Accounting: Fair Value Measurement, Revaluation, Intangible Assets, Depreciation, Taxable Profit and Tax Payable

Running head: ACCOUNTING
Accounting
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1ACCOUNTING
Table of Contents
Question 1........................................................................................................................................2
Fair Value Measurement..............................................................................................................2
Revaluation using gross method..................................................................................................3
Damaged Equipment....................................................................................................................4
Intangible Assets..........................................................................................................................7
Usage of patents in the manufacturing process............................................................................7
Research and development project..............................................................................................7
Question 2........................................................................................................................................9
Answer (a)....................................................................................................................................9
Answer (b)....................................................................................................................................9
Answer (c)..................................................................................................................................11
Answer (d)..................................................................................................................................12
Question 3......................................................................................................................................14
Answer (a)..................................................................................................................................14
Answer (b)..................................................................................................................................14
References..................................................................................................................................17

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Question 1
Fair Value Measurement
1. Paragraph 16 of NZ IFRS 13 suggests a transaction always takes place primarily in the
principal market and only in the case of absence of a principal market, it takes place in the
most advantageous market. Paragraphs 25 and 26 of NZ IFRS 13 suggest that the fair
value amount shall not be adjusted for transaction costs. This is because transaction costs
are not a characteristic of the asset or the liability (Dvořáková, 2013). Transportation costs
are allowed as a deduction. A company cannot choose to measure a product in the value of
an advantageous market when there is a principal market. In scenario 1, the amount that is
to be considered as fair value is the price prevailing in the principal market, i.e. Market A.
Hence the fair value of the asset in the given scenario is $158440 ($160000-$1560). In
scenario 2, the price that is to be considered is the price prevailing in the most
advantageous market. Therefore, in scenario 2, the fair value of the asset is to be measured
at $236800 ($240000-$3200). Hence, it is considered the most advantageous market
(Xrb.govt.nz, 2019).
2. According to paragraph 27 of NZ IFRS 13, fair value measurement of a non-financial
asset considers a market participant’s ability to provide economic outflows by using the
asset in its best and highest possible manner (Barker & Schulte 2017). Otherwise, it
considers the amount that can be generated by selling it to a participant in another market
who would put the asset to its highest and best use. Hence, it is quite evident that we
should consider the market participant’s likely usage of the particular asset.
3. As per paragraph 61 of IFRS 13, an entity should use valuation techniques that are
appropriate for a circumstance and for which necessary data is available to measure the
fair value, which is maximising the amount of observable inputs and reducing the
unobservable inputs. The three most commonly used methods of valuation are the cost
approach, market approach and the income approach. In the given circumstances, a single
technique from any of the above mentioned three techniques cannot be used to measure
the fair value of the asset. A combination of techniques which best measures the fair value
of the asset according to the market conditions is to be used. Techniques like calibration
are to be used to determine the necessary adjustments to be made to the valuation

3ACCOUNTING
techniques. Hence, in scenario 1, a combination of the techniques is to be used, while in
scenario 2, a single technique like cost or income technique can be used as the extension
has not been deemed to be too extensive.
4. Level 2 are the inputs other than the quoted prices determined in level 1 which are either
directly or indirectly attributable to the assets and liabilities for which the prices are
relatable. As the data has been obtained from the active market, the assumption of the
hierarchy is valid and these items can be classified as level 2 inputs (Xrb.govt.nz, 2019).
Revaluation using gross method
Revaluation Using the Gross Method
Date Particulars Debit($) Credit($
31.3.2019 Equipment (1920000 - 1750000) $170,00
0
Accumulated depreciation (1200000-
1093750)
$106,25
0
Revaluation Surplus (170000 - 106250) $63,750
Asset revalued on 31.3.19
31.3.2019 Depreciation 547917
Machinery 547917
Depreciation charged after revaluating
Damaged Equipment

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i.
Journal entries in relation to damaged equipment
Date Particulars Debit
($)
Cred
it ($)
31.3.201
7
Accumulated Depreciation ((1500000-50000)/10)*4 5800
00
Equipment 5800
00
Accumulated depreciation charged on the asset
31.3.201
7
Equipment 4000
0
Revaluation Surplus 4000
0
Additional Revaluation amount transferred to revaluation surplus
ii.
31.3.201
8
Depreciation 1600
00
Accumulated Depreciation 1600

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00
Depreciation charged prior to recognising the impairment loss
31.3.201
8
Loss on impairment 4500
00
Equipment 4500
00
Estimated loss on the equipment after deducting all the relevant costs
31.3.201
9
Equipment 45000
0
Loss on impairment 45000
0
Reversal of impairment loss by the management
31.3.201
9
Accumulated Depreciation (450000/3) 11666
6.7
Equipment 11666
6.7
Depreciation charged on the remaining value of the equipment