Financial Accounting Processes: Case Study on Accounting Standards

This case study examines accounting standards, specifically focusing on asset revaluation and impairment. The assignment explores the application of AASB 116 and other relevant accounting standards in the context of fixed assets. It delves into the differences between revaluation and impairment, outlining how each affects the valuation of assets and the preparation of financial statements. The case study discusses the cost model versus the revaluation model, highlighting the implications of choosing the revaluation model for financial reporting, including the impact on equity, other comprehensive income (OCI), and the income statement. It also analyzes the impact of upward and downward revaluations on a company's financial position and the importance of these concepts in providing a fair view of financial statements. References to relevant literature support the analysis.

Running Head: ACCOUNTING STANDARDS 0
Accounting Standards
(Student Name)
4/17/2020

ACCOUNTING STANDARDS 1
Table of Contents
Issue A.............................................................................................................................................2
Issue B.............................................................................................................................................2
References........................................................................................................................................4

ACCOUNTING STANDARDS 2
Issue A
The Fixed assets are reported and updated in documents annually to reflect their true and
fair market value. Two approaches should be used: re-evaluation and impairment. According to
AASB 116 clause 31, land, plants and machinery is to be reassessed and 63 deals with machine
failure. The reappraisal of financial assets describes a mechanism in which they raise or reduce
their carrying value in the event of significant changes in the fair market valuation of the fixed
asset. The revaluation downwards can only be done up to the prior point of revaluation.
Revaluation is a method to assess a financial asset's real and equal market worth (Laing &
Perrin,2014) .
The economic value of an asset is diminished if its carrying value or net book value falls
below its worth.) This means that in its present conditions the actual carrying interest of the
commodity cannot be restored economically over its extended useful existence. Asset loss can
only be achieved once the Cash Generating Unit (CGU) has been found, so any asset can be re-
valued. In case of impairment, often reported in the event of failure where the carriage cost is
greater than the recoverable or available value of the asset, it is assumed that the asset may be
affected, while the Revaluation may be higher or lower. Revaluation is a routine procedure, but
the management of disability is sporadic in nature. The revaluation is carried out in regular
company activities but the deficiency is usually reviewed at the time of liquidation. Accounting
Standard 10 deals with fixed assets, and this also includes asset revaluation, Accounting
Standard 28 deals with asset loss
In summary, impairment and revaluation are closely related words with slight variations.
Revaluation and impairment both allow the organization to assess the assets for their true market
value and to take reasonable steps to correct the accounting books. The biggest difference
between the two is that a revaluation may be made upwards (to raise the value of the asset to
market value) or downwards (to minimize the value of the asset). The impairment, on the other
hand, applies only to one of the two; a decrease in the market value that is then written down
(Bobitan, Dumitrescu and Costuleanu, 2013).

ACCOUNTING STANDARDS 3
Issue B
Accounting Principles sets out two business principles for the preparation of financial
statements. One is an expense model and the other is a reassessment model. Through the cost
model, assets are shown to have less accrued depreciation at their historical expense. Assets are
reassessed to fair market value in the reassessment process to provide a more reliable analysis of
the financial statements.
In this situation, Jasper Ltd wishes to turn to a revaluation model. It offers a fairer view
of the financial statements. Since the prices of assets and liabilities are closer to fact. Upward and
downward re-evaluations are allowed in the re-evaluation model. For upward reassessment, the
difference between fair value and book shall be deducted from the asset account and the sum to
be attributed to the revaluation surplus account under the shareholding fund. For a downward
revaluation, credit the asset account and debit it to the income statement (Novak & Valentinčič,
A. 2017).
OCI reports all changes in equity other than net income and other than changes in equity
attributable to shareholder transactions. As long as the value of the asset is registered higher than
its original cost, the additional sum recognized would go directly to equity. However, if the asset
value falls, the loss will initially be directly expressed in the Revaluation Surplus account of
equity. If the (credit) balance in the revaluation surplus account is entirely used up (indicating
that the value of the asset is about to fall below its original cost), subsequent falls would be
reflected directly in the net profit as a tax (Dvořák & Poutník, 2017).
Therefore, for a business at a growth point, the investors encourages revaluation model
can only be selected if it has an upward revaluation. The upward revaluation gives the balance
sheet a very appealing look. Since the revaluation raises the value of the properties without
generating some additional liability. The excess of the revaluation is paid for by the investment
fund. It will immediately increase the value of the shares. If there is a downward revaluation, the
value of the asset will decrease, the income will decrease and the share price will inevitably
decrease.

ACCOUNTING STANDARDS 4
References
Bobitan, N., Dumitrescu, D. and Costuleanu, C. (2013) The Differences Between Revaluation
and Assets Impairment. Anale. Seria Stiinte Economice. Timisoara, 19, p.64.
Dvořák, M., & Poutník, L. (2017). The impact of different determination of intangible fixed
assets in accordance with CAS and IPSAS on financial statements. European Financial
and Accounting Journal, 12(3), 103-116.
Laing, G. K., & Perrin, R. W. (2014). Deconstructing an accounting paradigm shift: AASB 116
non-current asset measurement models. International Journal of Critical
Accounting, 6(5-6), 509-519.
Novak, A., & Valentinčič, A. (2017). The role and current status of IFRS in the completion of
national accounting rules–Evidence from Slovenia. Accounting in Europe, 14(1-2), 187-
198.