reporting Standards:. Advances in Accounting, incorporating Advances in International
Accounting, 2(26), pp. 108-116.
Michaela, R., 2017. Contemporary Issues in Accounting. second ed. London: Wiley.
Sherwood, R., 2019. Intellectual Property And Economic Development. Newyork: Routledge.
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