Accounting Financial Analysis Report - IAS 16, IAS 38

This report provides an analysis of accounting treatment for property, plant and equipment as per IAS 16 and research and development as per IAS 38. It includes answers to questions related to depreciation, recognition of intangible assets, and government grants.

Running head: ACCOUNTING FINANCIAL ANALYSIS REPORT
Accounting financial analysis report
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ACCOUNTING FINANCIAL ANALYSIS REPORT
Table of Contents
Answer 1....................................................................................................................................2
(a) IAS 16 – Property plant and equipment......................................................................2
(b) IAS 38 on research and development..........................................................................2
Answer 2....................................................................................................................................2
Reference....................................................................................................................................6

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ACCOUNTING FINANCIAL ANALYSIS REPORT
Answer 1
(a) IAS 16 – Property plant and equipment
Main objective of IAS 16 - Property plant and equipment is prescribing the
accounting treatment for plant, property and equipment. Plant, property and equipment shall
be recognized as an asset if it is probable that the future economic benefits related to the asset
will inflow to the company and the asset cost can be reliably measured. Initially the item is
recognised at cost and subsequent to initial recognition the item is carried at the amount of
cost reduced by accumulated depreciation and amount of impairment, if any. However, in
case of revaluation the asset is carried at the revalued amount. Revalued amount is the fair
value reduced by accumulated depreciation and amount of impairment, if any (Ifrs.org 2018).
(b) IAS 38 on research and development
Accounting treatment for research – Research expenses are charged to expenses
Accounting treatment for development – development costs are capitalised only if the project
is commercially viable and technically feasible.
If the research phase of any internal project cannot be distinguished from the
development phase, the entire expense is treated as research expenses at cost (Ifrs.org 2018).
Answer 2
The accounting treatment for the items as per relevant IAS (International Accounting
Standard) will be as follows –
Item a

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ACCOUNTING FINANCIAL ANALYSIS REPORT
Depreciation on building was at 2% per annum and the cost of building was €
348,000. Hence, amount of depreciation for 1 year period will be = € 348,000 * 2% = €
6,960. Therefore, the amount of depreciation that is € 6,960 will be recognised under profit
and loss statement (Zuca 2013). Under the balance sheet land amount of (€ 468,000 - €
348,000) = € 120,000 will remain same as the land is non-depreciable asset. Hence, amount
of land and building for the year ended 31st January 2018 will be recorded at (€ 120,000 + €
348,000 - € 6,960) = € 461,040.
Item b
Recognition of plant costing 88,000 that was charged at 10% depreciation is
recognized as having useful life of 5 years. Hence, the depreciation will be = € 88,000 / 5 = €
17,600 per year for remaining 5 years (Trifan and Anton 2014).
Carrying amount of that plant for the year ended 31st January 2016 will be = € 88000 – €
17600 = € 70,400
Carrying amount of that plant for the year ended 31st January 2017 will be = € 70,400 – €
17600 = € 52,800
Therefore, carrying amount of remaining plant and machinery for the year ended 31st January
2017 = € 153,600 – € 52,800 = € 100,800.
Depreciation on remaining plant and machinery at 10% will be = € 100,800 * 10% = €
10,080
Therefore, total amount of depreciation chargeable to profit and loss account will be = €
10,080 + € 17,600 = € 27,680.
Carrying amount of plant and machinery in the balance sheet for the year ended 31st January
2018 will be = (€ 100,800 – € 10080) + (€ 52,800 – € 17,600) = € 125,920

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ACCOUNTING FINANCIAL ANALYSIS REPORT
Item c
As per IAS 20 government grants received for purchasing the asset shall be deducted
from the carrying amount of the asset. However, if the company follows deferred credit
method for recording the government grants the amount shall be recorded as deferred income
rather than deducting it from the carrying amount of asset. Therefore, the government grant
amounting to € 20,000 shall be recorded as deferred income.
Plant that was acquired on 1st August 2017 shall be depreciated at 10%. Therefore, the
depreciation will be = € 100000 * 10% = € 10,000 and it will be charged to profit and loss
account for the year ended 31st January 2018.
Carrying amount of plant and machinery in the balance sheet for the year ended 31st
January 2018 will be = € 125,920 + (€ 100,000 - € 10,000) = € 215,920.
Item d
As the depreciation is always provided on cost of the asset 20% depreciation will be
charged on vehicle on cost price of € 19,000. Therefore, depreciation for the year ended 31st
January 2017 as well as for the year ended 31st January 2018 will be = € 19,000 * 20% = €
3,800 (Tsamis and Liapis 2014)
Carrying amount of vehicle for the year ended 31st January 2018 will be € 19,000 - € 3,800 -
€ 3,800 = € 11,400.
Carrying amount of other motor and vehicles as on 31st January 2017 will be = € 38,000 - €
19,000 - € 3,800 = € 15,200.
Depreciation on above = € 15,200 *20% = € 3,040.
Total carrying amount of motor and vehicles = € 15,200 - € 3,040 + € 11,400 = € 23,560

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ACCOUNTING FINANCIAL ANALYSIS REPORT
Total depreciation amounting to € 3,040 + € 3,800 = € 6,840 will be charged to profit and
loss.
Item e
As the fixtures were fully depreciated and scrapped and the company does not provide
depreciation in the year of disposal fixtures will not be shown in the balance sheet for the
period ended 31st January 2018 (Christensen and Nikolaev 2013).
Item f
As the project is commercially viable and technically feasible the expenses amounted
to € 85,000 incurred on the project will be capitalised and recorded under cash flow statement
as capital expenditure. Further, as per IAS 38 – recognition of intangible assets, as the cost
can be measured reliably the asset shall be recognised and recorded in the balance sheet as
intangible asset (Triki-Damak and Halioui 2013).
Further, the schedule of property, plant and equipment as per IAS 16 – Property plant
and equipment will be as follows –
Therefore, the amount of non-current assets will be recorded as above in the balance
sheet for the year ended 31st January 2018.

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ACCOUNTING FINANCIAL ANALYSIS REPORT
Reference
Christensen, H.B. and Nikolaev, V.V., 2013. Does fair value accounting for non-financial
assets pass the market test?. Review of Accounting Studies, 18(3), pp.734-775.
Ifrs.org., 2018. IFRS . [online] Available at: https://www.ifrs.org/issued-standards/list-of-
standards/ias-38-intangible-assets/ [Accessed 1 Aug. 2018].
Ifrs.org., 2018. IFRS . [online] Available at: https://www.ifrs.org/issued-standards/list-of-
standards/ias-16-property-plant-and-equipment/ [Accessed 1 Aug. 2018].
Trifan, A. and Anton, C., 2014. ACCOUNTING TREATMENT FOR PROPERTY, PLANT
AND EQUIPMENT REVALUATIONS. Management & Marketing, 9(2).
Triki-Damak, S. and Halioui, K., 2013. Accounting treatment of R&D expenditures and
earnings management: an empirical study on French listed companies. Global Business and
Economics Research Journal, 2(1), pp.50-71.
Tsamis, A. and Liapis, K., 2014. Fair Value and Cost Accounting, Depreciation Methods,
Recognition and Measurement for Fixed Assets. International Journal of Economics and
Business Administration, 2(3), pp.115-133.
Zuca, M.R., 2013. THE ACCOUNTING TREATMENT OF ASSET DEPRECIATION AND
THE IMPACT ON RESULT. Annals of the University of Petrosani Economics, 13(2).

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ACCOUNTING FINANCIAL ANALYSIS REPORT