Accounting Standards AASB 116, AASB 112, and AASB 101: A Case Study of AGL Energy Limited

This report discusses the accounting standards AASB 116, AASB 112, and AASB 101 and their application in the case of AGL Energy Limited. It also highlights the ethical issues in financial reporting and provides recommendations for improvement.

Advanced Financial
Accounting

TABLE OF CONTENTS
Introduction......................................................................................................................................3
1...................................................................................................................................................3
2...................................................................................................................................................4
3...................................................................................................................................................4
4...................................................................................................................................................5
Conclusion.......................................................................................................................................5

Introduction
The present report is about the ABL Energy Limited Company which has committed to build a
shape of the sustainable energy in future for Australia. The company operates the largest
portfolio of electricity generation of the nation and is also the largest investor listed on Australia
Stock Exchange for renewable energy having 3.6 million accounts of customers (The Annual
Report, 2017 AGL Energy Limited). The company has a responsibility of providing secure,
affordable and sustainable energy to their customers. The AGL Energy Limited has an aim
flourish in the carbon constrained globe and build customer support as there is a transformation
in industry.
The report basically includes the requirement of the accounting standards AASB 116, AASB
112, and AASB 101. The objective of the AASB 116 is to describe the treatment for plant,
property and equipment in accounting so that the users of financial information can differentiate
information regarding the investments of any business (Laing, & Perrin, 2014).The mainconcern
in accounting for, plant,property and equipment are the identification of the assets, the purpose
of their carrying sum and destruction of losses and the depreciation charges to be determined
towards the business.
1.
According to the accounting standard AASB 116, there are basic requirements made under this
standard which must be fulfilled at the time of acquisition of the property, plant and equipment
of any of the company. The requirements are as follows:
 The financial statement of the company should disclose about each of the property, plant
and equipment.
 The bases of measurement which has been used to determine the total carrying amount.
 The method of depreciation used(Hanlon, Navissi, and Soepriyanto, 2014)
According to the annual report of the AGL Energy Limited the property, plant and equipment of
the company is calculated at the cost less then accumulated impairment loss and accumulated
depreciation. Thecost also includes the expenses which are directly attributed to the construction
and acquisition of the asset. The financial cost of the company associated with the construction

and acquisition of the qualifying asset will be capitalized(The Annual Report, 2017 AGL Energy
Limited).The cost may include the transfers of any gain or loss on the purchases of property,
plant and equipment. Here the subsequent cost are then capitalized by the company at the times
when it was likely that the economic benefit in future are related with the items and that it will
flow to AGL. Further the other costs are identified in profit or loss as gain.
2.
The fair value is the price of sale which is being agreed by both the willing seller and buyer
making an assumption that both of them enter in the agreement knowledgeably and freely. The
fair value represents the value of the asset and liability of the company when the financial
statement of the subsidiary company is consolidated with the parent company (Hodgson, and
Russell,2014). According to AASB116 it states that once the item of the plant, property and
equipment have been identified as an asset, the business should then select cost or revaluation
model of the measurement basis. The land and building are then measure at the fair value under
the revaluation model in the company (DeFond, Hu, Hung, and Li, S2018). Once this is done the
item measured at fair value should be carried up at the revalue amount.
Figure 1: Assumptions used by company for valuation of PPE
Source: The Annual Report of the AGL Energy Limited, 2017
With this there the AASB 116 will set the fair value as the upper limit for the carrying amount of
the assets. The acquisition of the assets and liabilities will reflect at the fair value and this will
generally be not the same as the tax base of the company.Further the AASB 112 tax will have an
impact of the revaluation at the fair value of the assets.

3.
The preparing of the annual report of the Nikita Limited is not as per the standards of the AASB
101 as it includes many of the ethical issues which can affect the trust of the stakeholders and
shareholders. The company has kept some part of the reserves hidden which is an unethical
practice so that they can decrease their taxable income. Along with this another unethical
practice done by the company was preparing an off balance sheet which allows the company to
hide its expenses by putting them into research or purchasing equipment.
By considering the annual report of the AGL Energy Limited, it was observe that the annual
report and the financial statements included in it were prepared as per the guidance given by the
AASB101 and is ethical in manner. The standard prescribe the base for the preparation of the
financial statements of the company in order to ensure comparability both with the financial
statement of other companies and with the company’s own financial statements of the previous
years (AASB, 2014). The standard also sets out the entire requirement for the preparation of the
financial statements, few requirements for the content and the direction for the structure.
The company also publish its last five years financial information regarding its financial position
and profitability. Despite this the company lacked in certain things, in which first was that the
company has only shown the theoretical aspects of the fair value system but do not show the
practical aspects of it. Another thing which lack is there is no comparative study of financial
statements with other companies (The Annual Report, 2017 AGL Energy Limited). The
company only show comparison of its own financial statement with the previous year. This
means only inter comparison is done and not the intra one.
4.
It is recommended to the CEO of the Nikita Limited that he should perform all the ethical
practises during the preparation of the report, and he can do this by concentrating on the annual
report and editing it before getting it published. Further he can then remove all the unethical
activities being performed in the report.
Further, after evaluating the entire annual report of the AGL Energy Limited it was seen that
there were certain points which the report lacks. Firstly there was no presentation of the practical

aspect of the fair value system in the report. It is been recommended to the company that they
should also include practical measurement of the fair value along with the theoretical one.
Secondly, there was no comparison regarding the financial statements of the AGL Energy
limited with other entities. Here the company’s top management should incorporate the
comparison of their company with other companies. So that the stakeholders and shareholders
will get actual information regarding the financial position of the company in the market in
which it is prevailing.
Conclusion
In accordance with the present study, conclusion can be drawn that the annual report clearly sets
out everything in a well-defined and well organized structure where the company has stated their
strategic objectives and their responsibilities towards industry, customer and society. However,
they are certain aspects on which company is required to work to improvise their financial
disclosure policies.

References
AASB, C. A. S. (2014). Financial Instruments. Project Summary.
DeFond, M., Hu, J., Hung, M., & Li, S. (2018). The Usefulness of Fair Value Accounting in
Executive Compensation.
Hanlon, D., Navissi, F., & Soepriyanto, G. (2014). The value relevance of deferred tax attributed
to asset revaluations. Journal of Contemporary Accounting & Economics, 10(2), 87-99.
Hodgson, A., & Russell, M. (2014). Comprehending comprehensive income. Australian
Accounting Review, 24(2), 100-110.
Laing, G. K., & Perrin, R. W. (2014). Deconstructing an accounting paradigm shift: AASB 116
non-current asset measurement models. International Journal of Critical Accounting,
6(5-6), 509-519.
The Annual Report, (2017). AGL Energy Limited. Retrieved fromhttps://www.agl.com.au/about-
agl/media-centre/asx.../2017/.../agl-2017-annual-report. [Pdf] [Accessed on 25 May
2018]