ACC510 Assignment on Financial Reporting of Organization

ACC510 - Financial Reporting
Task 2 – Major Assignment
Semester 2 - 2017
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TABLE OF CONTENTS
Question 1.Case Study 3.1.........................................................................................................3
Accounting Justification.........................................................................................................3
Relevant Issues.......................................................................................................................3
Highest & Best Use................................................................................................................3
Application to aged care home...............................................................................................3
Two possible uses...................................................................................................................3
Question- 2.................................................................................................................................4
Accounting Justification:........................................................................................................4
Relevant Issues:......................................................................................................................4
Leisure........................................................................................................................................5
General Journal Entries 31/12/16:..........................................................................................5
Impairment Test 31/12/17......................................................................................................6
Leisure........................................................................................................................................6
Question 3.Case Study 6.1.........................................................................................................7
Accounting Justification:........................................................................................................7
Relevant Issues:......................................................................................................................7
Difference between two phases:.............................................................................................7
Decision / Conclusion / Reasons and Justification:............................................................8
Question 4. Ex 9.19....................................................................................................................8
1. Deficit of Fund...................................................................................................................8
2. Net Defined Benefit Liability.............................................................................................8
3. Net Interest.........................................................................................................................8
4. Reconciliation.....................................................................................................................9
5. Summary Journal..............................................................................................................10
References................................................................................................................................11
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QUESTION 1.CASE STUDY 3.1
Accounting Justification
The main objective of AASB 13 is to specify the meaning of fair value and provide
single standard guidelines for determining fair value. Further, guidelines relating to
disclosures of fair value measurement have also been provided in AASB 13. In accordance
with provisions specified in this standard fair value is the amount which is received or
transferred to a liability in an ordered transaction between market participants (Liang and
Riedl, 2013).
Relevant Issues
For the purpose of valuing financial instruments, financial institutions use fair value
method as part of everyday business. However, in situations of valuation of property, plant
and equipment, the results are very confusing and have changing valuations. Apart this is also
some inconsistencies in the way business units use methods of fair value for an accounting of
tangible assets, which poses a problem of inconsistency.
1. Highest & Best Use
It is important to determine whether the highest and best use of a particular asset
varies from its current use at the date in which the asset is measured. The highest and the
best use of the non-financial asset is considered a market participant is able to generate better
economic benefits than the current uses; or by selling the asset to another participant that can
use the asset better, which is legal and physically possible and financially feasible. In
accordance with the study of Palea (2014), the physical possibility considers the tangible
characteristics of the asset which is to be taken into account for pricing.
2. Application to aged care home
AASB 13 directs the accountants to use asset’s market price considering the highest and
best use of an asset for determination of fair value. However, this poses a problem for not-
for-profit units. If any of the assets of aged care home sold to a participant for building flats
(which will be it's highest and best use), the figure from the valuation will be inflated as there
would be no buyer for the asset used for altruistic purposes. Thus, the fair value may not
reflect the actual value. Thus, the problem of inflated value makes valuation more complex
and requires a lot of judgement on the part of accountants (Hu, Percy and Yao, 2015).
3. Two possible uses
The application of AASB 13 to aged care homes assumes that the entity’s asset (For
Example Flats) is transferred to a market participant. This creates an outstanding liability on
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the part of a market participant, and the entity's assets would remain outstanding and the
market participant takes on the rights associated with the asset. The fair value for the not for
profit organization is calculated by classifying the assets under the fair value hierarchy
provided by AAS 13.
QUESTION- 2 EX 7.14
Accounting Justification:
AASB 136 states that an asset is impaired when the recoverable amount of the asset
on disposal is less than the carrying amount. Para 7 to 17 of the standard provides the
provision relating to the identification of asset which might be impaired. In accordance with
the provision specified in AASB 136, every entity must conduct an impairment test every
year to assess whether there is any indication of the asset being impaired. (Australian
Accounting Standards Board, 2014).
Relevant Issues:
Impairment Test 31/12/16 (Amount in $)
Calculations:
Total carried value of Time = 1244
Recoverable value of Time = 1044
Total Impairment loss = 200
TIME-
Assets Carrying Amount New Carried Value Impairment
Plant 850
(1500-650)
695 155
Patents 240 220 20
Inventory 54 54 0
Receivables 75 75 0
Goodwill 25 0 25
Total 1244 1044 200
Impairment loss has been adjusted against goodwill to it whole carrying value i.e. $
25; further, the fair value of a patent has been provided i.e. $ 220; thus the difference of
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