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Financial Accounting Issues : PDF

   

Added on  2021-06-16

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FINANCIAL ACCOUNTING Ebony & Associates Public Accounting Firm, Madam Ellen Lyrial Address; 248 Adelaide Street, Brisbane GLD 4000 21st May 2018Mr. Martin MullerThe Managing Director of Muppets LtdAddress Level 13,248 Adelaide StreetBrisbane QLD 4000RE: CLARIFICATION AND EXPLANATION OF THE ACCOUNTING PRINCIPLES AND REGULATION APPLIED IN ACCOUNTING FOR ASSETS AND TAX ASPECT ON PROFIT AND INCOMEDear Sir, I hereby make reference to an email as well as telephone conversation done to me on March 13th, 2018 regarding accounting issues presented in the financial reporting that seemed contrary to your expectation.The first tier in line is the valuation of assets which is explained in AASB 116 paragraph 15 that all assets are either tangible or intangible depending on its characteristics. Intangible assetas explained in AASB 138 is said to entail financial assets that are not felt, touched or even seen,

FINANCIAL ACCOUNTINGthe likes of trademarks, patents, lease and deferred taxes. Paragraph 21 of AASB 138 further explains that these assets like any other asset is recognized and measured as per the asset economic life and its initial cost respectively. However recognition only takes place upon measuring the cost of the asset reliably. Similarly to other assets, intangible losses value through impairment or amortization means. Amortization and impairment reduces the value of the asset from the initial cost of measurement to net book value. This value loss is accounted for in the profit or loss account and its presentation accounted for in the notes for disclosure. Tangible assets like Property Plant and Equipment should be valued at historical cost or rather at purchase value. Historical cost as per AASB 116 paragraph 16 entails all costs relating to bringing the asset in existence Correia(2018.Pg 50.) For instance, all costs incurred in purchasing assets and those which directly relate to movement and location of the asset so as to be in operation. Ideally, the cost of an item in paragraph 23 of AASB 116 is the cash price spent in acquisition on the day the asset was recognized as an asset of the firm. Before consideration of any other factor during measurement of an asset, the base pace is which is the historical value per say has to be accounted for as done in Muppet Ltd PPE items presentation. Whereby $450000 is reported to form the base in which the factor value decrease of the asset is factored from. Both AASB 116 and IAS 16 requires that recognition of all asset at the initial point of acquisition be done at cost as done to all assets reported in the financial statements of Muppets Ltd before considering other factors.The consideration of balances of assets that appeared in previous year financial statementi.e. purchase cost of PPE and its accumulated depreciation is as per regulations AASB 116 paragraph 30 that require all asset be carried at it cost less any accumulated depreciation. Muppets Ltd assets have been accounted as expected because the historical factor is considered as well as the loss of value factor so as to get the face net book value of the asset.

FINANCIAL ACCOUNTINGHistorical cost of for example the PPE item of 450000 Australian dollars is what was spent acquires the asset hence on yearly basis just the value loss due to the operation is what should be reducing its value. The value loss depends on the method applicable depending on economic life the item is expected to last by either reducing balance method or straight-line method as per the depreciation rates applicable. This accumulated depreciation is a sum up of yearly depreciation value of asset since it was purchased.For example, since Muppets asset had a useful life of 9 years and the asset has been in operation for 3 years hence annual depreciation figure was Brett(2018.Pg 4);=450000/9=50000, thus on annual basis the asset depreciates at 50000, hence 1st year=50000, 2nd year 50000 and the reporting 3rd year 50000 totaling to =150000 reduce in value, what is factored in the books as explained in the notes on PPE. By factoring the 150000 Australian Dollar depreciation value directly from the historical purchase cost=450000-150000=300000 is as similar as;=450000 less depreciation cost 50000for 1st year to get the net book value as at end first year=400000,then this form balance value as at 2nd year=400000 less depreciation for 2nd year=400000-50000=350000, then factoring the depreciable value of the 3rd year=350000-50000=300000 thus giving us the net effect of 300000 as reported in the books.Therefore, I cordially request the Muppet Ltd accounting team to have no doubt at all on how theassets have been accounted for in its books of account.The conclusion by the directors that the asset cannot be sold for more than 200000 is there idea which means they are after disposing the asset at a loss. This is because having considered the value loss of the asset the net book value of 300000 is the base factor for making the loss or gains whereby if you go up you gain and if low you loss as is in the case of the directors thinking. If the asset is to be disposed at 300000 this means no loss no gain is earned thus disposal done at breakeven. I am hereby informing the directors that the asset can be sold a

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