Defined Benefit Obligation Accounting
Added on 2020-03-15
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ACC510 (ATMC) - Financial ReportingTask 2 – Major AssignmentSemester 2 - 2017Student Name:Student ID #:Campus:
Table of ContentsQuestion 1. Case Study 3.1....................................................................................................................3Accounting Justification:................................................................................................................3Relevant Issues:.............................................................................................................................31.Highest & Best Use................................................................................................................32.Application to aged care home..............................................................................................33.Two possible uses..................................................................................................................3Question 2. Ex 7.14................................................................................................................................4Accounting Justification:................................................................................................................4Relevant Issues:.............................................................................................................................41.Impairment Test 31/12/16....................................................................................................4a.Calculations:.......................................................................................................................4b.General Journal Entries 31/12/16:.....................................................................................52.Impairment Test 31/12/17....................................................................................................5a.Calculations........................................................................................................................5b.General Journal Entries 31/12/17:.....................................................................................6Question 3. Case Study 6.1....................................................................................................................7Accounting Justification:................................................................................................................7Relevant Issues:.............................................................................................................................71.Difference between two phases:...........................................................................................72.Accounting for Research & Development:.............................................................................73.Decision / Conclusion / Reasons and Justification:................................................................7Question 4. Ex 9.19................................................................................................................................8Accounting Justification:................................................................................................................8Relevant Issues:.............................................................................................................................81. Deficit of Fund...........................................................................................................................82. Net Defined Benefit Liability......................................................................................................83. Net Interest................................................................................................................................84. Reconciliation............................................................................................................................95. Summary Journal.......................................................................................................................9Page 2 of 11
Question 1. Case Study 3.1Accounting Justification:Fair value of an asset is the true estimation of what can we get when an asset is being sold to a willing party who is having considerable knowledge of the same in an arm’s length transaction. This has been defined in Para B2 of AASB 13 which deals with the concept of Fair Value Measurement. [ CITATION Abb17 \l 1033 ] The same has also been covered in Para 11 and Para 36 of the conceptual framework of general purpose financial statements. The concept of fair value is fully based in the judgement, estimates and circumstances of the case. It depends on what assumptions have been taken by the user and may change from user to user. It may incur and see huge fluctuations in the values as it is a subjective topic. Further, the transaction cost here for selling an asset or transferring a liability to the other inthe best possible transaction and market (the principle market) should be related directly to the asset and should meet the below mentioned criteria:1.It should directly pertain to the entity.2.The transaction would not have occurred in any case had the entity not decided to sell asset or transfer liability.Relevant Issues: The relevant issue here is that the fair value being a subjective topic may vary immensely based on the assumptions taken. It may give different values for PPE on different days. It may be fairly difficult to ascertain the fair value of the asset for a non-profit organization as the asset may be valued much higher when it is being utilized in highest and best use i.e., in the commercial purposes. [ CITATION Ale16 \l 1033 ]1.Highest & Best UseThe concept of best and highest use of non-financial asset for which fair value determination is done is based on the principle that how the asset can be best utilised by the market participant to derive the maximum economic benefits out of it or if it can be soldto another willing party who can best utilize it. 3 factors namely, the physical existence, legality of transaction and financial viability is considered in this concept. [ CITATION Das17 \l 1033 ]2.Application to aged care homeFor an aged care home, an asset may value less as compared to the commercial entity doingbusiness, but actually, the market value does not changes based on the type of entity or the valuation method used. Therefore, it should be uniformly used be it an old age care home orif it is business doing entity based on the exit price as on measurement date.3.Two possible usesFair valuation is used in many case like the impairment of the tangible and intangible assets, while selling the assets in the market, while valuation of the inventory in the financial books and also for the disclosure purposes as per the IFRS reporting of financial assets.Page 3 of 11
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