Different Methods Used in Assets Valuation by Wesfarmers

Accounting Theory
1

Contents
Introduction.................................................................................................................................................3
Different Methods Used in Assets Valuation...............................................................................................3
Use of International accounting standards by Wesfarmers to value their assets........................................4
Use of Different Methods of Asset Valuation in Assisting the Users of Financial Statements.....................6
Conclusion...................................................................................................................................................7
References...................................................................................................................................................8
2

Introduction
The process of asset valuation plays an important role in finance for determination of the
fair value of assets and thus determining the real worth of an entity. The different methods are
used for assets valuation in order to record its accurate value during the financial reporting
process. The valuation of assets by the use of an adequate method or approach is highly essential
for the business entities for analyzing its actual worth. The accurate valuation of assets is highly
essential as they are regarded as an important aspect of business as the balance sheet of a
company is developed on its basis. Balance sheet depicts the actual financial position of a
business and therefore the assets should be correctly valued during the financial reporting
process. In this context, the present report is developed for presenting an analysis and discussion
regarding the different method of asset valuation used by an ASX listed entity as per the
international accounting standards. It has been carried out by discussing the views of different
writers in relation to valuation method of assets in the context of the company selected. The
company selected for the purpose is Wesfarmers Limited, an Australian public listed company
known to be a leader in retail industry of Australia.
Different Methods Used in Assets Valuation
Assets valuation is regarded as an extremely important process for a business entity for
determining its actual worth by assessing its real profit and loss position. Proper valuation of
assets is extremely important to give fair information about the profitability position of a
business. It assists the managers in taking important cessions regarding the future strategies for
promoting the growth of a business. IASB (International Accounting Standards Board) has
developed and prescribed the different business entities adopting the international accounting
standards to value the assets on the basis of IAS 16 for fixed assets. The standard is specifically
developed for describing the methods that should be used by business for accounting of property,
plant and equipment. The standards has provided clarification regarding the different issues that
accountant can face in relation to valuing their fixed assets such as recognition, determination of
carrying amounts, depreciation charges and impairment losses (Cotter and Zimmer, 2003). The
fixed assets under IAS 16 should meet the following conditions to be adequately met:
 An asset should provide future economic benefits to an entity
 An asset cost should be reliably measured
 An asset should be used for producing goods or services by an entity
This is the first step in the valuation of an asset which is followed by measuring the asset
value for their capitalization. As per the international accounting standards, an asset should be
initially measured on the cost that includes its purchase price, expenses related to its installation
and borrowing costs. The subsequent measurement of the fixed assets can be done after its initial
3