This document provides information about company accounting, including the revaluation model and fair value measurement hierarchy. It also discusses financial reporting based on historical costs and provides examples from Medibank Private Insurance's financial reports.
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Running head: COMPANY ACCOUNTING Company Accounting Name of the Student Name of the University Authors Note Course ID
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1COMPANY ACCOUNTING Table of Contents Answer to Question 1:................................................................................................................2 Answer to Question 3:................................................................................................................2 Answer to A:..........................................................................................................................2 Answer to B:..........................................................................................................................3 References:.................................................................................................................................6
2COMPANY ACCOUNTING Answer to Question 1: The board of director of Simba Ltd should not adopt the revaluation model. This is because the revaluation model requires the business with the option of carrying the fixed assets at the revalued model. Consequent to the revaluation model, the business would be required to carry on the books based on the fair value of the asset following the deduction of the subsequent accumulated depreciation and impairment losses (Hughes et al., 2019). As evident, the board of directors of Simba Ltd are uncertain regarding the fair value of certain items of fixed assets in the present accounting year and there are also certain assets that are difficult to obtain. As a result, determination of fair value for certain assets appears to be difficult. Adopting the revaluation model would further create an impact on the fair value materiality of the firm since the model would require the board of Directors of Simba Ltd to continuously revalue the fixed assets sufficiently at the regular interval to assure that the carrying value is not materially different from the fair value during any period (Andison & Nasser, 2017). Undertaking the revaluation model without the sufficient knowledge regarding the fair value of certain assets may provide results that may inflate the carrying amount of certain assets in the statement of financial position. Furthermore, the board of directors should understand that assets cannot be revalued every year or the cost might not decline. As a result, no depreciation can be charged on the asset (Yao et al., 2015). If the fair value of assets is unknown, then the sum of depreciation that is charged may be miscomputed. ConclusivelytheboardofdirectorsofSimbaLtdshouldabstainfromadoptingthe revaluation model. Answer to Question 3: Answer to A: The fair value of the Medibank investment is measured based on the fair value measurement hierarchy For the year ended 30th June 2018 Particulars Level 1 ($m) Level 2 ($m) Level 3 ($m) Total ($m) Financial Assets at fair value through profit or loss Australian equities143.2143.2 International equities168.8168.8
3COMPANY ACCOUNTING Property2.2156.2158.4 Infrastructure49.849.8 Fixed Income85.91670.41756.3 88.12188.42276.5 Answer to B: MedibankPrivateInsurancefinancialreportshasbeenpreparedbasedonthe convention of historical costs, excluding the financial assets that are measured in terms of fair value with the help of profit or loss. The land and building are measured based on fair value. Investment portfolio disclosure: Under the notes 7, the investment portfolio that are listed and not listed securities held by the Medibank’s health insurance fund are categorized as the financial assets that back the insurance liabilities and hence it is recognized at fair value. Financial assets that are measured at fair value with the help of profit and loss comprises of outwardly administered equity trust, direct mandates and fixed income portfolio that are internally managed (Maas et al., 2016). Other investments that are listed and not listed securities are categorized as held for the purpose of trading and bought mainly for selling the short-term and are hence measured at the fair value upon the primary recognition. Net Investment Income: The income from the trust distribution that are derived from the financial assets are measured at the fair value with the help of profit or loss that are recorded in the consolidated comprehensive profit and loss statement. Trade and other receivables disclosure: Under the notes 9 C, disclosure relating to trade and other receivables are originally measured at fair value. The trade and other receivables are measured subsequently at amortised costs by using the“effective interest”method after deducting the impairment loss. Cash and cash equivalents: Under the notes 9 the cash and cash equivalents of Medibank have been recognized at fair value which also includes the hand, short-term bills of bank, commercial paper, term deposits and short-term liquid investment that has the maturities of less than three months and readily convertible (Schaltegger et al., 2017).
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4COMPANY ACCOUNTING Property, plant and equipment: Under the notes 11 the land and building are classified at recognized at fair value after deducting the depreciation for building (Medibank.com.au, 2019). Intangible assets: Goodwill: Under the notes 12 the goodwill and the intangible assets that are having the indeterminate lifespan are not considered for amortization purpose and they are tested on yearly basis for the impairment purpose (Medibank.com.au, 2019). The company recognizes the impairment losses for the amount based on the carrying cost of the asset that exceeds the recoverablevalue(Kaplan&Atkinson,2015).Therecoverablesumoftheassetsis recognized at greater than the fair value after deducting the costs of disposal and the usable value. Customer contracts and relationships: Under the notes 12C of the annual report the customer agreements and relations that are bought as the portion of business grouping are carried at fair value on the day of purchase after deducting the accumulated amortisation and impairment losses. Premium revenue: Under the notes 3 Medibank recognizes the premium revenue in the consolidated comprehensive income statement when the sum can be dependably measured and it becomes likely that the forthcoming financial profits would come in the organization (Hoyle et al., 2015). Measurement of premium revenue is based on the fair value in respect of the consideration that is received or receivables. Share based payments: Under the notes 16 the share based payment arrangements represents the fair value relatingtotheperformancerightsisrecognizedastheemployeebenefitexpenditure (Medibank.com.au, 2019). The company anticipates to expense the total amount by referring to the fair value of the performance rights that are granted including the market performance situations.
5COMPANY ACCOUNTING Medibank applies the AASB 9 for the annual reporting period that commences from 1stJuly 2018. All the financial assets are recognized at the fair value except the debt instrument that are managed based on the contracted yield basis (Medibank.com.au, 2019). The company recognizes the investment at thefair value with the help of profit or loss and there would not be any material effect.
6COMPANY ACCOUNTING References: Andison, A., & Nasser, E. M. (2017). Operating Cash Flow, Earning Response Coefficient, and Fixed Asset Revaluation: Study on Manufacturing Company.Etikonomi,16(1). Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015).Advanced accounting. McGraw Hill. Hughes, S. B., Lowensohn, S., & Tefre, E. (2019). Portable Power: An Application of IAS 16 Including Self-constructed Assets and the Revaluation Model.Issues in Accounting Education. Kaplan, R. S., & Atkinson, A. A. (2015).Advanced management accounting. PHI Learning. Maas,K.,Schaltegger,S.,&Crutzen,N.(2016).Integratingcorporatesustainability assessment,managementaccounting,control,andreporting.JournalofCleaner Production,136, 237-248. Medibank Private Health Insurance | For Better Health | Medibank. (2019). Retrieved from https://www.medibank.com.au/ Schaltegger, S., Etxeberria, I. Á., & Ortas, E. (2017). Innovating corporate accounting and reportingforsustainability–attributesandchallenges.Sustainable Development,25(2), 113-122. Yao, D. F. T., Percy, M., & Hu, F. (2015). Fair value accounting for non-current assets and auditfees:EvidencefromAustraliancompanies.JournalofContemporary Accounting & Economics,11(1), 31-45.