AASB Standards and Accounting Policies: An Advanced Financial Report

This report provides a comprehensive analysis of accounting policies and their changes within a company, focusing on the application of various Australian Accounting Standards Board (AASB) standards such as AASB 108, AASB 116, AASB 137, and AASB 138. It delves into accounting techniques and methods, illustrating their application through examples related to asset revaluation, depreciation, warranty obligations, and intangible assets like copyrights. The report includes detailed journal entries, calculations for depreciation using the straight-line method, and an evaluation of contingent liabilities, offering a practical understanding of advanced financial accounting principles and their implementation in real-world scenarios. The document provides detailed insights into handling changes in accounting estimates, determining warranty obligations, and managing intangible assets, making it a valuable resource for understanding complex accounting procedures.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
Name of the Student:
Name of the University:
Author’s Note:

1ADVANCED FINANCIAL ACCOUNTING
Executive Summary
The aim of the report is to study about the various accounting policy and the changing
accounting policy in a company. The various accounting standards like the AASB
108,116,137, and 138 were explained in the context of different examples and situation.
The various accounting techniques and methods for the same is elaborated and
discussed under the project.

2ADVANCED FINANCIAL ACCOUNTING
Table of Contents
In Response to Question 1................................................................................................3
In Response to Question 2................................................................................................5
In Response to Question 3................................................................................................6
References.........................................................................................................................8
Appendix............................................................................................................................9

3ADVANCED FINANCIAL ACCOUNTING
In Response to Question 1
a) A change in accounting estimates and errors is permitted under AASB 108 and
entities are allowed for a voluntary change in the accounting policy when the
board does not include specific provision for the transactions occurred, events or
conditions. The management is lieu of the accounting guidelines select the
accounting policy which is among the recent announcements of different
standard setting bodies. The accounting policy chosen must be using a similar
conceptual framework for developing the accounting standards. The
management in these cases can choose voluntary change in the accounting
policy (AASB 108, 2018).
b) 1) The change from cost model to revaluation model would be accounted by the
company by revaluing the asset on the revaluation date that is 30th June 2014.
The actual amount for the asset on 30th June 2014 is around 500,000 (Appendix
1) while the revaluation or the fair value of the asset was around 530,000. The
extra 30,000 would be accounted as revaluation surplus in the Other
Comprehensive Income, which is a part of the shareholder’s equity. The same
profit or loss could be recognized in the profit or loss account to the extent of the
profit or loss recognized earlier in the income statement relating to the same
asset previously. The carrying value of the asset would be recorded as the fair
market value that is 530,000 as Machinery under the Asset side of the balance
sheet (Carrol & Laing, 2016).
2) The changes to the machine useful life and residual value on 30th June 2016
will be accounted under the AASB 108 if the estimates differs from the previous

4ADVANCED FINANCIAL ACCOUNTING
estimates in regarding to the residual value and useful life of an asset.
Depreciation will be recognized and accounted in the balance sheet of the
company as the residual value of the asset does not increase with the carrying
value of the asset. The change in the residual value of the asset on that date will
be recorded as revaluation surplus or loss in the comprehensive income
statement. The asset value on 30th June 2016 is around 350,000 where the asset
residual value is initialized at zero and the asset life cycle is reduced to two
years. The depreciation for the remaining two years is distributed equally making
the assets cost at 30th June 2018 as zero (AASB 116, 2015).
3) Journal entries in the books of Dartmouth Ltd as on 30th June 2018.
Date Particulars Amount($)
01.07.201
0
Machinery A/c………Dr
To Bank A/c
(Being Machinery Purchased)
800,000
800,000
30.06.201
1
Depreciation A/c………………Dr
To Machinery A/c
(Being Depreciation Charged on Machinery)
75,000
75,000
30.06.201
2
Depreciation A/c………………Dr
To Machinery A/c
(Being Depreciation Charged on Machinery)
75,000
75,000
30.06.201
3
Depreciation A/c………………Dr
To Machinery A/c
(Being Depreciation Charged on Machinery)
75,000
75,000

5ADVANCED FINANCIAL ACCOUNTING
30.06.201
4
Depreciation A/c………………Dr
To Machinery A/c
(Being Depreciation Charged on Machinery)
75,000
75,000
30.06.201
4
Machinery A/c………Dr
To Revaluation Surplus A/c
(Being Machinery revalued at 530,000 which is
greater than the carrying value of the asset 500,000)
30,000
30,000
30.06.201
5
Depreciation A/c……..Dr
To Machinery A/c
(Being Depreciation Charged on Machinery)
80,000
80,000
30.06.201
6
Depreciation A/c……..Dr
To Machinery A/c
(Being Depreciation Charged on Machinery)
80,000
80,000
30.06.201
7
Depreciation A/c……..Dr
To Machinery A/c
(Being Depreciation Charged on Machinery)
160,000
160,000
30.06.201
8
Depreciation A/c……..Dr
To Machinery A/c
(Being Depreciation Charged on Machinery)
160,000
160,000
In Response to Question 2
a) The warranty obligations would be classified as a provisions under the AASB 137
as it is a probability case where the company would have to pay or the outflow of
the resources may be required in order to settle the obligations, which may arise.

6ADVANCED FINANCIAL ACCOUNTING
The situation for the company may be defined as the present obligations
scenario where a past event is said to have taken place and a present obligation
may arise at the end of the reporting period (AASB 137, 2010).
b) The requirement to determine the amount which is to be paid by Raleigh
Construction Ltd under the head provisions, contingent liabilities and assets as
there is a contingent liability, which may arise in the due course of the business.
The probability of the amount of resources flowing out for the economic benefits
to settle the obligations must be backed up by a probable event. In this case the
probability of the outflow of resources is mentioned according to the scenario
analysis presented. The discount rate used for determining the present value of
the arising liability must be a risk free rate which adjusts the future cash flow
estimates. The amount of the expenditure, which is expected to be paid by the
company depends on the probability of scenario presented and the same amount
shall be the present value, which is done in our case.
Amount to be recognised as an Contingent Liability
Engineers’ Estimates Probability Cost Amount
Worst-case scenario 10% 30,00,000 3,00,000
Best-case scenario 10% 6,00,000 60,000
Most probable scenario 80% 15,00,000 12,00,000
Total 15,60,000
Discount Rate 4%
Present Value of the Amount To be recorded on 30.06.18 1500000
In Response to Question 3
a) The copyrights or the assets of the company satisfies the definitions of intangible
assets of the companies in respect to the AASB 138 section. The section states

7ADVANCED FINANCIAL ACCOUNTING
that the assets should be identifiable, the entity must have a control over the
resource or the asset acquired and finally there should be evidence and flow of
economic benefits from the assets should be clear. Thus the copyright satisfies
all the criteria and under the section 138 of AASB be regarded as an Intangible
Asset. As the company John Riley & Sons is a book publishing company and
copyright of books could enhance the prosperity of increase revenue and growth
for the company acting as a future economic benefits for the company (AASB
138, 2014).
b) The requirements of AASB 138 Intangible assets are:
 Identification of Asset
 Control or Ownership of Asset
 Flow of Economic Benefits from the Asset.
The appropriate accounting method to be used can be the probability
approach or scenario analysis of assets returns under various scenarios and
accounting the same cash flows. The first Copyright which is developed
internally by the company, which costs around $25,000 could be amortized
using the straight line method over the useful life of five years of asset life.
The amortization expenses to be reported in this case will be $5000 every
year. Whereas in the second case the acquired copyright by the company
from Adelaide University at $ 15,000 will be at the balance sheet of the
company at the acquisition cost and impairment of the same will be done
annually to check the economic benefits or the potential of the assets
(Handley, Wright and Evans, 2018).

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References
Australian Accounting Standards Board. (2010). AASB 137 [Ebook]. Australia.
Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-
04_COMPoct10_01-11.pdf
Australian Accounting Standards Board. (2014). AASB 138 [Ebook]. Australia.
Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB138_07-
04_COMPjun14_07-14.pdf
Australian Accounting Standards Board. (2015). AASB 116 [Ebook]. Australia.
Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB116_08-
15_COMPoct15_01-18.pdf
Australian Accounting Standards Board. (2018). AASB 108 [Ebook]. Australia.
Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB108_07-
04_COMPjan15_07-15 pdf
Carrol, A., & Laing, G. (2016). Manipulation of Earnings through Correction of Prior
Period Errors (AASB108): An Empirical Test. e-Journal of Social & Behavioural
Research in Business, 7(1).
Handley, K., Wright, S. and Evans, E., 2018. SME Reporting in Australia: Where to Now
for Decision‐usefulness?. Australian Accounting Review.

9ADVANCED FINANCIAL ACCOUNTING
Appendix
1) Depreciation Amount Calculation using Straight Line Method
In the books of Dartmouth Ltd
Date Particulars Amount($)
01.07.10 Asset Value 8,00,000
30.06.11 (-) Depreciation 75,000
01.07.11 Asset Book Value 7,25,000
30.06.12 (-) Depreciation 75,000
01.07.12 Asset Book Value 6,50,000
30.06.13 (-) Depreciation 75,000
01.07.13 Asset Book Value 5,75,000
30.06.14 (-) Depreciation 75,000
30.06.14 Asset Book Value 5,00,000
30.06.14 Asset Fair Market Value 5,30,000
30.06.14 Scrap Value 50,000
30.06.14 Asset Book Value 4,80,000
30.06.15 (-) Depreciation 80,000
30.06.15 Asset Book Value 4,00,000
30.06.15 Asset Fair Market Value 4,00,000
30.06.16 (-) Depreciation 80,000
30.06.16 Asset Book Value 3,20,000
30.06.17 (-) Depreciation 1,60,000
01.07.17 Asset Book Value 1,60,000
30.06.18 (-) Depreciation 1,60,000
30.06.18 Asset Disposed 0