Advance Financial Accounting Assignment | IASB Framework

Added on - 28 May 2020

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Advance financial accounting
TABLE OF CONTENTSIntroduction......................................................................................................................................3Part A...............................................................................................................................................3Part B...............................................................................................................................................4Benefits of Historical Cost...........................................................................................................4Challenges of Historical Cost......................................................................................................5Benefits of fair Value measurement............................................................................................6Challenges of fair value...............................................................................................................6Part 3- Identificantion of valuation Practices..................................................................................7PPE..............................................................................................................................................7Intangibles asset...........................................................................................................................8Assessment of Valuation policy to ascertain whether THE THREE companies have samevaluation practices or not.................................................................................................................9PPE..............................................................................................................................................9Intangibles asset.........................................................................................................................10Historical cost or Fair value accounting for PPE and Intangibles.................................................11Conclusion.....................................................................................................................................11
INTRODUCTIONThe conceptual framework of IASB provides the accounting provisions which underlie themanner of formation and presentation of financial statements so that appropriate information canbe provided to external users (Cannon and Bedard, 2016). Present report revolves around theIASB Framework and measurement concepts relating to historical cost and fair value accounting.The foremost objective of the present report is to assess the better option between fair valueaccounting and historical value for PPE and Intangibles. In order to present appropriate analysisassessment of three companies, i.e. BHP Billiton, A CAP Resources Ltd and AAR Corp has beenmade relating to valuation practices followed by them regarding PPE and Intangibles. Byconsidering annual report of companies comparative evaluation is done to determine whether allthree companies are having same valuation practices or not.PART AAccording to the recent framework of the international accounting standard board, there aredifferent principles and concepts of accounting. The historical cost of accounting is based on thethought that liabilities and assets are calculated and reserved as per the original price ofacquisition (Magnan, Menini and Parbonetti, 2015). However, the assets which tend to have animportant change in value over a period of time because of the change in technology and landwill result in improper measurement. In accordance with the IFRS, while measuring historicalcosts, the assets are required to assign value in the books of accounts. The cost has clearlyoffered measurements that are reliable, verifiable and objective in their results (Glover, Taylorand Wu, 2016). In the new standard of accounting the convention of historical cost requires theasset to be recorded at the historical value till it is sensible to identify a value lower than it due toimpairment. The historical cost is not applicable and cannot be measured in various assets likeinvestments in shares, trade receivables and cashThe cost of asset is a base of measurements of the elements in the financial statements. Theprocess of measurements is determined on the basis of the financial amount on which thefeatures of financial statements are identified and are carried in the position statement and profitand loss account (Yao, Percy and Hu, 2015). There are generally four bases of measurementssuch as historical cost, realizable value, present value and current cost. It is used in combinationwith another base of estimation. For instance, the inventories are generally considered at lower of
cost and net realizable value, while on the other side securities are considered at market value,and companies prefer to take pension liabilities at the current value.In accordance with the IFRS, the fair value is a set of the framework which is used to measurethe value of the assets and also disclose the facts about the measurements of fair value. Thisconcept is measured when the other model allows the calculation of fair value of the assets. TheIFRS also defines fair value as the amount which will be obtained at the time of selling an assetor paying for the transferring of the liability (Singh, 2015). The transactions take place amongthe participants and the market at the date of measurement. The fair value is measured under asituation when the company will use assumptions at the time of pricing the liability or assetunder the recent condition of the market (Magnan, Menini and Parbonetti, 2015). This is doneamong the market and its participants on account of the level of risk.Recently the IASB has completed a mutual project with the FASB on the measurement of fairvalue system. The outcome of it was the IFRS 13 for fair value measurement. It assumes that allthe transaction of transferring and selling of the assets and liabilities occur in the principalmarket and in the absence of this market the process cannot be implemented (Müller, Riedl andSellhorn, 2015). The principal market is one having the highest volume and high level of activityfor the liability and asset which can be accessed by the company.IFRS 13 additionally sets out certain valuation ideas to aid the assurance of fair value. Only fornon-financial resources, fair value is chosen in view of the most elevated and best utilization ofthe advantage as dictated by a market member (Laux, 2016). The fair value of an obligation orthe company’s own value accepts that it is exchanged to a market member on the estimationdate. Regularly there is no noticeable market to give estimating data and the most elevated andbest way to utilize. The fair value is then in light of the point of view of a market member whoholds the indistinguishable instrument as an advantage. But if there is no comparing resource, avaluation strategy is utilized, just like the case with a decommissioning action.PART BBenefits of Historical CostFirstly the principle of historical cost automatically requires the account of every singletransaction of the past. The market estimation of goods cannot be learned without knowing howthe merchandise was really produced (Watts and Zuo, 2016). But there is no real way to decide
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