Advanced Financial Accounting Report: Lease Accounting and IFRS

This report delves into advanced financial accounting concepts, primarily focusing on the financial performance and reporting practices of Amcor Limited. It examines the company's impairment testing of assets, including property, plant, and equipment, as well as intangible assets, analyzing the methodologies and judgments involved in determining recoverable amounts. The report also explores the implications of the new accounting standard for leases (IFRS 16), comparing the previous and current approaches, and discussing the impact on financial statements, comparability, and decision-making for investors and management. It highlights the changes in accounting standards, the controversies surrounding implementation costs, and the benefits of increased transparency and improved financial reporting, supported by references to relevant accounting standards and academic literature. The report includes detailed analysis of financial instruments and reporting practices.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced financial accounting
Name of the university
Name of the student
Authors note

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Table of Contents
Assessment Task Part A:.................................................................................................................2
Requirement i).................................................................................................................................2
Requirement ii)................................................................................................................................2
Requirement iii)...............................................................................................................................2
Requirement iv)...............................................................................................................................3
Requirement v)................................................................................................................................3
Requirement vi)...............................................................................................................................4
Requirement vii)..............................................................................................................................4
Requirement viii).............................................................................................................................5
Assessment Task Part B:.................................................................................................................5
Requirement i).................................................................................................................................5
Requirement ii)................................................................................................................................6
Requirement iii)...............................................................................................................................7
Requirement iv)...............................................................................................................................7
Requirement v)................................................................................................................................8
References list:...............................................................................................................................10

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Assessment Task Part A:
Requirement i)
Amcor limited recorded an impairment of amount totaling USD 25.5 million during the
year ending 2016 and USD 17.8 million during yearn ending 2015 (boral.com 2018). Total
amount of impairment that has been done is in relation to specific items of equipment, property
and plants. Impairment of trade receivables has been done for amount 1.6 and -1.4 respectively.
For intangible assets, impairment totalling USD 2.5 million and 0.2 million have been recorded
in year 2016 and 2015 respectively (boral.com 2018). Therefore, group has tested equipment,
property and plant in the current year and they were identified as surplus value to their current
requirements.
Requirement ii)
Amcor limited to ensure that they are not carried at value that is more than their
recoverable amount does the impairment testing of intangible assets and plant property and
equipment. Impairment testing is done when there is indication that assets might be impaired by
assessing their value at each reporting date and impairment is done least annually for goodwill.
Recoverable amount of each individual assets are assessed for performing impairment testing
and after which the recoverable amount of cash generating units are assessed. Assets are grouped
at lowest level of CGU and then cash flows are separately identified (boral.com 2018).
Requirement iii)
An impairment loss has been recognized relating to building, equipment and plant at 3.6
million and 21.9 million in year 2016 and 1 million and 16.8 in year 2015 respectively

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(boral.com 2018). Goodwill is carried at cost that is less of any accumulated impairment losses
and has indefinite economic life.
The impairment loss relating to current software of company has been recorded at $ 2.5
million.

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Total amount of assets that is trade and other receivables that have been impaired for year
2016 and 2015 stood at 24.3 million and 18.2 respectively (boral.com 2018).
Requirement iv)
The operating performance in future and some other factors is likely to change regarding
future realization. Since, organization is worried about future; Amcor limited is involved in
making estimates and assumptions and the actual results would be identical to accounting
estimates. There can be material misstatements due to considerable risks associated with
assumptions and estimates. The carrying value on non financial assets is determined by
significant estimates made by management of group. Any change in operational and economic
conditions is likely to change judgement and estimates (Weygandt et al. 2015). Moreover, any
change in estimates for determining recoverable amount of assets has the possibility of reversing
impairment loss.

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Requirement v)
The international accounting standard 136 relating to asset impairment can be adopted
by organization in relation to managerial needs and requires subjective interpretation. From the
analysis of annual report of Amcor limited, it can be ascertained that the process of impairment
testing incorporate considerable amount of subjectivity and discretion could have been exploited
for opportunistically conducting goodwill impairment testing. Allocation of goodwill to cash
generating unit could have validated it (Kahng 2015).
Requirement vi)
The analysis of impairment testing of Amcor group by evaluating their annual report
depicts that user would find it interesting as information are presented by creating segregation.
Value of accumulated impairment of plant, equipment, property and intangible assets are
presented separately in the form of table giving detailed disclosures (Com 2016).
Requirement vii)
Amcor group has recorded several impairment losses for both the financial year that is
2016 and 2015. Impairment loss is represented as the difference between carrying amount of
assets and their recoverable amount. In accordance with IAS, 36 an asset or cash generating unit
is expected to generate value in use that is presented in present value of future cash flow.
Requirement viii)
Some of the points that are ascertained about fair value in accordance with IFRS 13 are
sales agreement, value of assets in active market where asset trading is conducted and valuable
information availability that would help organization in selling assets by disclosing the amount.
The fair value of financial liabilities and assets are estimated for the purpose of measurement,

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recognition and disclosures. Several financial instruments of the group mentioned in the balance
sheet are not measured at fair value. Determination of fair value of financial instruments traded
in active markets is done using valuation techniques.
Assessment Task Part B:
Requirement i)
The changes in accounting influence more than half of organizations that are complying
with principles of IFRS and GAAP. Organizations under US GAAP and IFRS as per the status
that are existing have commitments and leased assets worth of nearly $ 3.3 million (Киселева
and Юрасова 2015). Since the former accounting standards of lease does not make it mandatory
to disclose operating lease in their balance sheet, 85% of these lease assets are not disclosed in
the financial statements. Investors for assessing the financial performance are required to make
projections that might be inaccurate, inconsistent and difficult to compare (Nilsson and
Stockenstrand 2015). In this regard, it can be said that prior accounting standard do not reflect
economic reality.
Requirement ii)
Most of the organizations under the former accounting standard for lease did not report
their 85% of lease value in their statement of financial position as they categorized it as operating
lease. Despite the fact that such operating leases have not been recorded, it created actual
liabilities for business. Financial position of organizations has been deceptive to investors as
long-term operating leases came with commitments. This made lease liabilities of organizations
66 times higher than value of debt reported under balance sheet.

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Requirement iii)
There was lack of comparability under the former accounting standard, most of the leases
of aviation industry are recorded as operating lease, and therefore, it is not recorded under the
statement of financial position. Therefore, rival companies buying its fleet are not similar to
companies leasing their aircraft. Hence, there is no dissimilarity between these companies and it
is indicative of the fact that there was no level playing between such companies.
Requirement iv)
The reason for new accounting standard for lease to be not popular with everyone is its
associated controversies relating to costs and negative economic conditions. Organizations
adapting to this new standard needs to upgrade their system and this involves costs, which might
not be bear by everyone. Before the initiation of standard, it is required to obtain revision of
financial statements for arranging gearing ratio and bonus payment for staffs. An insight is
required to obtain by business by considering finance, human resource and technology (Hoskin
et al. 2014).
Requirement v)
New standard adopted by organization is done by updating the financial reporting
standard 16, and it is perceived that most of the costs will be outweighed by this. It will facilitate
decision making by investors because the actual liabilities will be reflected in the financial
statement. Lease will be reflected in purchase decisions in an effective manner by organization.
Investors will be able to make comparisons of the lease information over the years and therefore,
there will be more balanced lease versus buy decision by management (Kahng 2015).

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References list:
Boral.com. (2018). Annual Reports | Boral. [online] Available at:
https://www.boral.com/news/annual-reports [Accessed 15 Jan. 2018].
Com, M., 2016. M. Com. Sem-II Advanced Financial Accounting May 2015.
Horton, J., 2018. Advanced Financial Accounting and Reporting: Theory, Practice and Evidence.
Routledge.
Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014. Financial Accounting: a user perspective.
Wiley Global Education.
Kahng, L., 2015. Perspectives on the Relationship between Tax and Financial Accounting.
Narayanaswamy, R., 2017. Financial accounting: a managerial perspective. PHI Learning Pvt.
Ltd..
Nilsson, F. and Stockenstrand, A.K., 2015. The Objectives of Financial Accounting and
Management Control. In Financial Accounting and Management Control (pp. 1-16). Springer
International Publishing
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & Managerial Accounting. John
Wiley & Sons.
Киселева, Е.А. and Юрасова, И.О., 2015. InteractIon and dIfferences In management and
fInancIal accountIng. Высшая школа, (6), pp.9-14.