Accounting: Fair Value, Depreciation, Research and Development Costs, Provisions, Contingent Liabilities and Contingent Assets

ACCOUNTING 1
ACCOUNTING

ACCOUNTING 2
Question 1:
The concept of fair value is described as the price that would be received by the person if he
goes to the open market and sells his asset. Or the amount that he would have to pay in case,
he transfers a liability on to another in an apt manner between the different market
participants at any specified date. The following are the 4 key elements of the concept:
1. The asset or liability: this point takes into account whether the things being valued as
an asset or a liability. This would take into account the various characteristics when
the pricing of that asset or the liability would be done as on the date of measurement.
The examples could include in the condition and the location of that asset.
2. The transaction: this concept of fair value takes into account the fact that while
measuring in the fair value, the transaction would either by in the principal market for
that asset or liability or in the most advantageous market for that asset or liabilities, in
case that principal market is not there.
3. Participants in the market: the concept of the measurement of the fair value would
take into account the various different assumptions that any market participant would
consider when it comes to the pricing of that asset or the liability, assuming that the
participants of that market serve in the best interest of them.
4. The price: this is the price that anyone could receive if an asset is sold in the market
or if a liability is transferred in the ordinary course of trade. This is measured at the
current market conditions irrespective of the fact that the price is directly proportional
to the technique that is being used for the valuation of the same (AASB, 2018).
The following are the conditions that have to considered for the purposes of valuing a non
financial asset:

ACCOUNTING 3
1. Determination of the particular asset which is subject to measurement: the device is
the non financial asset in the given case
2. Determination of the value premise for that particular asset which subject to
measurement: it’s use and benefits are not known as of now. So best and probable use
cannot be determined
3. Determination of the principal market for that asset: not known
4. The most apt measurement or valuation technique for that asset: the most apt
measurement method would be the fair value since the market participants could be
the beer bottle manufacturers.
For the fair value of these non-financial assets, the valuation of that asset is at the price at
which the perspective market participant holds that asset and in case, there is no such market
participant, then a different valuation technique is used (ACCA global, 2018).
In the case given, the above technique should be followed when calculating the fair value of
that asset.
Question 2:
As per AAS 116, which deals with the depreciation of the assets, depreciation is recognised
on assets when it is quiet probable that the future economic benefits would flow in to the
entity in the near future as result of those assets. These assets possess some cost or any such
other value that is capable of being measured reliably. A company could accept the non-
recognition of these assets or liabilities that could arise from the agreements that are equally
proportionately to be underperformed. The amount of the deprecation must be allocated on
some systematic basis over the useful life of the asset. The depreciation charged on the asset
should reflect the pattern on some future economic benefit of that asset. The allocation of the
amount of depreciation on any asset must be recognised as an expense, excluding that amount