ACCT20073 Company Accounting Assignment: Valuation and Analysis

This document presents a comprehensive solution to a company accounting assignment. It addresses fair value measurement as per IFRS 13 and AASB 13, discussing the valuation of assets and liabilities, including market participant assumptions, expected cash flows, and risk factors. The assignment further explores the cost model versus the fair value model for asset valuation, highlighting the advantages and disadvantages of each. Additionally, the solution delves into impairment testing, focusing on cash inflow and outflow comparisons, and the identification of cash-generating units within a company, using a case study involving bus routes to illustrate the concept. The references include relevant accounting standards and research papers.

Running head: Company Accounting
Company Accounting
Name of the Student
Name of the University
Author Note

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Company Accounting
Table of Contents
Answer No 1..............................................................................................................................2
1A...........................................................................................................................................2
1B...........................................................................................................................................2
1C...........................................................................................................................................3
Answer No 2..............................................................................................................................3
Answer No 3..............................................................................................................................4
3A...........................................................................................................................................4
3B...........................................................................................................................................4
3C...........................................................................................................................................5
Reference and Bibliography.......................................................................................................6

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Company Accounting
Answer No 1
1A
Fair value of asset and liabilities policy and procedure is stated in IFRS 13, it also
contains all the details of disclosure which the company have to do in regards of valuation of
asset and liabilities of the company. If specifically, it is said that the fair market value shows
the net realisable value of the asset and liability1. As per the IFRS 13 a company should take
consider all the price related to asset and liability which can able to help company to gain the
true value of the asset. IFRS also give company the information of the availability of the
market but it does not discuss the market participants individually. As per AASB 13,
paragraph 22 it states a company should not identified the market participant but it should
consider the assumptions which are been given by the market participants.
1B
In the valuation of asset and liability by the entity, it should consider the assumption
of market participants. It should also consider the expected cash flow and discounted rate
while valuing the asset and liabilities of the company. As per AASB 13 in Appendix A It also
state that the company should also consider the risk factor in regards of market participants
which is taken into consideration in fair market value of asset and liabilities. The inherent risk
should also be there in the assumption of fair market value. It should also take rational
behaviour of market participant also the assumption of the same in the fair value of asset and
liabilities.
1C
In the provision of AASB 13 and IFRS 13, the company should measure the asset and
liability form the market value as fair value of asset and liability2. If the entity transfer any
identified object in company business than recent price which is quoted should be consider as
1 AASB, Compiled AASB Standard. "Financial Instruments." Project Summary (2014)

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Company Accounting
fair market value and no adjustment should be made on the same. If the object is not able to
be an identified one than the company should able to make proper assumption in regards of
the rationally behaviour of market participants, as it can happen that the market price is able
so identified object than the company should able take into consideration the price while
calculating the market price.
Answer No 2
Each company have some kind of fixed asset which should be deprecated by the
company so it can know the real value of asset. It should deprecate the asset by using the
historical cost and not by any other method of cost. Under this method it does not take into
consideration the amount of expenses in consideration as it will charged more by the entity, if
it goes for the purchase of the asset in present time so it should not take into consideration the
same in the calculation. As the company should inflated the amount of expenses in regards of
the depreciation but it should not take these assumptions into consideration in historical cost.
Valuation of asset is done with the help of two model as cost model and fair value
model. Managers usually prefer to choose cost model over fair model as in cost model
company is able to take into consideration the sunk cost which is not taken in fair value
model. It also that in fair value model it has to take all the time value aspects which can result
in loss to the company as the time value is theory and no practically benefits are there to the
company. It also that cost model is simple way to do the valuation so this can help the
company to show the user more amount of information whereas in fair value model it is very
complexity so this can affect the company disclosure and can have a lack of information to
the financial user.
2 Australian Accounting Standards Board. "AASB 13: Fair Value Measurement." Melbourne:
Author (2015).

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Company Accounting
Answer No 3
3A
Comparison of cash inflow and out flow should be done so that the company is able to
get the impairment testing in the company. The smallest group of asset is Cash Generating
Unit which is able to find with the help of cash inflow and out flow, as company will not able
proper information from a single unit of asset. The impairment test is done by comparing the
fair value less cost of disposal and net realizable of asset3. It should also consider in valuation
of cash flow and risk which is there in the asset as to get the proper valuation of the asset and
liabilities.
3B
Company is able to find the cash generating unit so that it able know that the cash
outflow and inflow are separately and independent in the business. As per the case to know
the Cash Generating unit is concern it should take route and number of bus. The case study
show that each driver has a specific route to take to carry the business. There can be a
possibility to know the cash generating unit of each bus in each route in regards of the net
cash flow than only it will turn to be cash generating unit. So to get the proper amount it
should consider the numbers of buses, route and operation of management than only it will
able to find out the real Cash Generating Unit.
3C
As per the case study the company is able to find out the net cash flow for each route
identically, but it will not able to find cash flow in regard of each bus. Therefore it should
consider each bus as cash generating unit.
3 Linnenluecke, Martina K., et al. "Planetary boundaries: implications for asset
impairment." Accounting & Finance 55.4 (2015): 911-929.

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Company Accounting
Reference and Bibliography
AASB, Compiled AASB Standard. "Financial Instruments." Project Summary (2014).
Abuaddous, Murad, Mustafa Mohd Hanefah, and Nur Hidayah Laili. "Accounting standards,
goodwill impairment and earnings management in Malaysia." International Journal of
Economics and Finance 6.12 (2014): 201.
André, Paul, Dionysia Dionysiou, and Ioannis Tsalavoutas. "Mandated disclosures under IAS
36 Impairment of Assets and IAS 38 Intangible Assets: value relevance and impact on
analysts’ forecasts." Applied Economics 50.7 (2018): 707-725.
Australian Accounting Standards Board. "AASB 13: Fair Value Measurement." Melbourne:
Author (2015).
Banker, Rajiv D., Sudipta Basu, and Dmitri Byzalov. "Implications of impairment decisions
and assets' cash-flow horizons for conservatism research." The Accounting Review92.2
(2016): 41-67.
Linnenluecke, Martina K., et al. "Planetary boundaries: implications for asset
impairment." Accounting & Finance 55.4 (2015): 911-929.
Vasile-Cristian-Ioachim, Miron, and Burja Vasile. "REVERSIBLE IMPAIRMENT OF
ASSETS AND THE IMPACT ON ECONOMIC PERFORMANCE." Annals of'Constantin
Brancusi'University of Targu-Jiu. Economy Series 2.1 (2015).
Yallwe, Alem Hagos, and Antonino Buscemi. "An era of intangible assets." Journal of
Applied Finance and Banking4.5 (2014): 17.