Financial Accounting Process docx.

Please follow assessment brief. Part A : Solutions Part B: Explanation on each issues

FINANCIAL ACCOUNTING PROCESS 1
FINANCIAL
ACCOUNTING
PROCESS

FINANCIAL ACCOUNTING PROCESS 2
Issue 1:
The concept of revaluation is mainly used in accounting and it helps in the determination of
true and the fair market value of the fixed asset. As and when there is a revaluation of a fixed
asset, then the value of the asset shall be adjusted or is amended to the market value of that
asset. The reason as to why revaluation is done is the fact that the market value of the fixed
asset shall change over the period of time and would be less or more than the historical value
recorded in the books of accounts. Revaluation of mainly done so as to record accurate
information in the books of accounts. Also, the funds under revaluation are kept aside to
negotiate the prices in case of a merger or an acquisition or for the purposes of taking loans in
the mortgage of the fixed assets.
Impairment on the other side, the value of a fixed asset may be less or more than the actual or
the market value of an asset. Hence, the accurate and the true value of the fixed asset must be
recorded in the books of accounts. When an asset loses its value over the period of time, then
that asset is termed as an impaired asset.
An asset could become impaired due to a variety of different reasons which may include
becoming obsolete, failure to meet the regulatory requirements, damage to the asset etc. any
company is duty bound to check each asset for impairment on a yearly basis and record the
difference between the amounts as and when they occur.
Hence, in order to conclude the fixed assets are reported in the books of accounts at their cost
prices and then these values change to show their true and fair market value. There are two
method to do the same, the first one is revaluation and the other one is impairment (Nicolae,
2020).
The technique of revaluation is used in accounting and finance wherein the recorded value of
an asset shall be reported at its market value. An asset shall lose its value and would be
required to be written down which is termed as an impaired asset.
AASB 116 describes the reduction in the carrying value of a non-current asset t its fair value
which is termed as a “revaluation decrement”. The same accounting standard describes an
impairment loss as a reduction in the amount of the carrying value to report its recoverable

FINANCIAL ACCOUNTING PROCESS 3
amount. Also, the requirements as have bene laid down under AASB 116 would be first
applied and then the requirements of AASB 136 shall be applied to determine an impairment
of an asset (Course hero, 2020).
Issue 2:
The revaluation model helps in the presentation of the tangible and the intangible assets with
their respective current values that equips the companies with a more realistic presentation of
the financials. Due to the reason that the revaluation aims at presenting the balance sheet with
their current values, there is an increase in value which is not included in income but is
included in the statement of equity without being connected with the profit or loss earned
during the current years. The surplus in the revaluation account would be transferred to the
retained earnings account only. The major difference between the use of revaluation model
and the use of cost model is the fact that in case, the value of an asset increases during the
year, then the amount of depreciation being charged on it shall also increase which would in
turn decrease the profit earned during the current year but if the cost model is being used,
then the amount of depreciation shall remain to the same in the current year if straight line
depreciation method if being used and the depreciation expense shall reduce if the written
down value method is being used. So, the more deprecation under revaluation model, would
mean lower taxes to be paid to the authorities (ACCA global, 2020).
Also if the revaluation model is being applied retrospectively, then that would mean more
depreciation expense being charged from all of the previous years all at once during the
current year. This would go on to reduce the taxes payable in the current year.
The change in the accounting policy is allowed under the requirements of IAS 16. But it does
not specify if the revaluation surplus is allowed to be distributed to the shareholders. This
standard provides the restrictions on the distribution of the revaluation surpluses though
(Esen et al, 2016).

FINANCIAL ACCOUNTING PROCESS 4
References:
ESEN, Ö., & PEREK, A. (2016). THE REVALUATION MODEL AND ITS EFFECTS ON
FINANCIAL STATEMENTS: AN EXAMINATION ON BIST 100 COMPANIES.
Retrieved 17 April 2020, from
http://www.beykon.org/dergi/2016/SPRING/2016XI.I.3.O.M.Esen.pdf
Nicolae, B. (2020). The Differences Between Revaluation and Assets Impairment. Retrieved
17 April 2020, from https://ideas.repec.org/a/tdt/annals/vxixy2013p64-72.html
Revaluation and derecognition | F7 Financial Reporting | ACCA Qualification | Students |
ACCA Global. (2020). Retrieved 17 April 2020, from
https://www.accaglobal.com/pk/en/student/exam-support-resources/fundamentals-
exams-study-resources/f7/technical-articles/revaluation-derecognition.html
Tutorial 09 Non-current assets 2012 issued(2) - ACCT 3102 Tutorial 9 Semester 1 12 NON-
CURRENT ASSETS(REVALUATION AND IMPAIRMENT HPH Chapter 8
Questions. (2020). Retrieved 17 April 2020, from
https://www.coursehero.com/file/7047083/Tutorial-09-Non-current-assets-2012-issued2/