Company Accounting Assignment: IFRS 13, Valuation, and CGUs

This assignment solution addresses key concepts in company accounting, focusing on IFRS 13 and asset valuation. It explores the importance of considering market participant assumptions, location, condition, and restrictions when determining fair value. The solution discusses the classification of assets at historical cost and its limitations. Additionally, it examines the concept of Cash Generating Units (CGUs), emphasizing the significance of discounted cash flows, cash flow patterns, and financial planning. The assignment highlights the importance of analyzing project cash flows, particularly in scenarios involving independent cash flows from different routes, and advocates for sound financial planning to achieve sustainable financial positions. The solution references relevant literature to support its analysis.

Running head: COMPANY ACCOUNTING
Company Accounting
Name of the Student:
Name of the University:
Author’s Note:

1COMPANY ACCOUNTING
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................3
Question 3........................................................................................................................................4
References........................................................................................................................................6

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Question 1
a) In accordance with the IFRS 13 it is required and mandatory that entities considers
various assumptions and factors that entities would be considering from the view point of
market participants. The various factors and assumptions made should be helping in
properly and fairly determining the true and fair value of the asset by acting in the best
economic interest for assessing the true and fair value1. However, there are times when
the information or fair value information in the context of assignment where it becomes
necessary to undertake various judgments and analysis in proposing the fair value of the
assets. Location, Condition and Size of Assets is an important aspects on the other hand,
restrictions associated with selling of asset could also be one of the key facts that should
be considered while valuing an asset. In the context of fair value assessment it is
important that the companies undertake various factors and the total value of cash flows
that would be flowing to an economy while determining the true and fair value of asset.
b) A market participant should make various assumptions and value the assets based on
reasonable and justifiable basis whereby deviations in the cash flow patterns are well
predicted and taken into consideration while valuing an asset. Similarly, Location,
Condition, Age and Cash flowing to an entity are some of the important terms that the
entity should consider while valuing the asset2. The best and highest usage of the asset
could be well analyzed if the physical structure, location, legal and financial viability are
well taken into consideration for valuing the asset.
1 Kenyon, Richard, and Chris Kenyon. "Accounting for KVA under IFRS 13." Risk, March (2016).
Pandya, Anuradha. Resistance to IFRS 13-initial insights. Diss. 2016.
2 Bassemir, Moritz. "Why do private firms adopt IFRS?." Accounting and Business Research 48.3 (2018): 237-263.

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c) If an entity is unwilling to transact at the price determined with market participant he can
disagree and not trade on the same3. The value determined by the market participant is
done with the help of the cash flows flowing from an entity and in association with
various business factors that can affect the pattern of cash flows. On the other hand, the
value in usage may be simultaneously much higher for entities and the same can be of
crucial reason for the purpose of not transacting at the value determined. The factors and
assumptions taken into consideration for the purpose of valuing the asset may be different
for different parties and that stands out to be one of the key reason for wide differences in
value.
Question 2
The balance sheet of the company has assets that are classified at various types of costs
primarily fair value, historical cost and as well as at replacement value for the company.
Depending upon the transactions, classification and usage of the asset plant and machinery and
properties are classified at historical rate by classifying the asset as Held Till Maturity. Historical
based accounting would also be reflecting a value that is comparatively much lower or higher
than the actual fair value of the asset, which stands out to be one of the crucial disadvantage of
historical cost valuation4. The key problem that can be well associated with the historical base of
accounting can be that the same does not reflect true and fair value of the assets and the
associated benefits that would be flowing to en entity5. Managers and entities prefer historical
based accounting where they do not want the changes in the fair value or the volatility of the fair
3 Filip, Andrei, et al. Literature Review on the Effect of Implementation of IFRS 13 Fair Value Measurement.
working paper, 2017.
4 Penman, Stephen. "Valuation: accounting for risk and the expected return." Abacus 52.1 (2016): 106-130.
5 Bauer, Kinga. "Impact of Owner-Occupied Property Valuation by Historical Cost on Fixed Assets Value at
Bankruptcy Risk." Management and Business Administration. Central Europe 2 (2015): 3-23.

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value to get impacted on the financial statements of the company Historical Cost – Accounting
Simplified, 2019).
Question 3
The Cash Generation or the CGU’s are an important part of organization that are
important in generating significant amount of cash flows for the entity. Comparison for the
amount that is recoverable from the asset while impairment testing is done in order to determine
the value that is higher in usage or by assessment of fair value less any other costs associated in
the form of disposal6. The three key features or points in the context of same are as follows:
 Determining the net present value from an asset by applying the discounted cash flows is
of prime importance.
 Changes in the pattern of the cash flows should be well taken into consideration.
 Uncertain and Unsecure Cash Flow that can arise from the project should also be taken
into consideration.
Financial Budget helps in preparation of cash flows and various other financial
projections that may be significant for the company in financial planning. In the case taken
into consideration reflects that the cash flows flowing to the entity is largely independent in
this case where buses are operating in a specified routes on a tender basis. The revenue or the
cash flows that are directly attributable to the entity should be viewed from a consolidated
revenue basis. One of the routes is not generating significant cash flows but on the other hand
other routes are generating sound cash flows. The project cash flows needs to be analyzed
from a tender basis thereby computing and adding various cash flows associated with the
6 Johansson, Sven-Erik, Tomas Hjelström, and Niclas Hellman. "Accounting for goodwill under IFRS: A critical
analysis." Journal of international accounting, auditing and taxation 27 (2016): 13-25.

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project routes7. Thus, it is important to consider various factors and condition while planning
out and selecting the best available course of option for the company. Proper financial
planning and analysis would be helping the company in attaining the sustainable position of
the company.
7 Capps, Stephen. "Systems and methods for cash payments for online gaming using location." U.S. Patent
Application No. 16/232,578.

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References
Bassemir, Moritz. "Why do private firms adopt IFRS?." Accounting and Business Research 48.3
(2018): 237-263.
Bauer, Kinga. "Impact of Owner-Occupied Property Valuation by Historical Cost on Fixed
Assets Value at Bankruptcy Risk." Management and Business Administration. Central Europe 2
(2015): 3-23.
Capps, Stephen. "Systems and methods for cash payments for online gaming using location."
U.S. Patent Application No. 16/232,578.
Filip, Andrei, et al. Literature Review on the Effect of Implementation of IFRS 13 Fair Value
Measurement. working paper, 2017.
Johansson, Sven-Erik, Tomas Hjelström, and Niclas Hellman. "Accounting for goodwill under
IFRS: A critical analysis." Journal of international accounting, auditing and taxation 27 (2016):
13-25.
Kenyon, Richard, and Chris Kenyon. "Accounting for KVA under IFRS 13." Risk, March
(2016).
Pandya, Anuradha. Resistance to IFRS 13-initial insights. Diss. 2016.
Penman, Stephen. "Valuation: accounting for risk and the expected return." Abacus 52.1 (2016):
106-130.