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Financial Accounting and Reporting in Automotive

   

Added on  2021-01-02

6 Pages1167 Words275 Views
Financial Accounting andReporting

Table of ContentsDetermination of useful life and meaning of residual value of asset..............................................2Meaning of fair value and its impact of AASB 116 and AASB 112...............................................2Ethical representation in argument of CEO considering AASB 101..............................................3CONCLUSION AND RECOMMENDATION..............................................................................3REFERENCES................................................................................................................................41

Determination of useful life and meaning of residual value of assetThe useful life of an asset is the period of time which company tends to estimate to assessthe economic feasibility of the asset. In other words, it is the duration that a particular r asset willbe in service and is used to earn certain amount of revenue for the organization (AASB 112Income Taxes, 2017). In order to estimate useful life, it is important for the organization to usepast experience with similar type of asset, industry practices, statistical methods, judgementalestimates and other engineering estimates. However, there is certain typical range of useful lifeestimates which are taken into consideration by organization, which are mentioned below:Automotive equipment: 3 to 6 yearsFurniture and Fixtures: 5 to 12 yearsMachinery and equipment: 3 to 20 years (Wong and Joshi, M., 2015)Buildings and improvements: 10 to 50 yearsEvaluation of useful life is also subjected to overall judgement of management which canalso be revised during the life of fixed asset as well. Since, the figure is quite uncertain,conservative accounting practices must be followed to ensure that right type of decision has beentaken by the organization. Residual value ios also called as salvage value. It is the remaining value of a particular assetafter it has already been fully depreciated. It is calculated with the help of base prices that iscalculated after depreciation. It is considered to be the base price based on which that overallcalculation of depreciation is initiated. In case of West farmers, the useful life of building beingheld by it, is 20 years to 40 years. However, in case of plant and equipment, it is 3 years to 40years. Meaning of fair value and its impact of AASB 116 and AASB 112Fair value is considered to be rational and unbiased approach used to ascertain the potentialmarket price of a good, asset or a service. There are various factors that are taken into accountwhile assessing fair value. These factors are, acquisition or distribution cost, supply versusdemand, social productive capability of the asset, characteristics of risk involved to it, cost of andreturn on capital and individually perceived utility (Stevenson, 2012). In other words, it can bestated that, fair value is the sales price which has been agreed by buyer and seller both. Further,on the same value, the security will be traded. It is also the representation of company’s asset and2

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