Compliance of Evolution Mining Limited with AASB Valuation Standards

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This essay determines the compliance of an ASX listed company that is Evolution Mining Limited with certain valuation standards of AASB like AASB 101 Presentation of Financial Statements and AASB 102 Inventory. In addition, this essay also considers the determination of the costing method used by the chosen company along with the impact of other costing methods on the same company.

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Running head: BUSINESS ACCOUNTING
Business Accounting
Name of the Student
Name of the University
Author’s Note

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1BUSINESS ACCOUNTING
Introduction
In Australia, it is the prime obligation on the ASX listed companies to comply with the
principles as well as standard of Australian Accounting Standards Board (AASB) Conceptual
Framework for the purpose of their financial reporting (aasb.gov.au 2019). This essay determines
the compliance of an ASX listed company that is Evolution Mining Limited with certain
valuation standards of AASB like AASB 101 Presentation of Financial Statements and AASB
102 Inventory. In addition, this essay also considers the determination of the costing method used
by the chosen company along with the impact of other costing methods on the same company.
Measurement of Inventory
It is needed for the ASX listed companies to adhere to the principles of AASB 102
Inventories for the valuation of inventories. As per AASB 102, the companies are needed to
measure their business inventories at the lower of cost and net realizable value. As per the same
standard, at the time of the sale of the inventories, the companies are needed to recognize the
carrying amount of those inventories as an expense in that particular period of the recognized
revenue (aasb.gov.au 2019). The presence of this same aspect can be seen in Evolution Mining
Limited as the company has measured their inventories in accordance with AASB 102. By
complying with the measurement requirement of AASB 102, Evolution Mining Limited has
ensured the measurement of their inventories such as ore stockpile, metal in circuit, gold ore,
refined gold bullion and concentrate at lower of cost and net realizable value. At the same time,
the company has also adhered to the Net Realizable Value requirements of AASB 102 for the
determination as well as valuation of the net realizable value of their inventories. This indicates
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2BUSINESS ACCOUNTING
that Evolution Mining Limited has measured and valued their inventories as per the relevant
accounting standards (evolutionmining.com.au 2019).
Inventory System
It can be seen from the 2018 Annual Report of Evolution Mining Limited that the
company has adopted a specific inventory system for their inventories. Under this particular
inventory system, the aim of the company is to measure their inventories such as ore stockpile,
metal in circuit, gold ore, refined gold bullion and concentrate physically. It implies that the
company has not employed any computerized system for the measurement or estimation of their
inventories. Moreover, the company has employed a system of regular and ongoing review for
ascertaining the extent o surplus items; and there is a provision for any kind of potential loss on
the sale of the inventories. The company considers the stockpiles as non-current assets in case
they are not processed within 12 months (evolutionmining.com.au 2019).
There are certain advantages for Evolution Mining Limited in using this inventory
system. First, the physical measurement or estimation of the inventories brings accuracy in the
inventory system by minimizing errors in the process. Second, the presence of the review system
provides information to the company about the incoming and outgoing of inventories that is
helpful in the planning process. Lastly, the valuation of inventory in the lower of cost and net
reliable value reduces the inefficiency in the inventory valuation process
(evolutionmining.com.au 2019).
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3BUSINESS ACCOUNTING
Costing Method
As per the recognition and measurement mechanism of inventory in Evolution Mining
Limited, the costs of inventory represent the weighted average cost and comprise direct cost
along with an appropriate portion of fixed and variable production overhead. It indicates that
Evolution Mining Limited has adopted Weighted Average Costing method for their business
(evolutionmining.com.au 2019).
It needs to be mentioned that there are certain reasons for the selection of this particular
costing method by the company. First, the inventory items of Evolution Mining Limited are very
much intermix or intermingled that it is not possible for the company to assign a particular cost
to an individual unit (Hosni et al. 2013). Second, lack of sophistication can be seen in the
accounting system of the company in tracing the inventory layers based on FIFO and LIFO.
Third, Evolution Mining Limited deals with many identical inventories and thus, it is not
possible to assign a specific cost to an individual unit (Balabanov et al. 2014). In the presence of
all of these aspects, Evolution Mining Limited has decided to select weighted average costing
method for their inventory valuation.
Impact of Different Costing Methods
Apart from weighted average costing method, there are three other costing methods that
Evolution Mining Limited could select that are Specific Identification, FIFO (First-in, First-out)
and LIFO (Last-in, First-out). The specific identification method of costing connects the actual
cost to a particular unit or product. In case Evolution Mining Limited adopted this costing
method, it would be necessary for them to identify each unit in the inventory that would not be
possible for the company due to the nature of their inventory product. It is not possible to adopt

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4BUSINESS ACCOUNTING
this system when the inventory items are intermingled (Drury 2013). After that, as per the
assumption of the costing method of FIFO, the first goods purchased or brought are the first
goods to be out or sold; and this method is applicable where companies deal with perishable
goods. In case of Evolution Mining Limited, it is not necessary for the company to ensure the
first out of the inventories that were brought first (Drury 2013). Lastly, as per the assumption of
the LIFO method, the costs of the most recent brought in inventories are the first costs to be
charged in cost of goods sold. There is not any such condition in the business of Evolution
Mining Limited (Reineking et al. 2013).
Conclusion
It can be seen from the above discussion that Evolution Mining Limited complies with
the standard of AASB 102 for the measurement as well as recognition of their inventories.
Moreover, the company ensures the physical estimation of their inventories for avoiding errors
and bringing efficiency. The essay also shows that the nature of the inventories and products of
Evolution Mining Limited leads to the adoption of weighted average costing method for their
business as other costing method would be irrelevant for the company.
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5BUSINESS ACCOUNTING
References
Aasb.gov.au. 2019. Inventories. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-15.pdf [Accessed 8 Feb.
2019].
Aasb.gov.au. 2019. Presentation of Financial Statements. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf [Accessed 8 Feb.
2019].
Balabanov, V., Hsu, M.K. and Chang, Y.W., National Taiwan University, 2014. Method of
analytical placement with weighted-average wirelength model. U.S. Patent 8,689,164.
Drury, C., 2013. Costing: an introduction. Springer.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Evolutionmining.com.au. 2019. 2018 Annual Report. [online] Available at:
https://evolutionmining.com.au/wp-content/uploads/2018/10/1858627.pdf [Accessed 8 Feb.
2019].
Hosni, A., Rhemann, C., Bleyer, M., Rother, C. and Gelautz, M., 2013. Fast cost-volume
filtering for visual correspondence and beyond. IEEE Transactions on Pattern Analysis and
Machine Intelligence, 35(2), pp.504-511.
Reineking, C., Chamberlain, D.H., Rudolph, H.R. and Smith, L.M., 2013. An examination of
inventory costing convergence under generally accepted accounting principles and International
Financial Reporting Standards. Journal of International Business Research, 12(2), p.17.
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