University Finance: AASB 16 and the Sea Eagles Accounting Case Study

This case study examines the application of AASB 16, focusing on its implications for property, plant, and equipment, using the Sea Eagles Ltd. as a real-world example. The analysis centers on the accounting treatment of depreciation during a strike, exploring whether depreciation expenses should be recognized when the assets are not in use. The study delves into the relevant guidelines of AASB 16, particularly paragraphs that address the estimation of an asset's useful life and expected usage. The discussion includes an auditing team's perspective and the appropriateness of the unit production depreciation method during periods of inactivity, providing a comprehensive understanding of the standard's impact on financial reporting. The document provides a thorough exploration of the accounting principles involved, supported by references to academic journals and books.

Case study

Contents
MAIN BODY..................................................................................................................................3
The requirement of AASB 16 in relation of property, plant and equipment assets....................3
Sea eagles accounting analysis by auditing team........................................................................3
REFERENCES................................................................................................................................5

MAIN BODY
The requirement of AASB 16 in relation of property, plant and equipment assets.
AASB 116 has the objective to prescribe the proper accounting treatments related to the
property, plant and equipment so that the users can have the financial statement regarding the
investments in its property, planned equipment (Joubert, Garvie and Parle, 2017). There have
been issues in accounting of the property, plant and equipment for having proper reorganizations
of assets, determining proper carrying amounts and depreciation charges and impairments lost
related to them. As per the guideline’s depreciation is about the systematic allocations for the
depreciable amount of an asset over its useful life.
The depreciation method is applied to assets at least to each financial year ends and significant
changes in patterns of copromotion of the future economic benefits embedded in assets. So, there
can be changes in accounting estimates in accordance with AASB 108. As per the auditing, it can
be stated as their depreciable amount of the assets must be allotted on the systematic review over
the assets estimates useful life (Shah and et.al., 2019). This can be clearly recognized as a profit
and loss statement.
Sea eagles accounting analysis by auditing team.
As per the case of the Sea Eagles Ltd have experienced the strike which have affected their
number of operating plants. The company it is not appropriate to report the depreciation
expenses on the plants and equipment and machinery as they are not in use during the strike. As
the point mentioned by their position it is inappropriate to charge their period cost as there was
no revenue arising with production (Garg, Peach and Simnett, 2020). To support the statement, it
can be added to determination regarding estimation of the asset useful life clearly stated in
paragraph 6 of AASB 16 that the period over assets is expected should be available for uses by
the entity. In addition to that the number of production or the similar units needed to be obtained
from the assets by entity.
Reading to the proper guidelines of AASB16 paragraph 56 states proper focus on the
expected usage of assets, expected wear and tear, technical or commercial obsolesces along with
legal and similar limits on the use of different assets.
On the other hand, in case it has been clearly stated as there was no production during the time
of strike which inculcate no level of wear and tear of the operating plants. The discussion in the
auditing team. The unit production deprecations method has allocations of depreciation based on
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the residual use of assets (Brumm. and Liu, 2019). This method can only be used when there is
assets output. So as the period of the strike, there can be no deprecations per the significant
guidelines of AASB16.
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REFERENCES
Books and Journals
Online
Brumm, L. and Liu, J., 2019. New leasing accounting standard. Taxation in Australia, 53(8).
p.449.
Garg, M., Peach, K. and Simnett, R., 2020. Evidence‐informed Approach to Setting Standards: A
Discussion on the Research Strategies of AASB and AUASB. Australian Accounting Review.
Joubert, M., Garvie, L. and Parle, G., 2017. Implications of the New Accounting Standard for
Leases AASB 16 (IFRS 16) with the inclusion of operating leases in the balance sheet. The
Journal of New Business Ideas & Trends, 15(2). pp.1-11.
Shah, F and et.al., 2019. Implementing AASB 16 Leases: Are Preparers Ready?.
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