Accounting Principles Issues

Running Head: ACCOUNTING PRINCIPLES 0
Accounting Principles
(Student Name)

ACCOUNTING PRINCIPLES 1
Table of Contents
Issue 1..............................................................................................................................................2
Issue 2..............................................................................................................................................2
References........................................................................................................................................4

ACCOUNTING PRINCIPLES 2
Issue 1
The words "Revaluation Decrement" and "Impairment loss" are misunderstood for Tom.
They are close in essence, he knows. Nevertheless, the distinctions are not obvious. Fixed assets
including equipment, tools and appliances are long-term capital assets not traded in industry but
used for goods and services production.
The capital assets are registered and then regularly revised in the records to reflect their
real and equal market value. This can be achieved by two methods: reassessment and disability.
Under AASB 116 clause 31 specifies for the reassessment of land, plants and machinery and 63
deals with the loss of machinery (Craswell, 2016).
Revaluation is a method used to determine the real and equal market worth of a financial
asset in terms of accounting and finance. The reported value (historical cost value in the leader)
of the asset should change to the current value after re-evaluation has been carried out. The
historical prices found in books are not reliable, because the asset's market value varies and over
time may be higher or lower. The more reliable financial facts about the asset's valuation should
be reassessed. The Instructions for the Analysis of Non-Current Resources are issued by AASB
1041.
It may be that a capital asset loses its interest and has to be reported in the company's
accounts. The interest is written down or exchanged under such a situation at the real selling
price. A land that has to be written down and lacks its worth is considered a deficiency land.
There is very little potential for the asset to be submitted after the asset has been impaired; thus,
the asset has to be assessed cautiously before being listed as an impaired asset. For a variety of
factors, properties may be affected, including obsolescence, lack of control, asset loss, shifting
market conditions, etc. There may also be an erosion in other company accounts such as
goodwill and payroll receivables. Organizations are required to conduct routine asset impairment
assessments (particularly goodwill) and then any damage shall be eliminated. The Guidelines on
Asset Impairment are issued in AASB 136 (Wollesen et al., 2018).
In short, the circumstances of decline and recovery with minor variations are closely
related. Assessment and deficit both allow the company to determine the true worth of the

ACCOUNTING PRINCIPLES 3
properties and, then, take necessary steps to correct the accounting books. The main difference
between these two is that a revaluation should be carried out either up (to lift asset value above
market value) or down (above reduce value). On the other side, an illness applied to just one of
two, which was a decline in consumer value.
Issue 2
The second issue now involves the transition from the cost model to the evaluation
model. AASB 116 The specification for the use of both the cost and the valuation model for
fixed assets is provided in the Land, Plant and Equipment.
Under the cost model, the asset is defined as net book value (bill minus cumulative
depreciation). Depreciation is the fee for reporting a decrease in the economic productive life of
the commodity. Such depreciation costs are paid in a separate account which is called as
'accumulated depreciation account' and are used to determine the net book value of the asset at
any given time. The key drawback of using the cost formula is that there would be no variance in
valuation because the cost of a non-current commodity is readily available; thus, this is a
straightforward estimate. However, this does not have the exact valuation of a non-current asset,
since commodity values are expected to adjust over time. It is especially true of non-current
properties, such as land, where prices are continuously rising.
According to the Revaluation model, the non-current asset is subject to a revalued
quantity of less depreciation. To order to implement this approach, the fair value should be
calculated accurately. This model is often referred to as the 'mark-to-market' approach or the
'equal value' type of asset valuation. When the business cannot extract a reasonable valuation
from it, the commodity will be priced using the expense formula. If the revaluation resulted in an
improvement in value, it will be attributed to other detailed profits and reported in equity under a
special fund called 'revaluation surplus.' The reduction arising from the revaluation will be
regarded as an cost to the degree that it equals the value already attributed to the revaluation
surplus (Cristea, 2017).
While contemplating the benefits of the Revaluation model, it reduces the capacity of a
business to actually exploit its declared net profit. Often management can deliberately plan for

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such asset purchases, for example, to take advantage of revenue gains or losses to increase or
decrease the net profit as reported at the proper time. Use fair value accounting, profits or loss
from any increase in the valuation of an asset or liabilities shall be recorded in the year in which
they arise. That would have an effect on the Income Statement using the Revaluation Method.
Another advantage of this model is that it explicitly demonstrates the importance of the business
and that the organization has a right to offset the valuation. It cannot be included in the Value
Model, because we hold the interest at the expense of the product, and the other allowance is for
the use of disability, which cannot be changed. Nonetheless, the cost of applying the
reassessment model is high because it needs to consider the demand when the valuation of the
product is easily accessible with the expense model (Andison & Nasser, 2017).
In addition, investors should promote the Fair Value Approach as they need a full and
accurate view of the Financial Statements and limit the abuse of the same. When the excess is
allocated to Other Detailed Sales, the benefit is attributed to the Remaining Sales. As a result,
businesses should place limits on the payment of revaluation surpluses as dividends.

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References
Andison, A., & Nasser, E. M. (2017). Operating Cash Flow, Earning Response Coefficient, and
Fixed Asset Revaluation: Study on Manufacturing Company. Etikonomi, 16(1), 194873.
Craswell, A. (2016). GROUP ACCOUNTS. Transnational Accounting, 170.
Cristea, V. G. (2017). ACCOUNTING HARMONIZATION AND HISTORICAL COST
ACCOUNTING. Challenges of the Knowledge Society, 697-700.
Wollesen, B., Scrivener, K., Soles, K., Billy, Y., Leung, A., Martin, F., ... & Dean, C. (2018).
Dual-task walking performance in older persons with hearing impairment: Implications
for interventions from a preliminary observational study. Ear and hearing, 39(2), 337-
343.