Financial Accounting and Reporting - Assignment
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Added on 2021-06-14
Financial Accounting and Reporting - Assignment
Added on 2021-06-14
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Financial Accounting and reporting1
Executive SummaryThis report will emphasize on several financial issues to ensure compliance of Australian AccountingStandards as amended time to time on the issues of General Purpose Financial Reporting or GPFR as perSAC 1 confirming the definition of the Reporting Entity, application of Property, Plant and Equipmentwith their recognition criteria, importance of AASB 116 in relation to acquisition of PPE and respectivemeasurement of PPE subsequent to acquisition, depreciation and its application to the assets,determination of useful life of assets and respective residual value, derivation of fair value with theimplication of AASB 116 to fix fair value of assets and AASB 112 regarding tax accounting impact ofassets at fair value. This report will conclude with recommendation and conclusion to the managementof the company with highlighting the observation of the CEO proved to be ethical as per AASB 101related to preparation of financial statements of the company. Key words- GPFR, AASB, Fair value, Depreciation, PPE, Residual value2
Table of ContentsIntroduction.................................................................................................................................................4AASB-SAC 1- General Purpose Financial Report- Nature.............................................................................4Assets Constitute Property, Plant and Equipment (PPE) and their recognition...........................................5Constituents............................................................................................................................................5Recognition..............................................................................................................................................6Requirement of AASB 116- Acquisition and Measurement of PPE..............................................................6Acquisition...............................................................................................................................................6Measurement..........................................................................................................................................6Depreciation................................................................................................................................................7Definition.................................................................................................................................................7Assets – to be depreciated and not depreciated.....................................................................................7Useful life and residual value of asset.........................................................................................................8Useful life of asset...................................................................................................................................8Residual value of asset............................................................................................................................9Fair value.....................................................................................................................................................9Definition.................................................................................................................................................9Role of AASB 116 to set fair value as ceiling amount for carrying amount of asset.................................9Role of AASB 112 for tax impact of fair value asset carrying amount......................................................9AASB 101- booking of depreciation.............................................................................................................9Recommendation......................................................................................................................................10Conclusion.................................................................................................................................................10References:................................................................................................................................................113
IntroductionThe board of Nikita Company, a public limited company with ASX listing, engaged in a competitive typeof business, decided to introduce General Purpose Financial Reports. The company was practicinghistorical cost method to ensure valuation of their assets in financial reports. Now the company wantsto introduce fair value basis to measure its non-financial assets in the form of Property, Plant andEquipment. The company also wants to test the implication of different AASB standards in differentfields of application for financial reporting related to derivation of fair value of assets falling under thesegment of PPE with their identification, subsequent acquisition and measurement, definition ofdepreciation expense with its applicability to all assets, determination of useful life of any asset and itsresidual value. The CEO of Nikita Company has argued that there is no need to depreciate value of assetsfor current period. This issue is to be justified with respective AASB standard. Recommendation is to bemade to suggest the board about the above issues. This report will be based on with the example of anASX listed company named Woolworth. The annual financial report of that company will be consultedfor this purpose to justify future steps of Nikita Company related to different financial issues to bestreamlined as per AASB standards to comply with basic guidelines as endorsed by AustralianCorporation Act, 2001.AASB-SAC 1- General Purpose Financial Report- Nature General purpose financial report is defined as such financial report that is meant to comply with theinformation requirement , which are common to those users who are not able to command the makingof such report customized in order to satisfy, mainly all their information requirement. Nature of such report is derived with “objective of GPFR” as mentioned in SAC 2. The clause states thatthese reports are made to enable the user with financial information about the reporting entity(business entity) in order to make useful decision with subsequent evaluation to allocate different typesof limited resources. In case of General Purpose Financial reports complies with the requirement of theobjective of the stakeholders for allocation of such resources, the management and governing body alsodischarge their commitment and accountability to those stakeholders. In case of Statements of4
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