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Intangible Asset Recognition in Accounting

   

Added on  2020-02-24

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EXECUTIVE SUMMARYFor every company whether it is small or it is big the government has defined thepolicies and the procedures within which the company has to perform its functions anddelivers the services to their clients or the customers. Through this report, the main aimis to describe the accounting standard as applicable in each case. The accountingstandard has been cited with reference to the practical aspects along with thetheoretical aspects. The major accounting standard that has been discussed is relatedto Accounting policies, property plant and equipment and the Provisions and contingentliabilities. The requirement of each standard has been described case study wise. INTRODUCTIONFor having the smooth functioning of every company, it is very important for them tohave the good business practices and that too shall be within the limits of the definedprocedures and the policies laid down by the government. These have been enactedthrough the Corporations Act, 2001, Accounting standards and similar policies. In thisreport, the major focus has been made on the accounting standards. Accountingstandards helps the company in getting the financial statements prepared in the uniformand consistent manner so that the financial statements of the company can becompared with the financial statements of the other company operating in the sameindustry by the users of the financial statements. In this report, three case studies havebeen discussed and all the cases have been cleared by making the reference to therelevant accounting standard and wherever necessary separate calculation has beenmade. With this aims, the report has been made available to the users.Student Name:Student Number:1
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QUESTION NO. 1On the beginning of the financial year 2014, Magenta Company has bought themachinery amounting to $200000. The company has recognized the machinery on thebasis of the cost model and not revaluation model. At the end of the financial year 2017,the company has decided to change the method of valuation to the revaluation modeland thereby the accounting policy has been changed. At first the requirements of theAustralian accounting standard 108 on accounting policies and changes in accountingestimates has been detailed and after that the requirements of the Australianaccounting standard 116 relating to property plant and equipment have been discussed.(a)Change in Method of ValuationIn this part, reference has been made to the provisions of the Australian AccountingStandard number 108 which is on accounting policies and changes in accountingestimates. In accordance with Para number twenty and of twenty one, following are thesituations where accounting standard allows the adoption of the accounting standard onthe voluntary basis (Australian Accounting Standard Board (AASB), 2011):Where the entity applies the provision of the accounting standard before the dateof its becoming applicable, it can never be stated that the company has adoptedthe accounting standard on voluntary basis.The entity will be said to have the accounting standard applied on voluntary basisduring the financial year only when the declarations have been made by theother standard setting bodies or the professional bodies who is responsible formaking the standards and also when there is no accounting standard on therelevant and given subject. The accounting treatment for change in accounting policy from the cost model torevaluation model shall be done in the following manner:If the revalued amount is higher than the cost, then the difference shall betransferred to the revaluation surplus and otherwise the amount will be written offfrom the revaluation surplus. Student Name:Student Number:2
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The assets so revalued are then recognized at the revalued amount less thedepreciation expense and the amount of impairment loss. (Taplin, Tower andHancock, 2002). (b)Journal entries in relation to MachineryAs per the Australian accounting standard 116, the journal entries have been detailed below relating to the machinery and depreciation for consecutive period of six years (Australian Accounting Standard Board (AASB), 2010).Journal Of Magneta LimitedDateParticularsDebitCredit01/07/2014Machinery - Asset$200000To Bank$20000030/6/2015Depreciation$25000To Accumulated Depreciation$2500030/6/2015Accumulated Depreciation$25000To Machinery - Asset$2500030/06/2016Depreciation$25000To Accumulated Depreciation$2500030/06/2016Accumulated Depreciation$25000To Machinery – Asset$2500030/06/2017Revaluation Surplus$15000To Machinery - Asset$1500030/06/2017Depreciation$22500To Accumulated Depreciation$2250030/06/2017Accumulated Depreciation$22500To Machinery – Asset$2250030/06/2018Revaluation Surplus$20500Student Name:Student Number:3
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