Deakin University MAA261: Financial Report for Canadian Beach Pty Ltd

This financial report analyzes the financial statements of Canadian Beach Pty Ltd, a company that initially manufactured beach furniture but later transitioned to providing annual club memberships. The report begins with an introduction to AASB 116, focusing on the acquisition and valuation of property, plant, and equipment. It then delves into the depreciation of buildings and machinery, using both straight-line and diminishing balance methods, and calculates depreciation expenses over several financial years, incorporating initial costs, renovation costs, and shipping costs. The report also examines the revaluation model, illustrating how upward adjustments to the fair value of land and buildings are recorded in the general journal. The analysis includes the journal entries required for revaluation and discusses the accounting treatment for both upward and downward revaluations. Finally, the report concludes by considering the implications of the business's shift in focus and the need to comply with AASB 15 for revenue recognition, as well as the importance of managing loan facilities effectively. References to relevant academic sources support the analysis.

Financial Report 1
CANADIAN BEACH PTY LTD FINANCIAL REPORT
By (Name)
The Name of the Class
Professor
The Name of the School
The City and State
Date

Financial Report 2
Canadian Beach Pty Ltd Financial Report
Introduction
According to AASB 116 (para 11), a company may acquire items of property, plant and
equipment for several reasons. Most of these items will help the company to increase its future
economic value while others will contribute indirectly towards company’s future economic
value. Canadian Beach Pty Ltd may have acquired some of the assets for economic value while
others may have been acquired to comply with some environmental regulations or to just
assisting other assets to provide more economic value to the company. AASB 116 (para 7)
provide the circumstances under which a cost of an item of property, plant and equipment should
be recognized as whether to result to an asset or not.
Qns 1.Depreciation expense for building and machinery
The company adopts a straight line method for depreciating the buildings and a diminishing
balance method to depreciate machinery. The depreciation is supposed to be based on the
historical cost of the assets (Küpper and Pedell, 2016). The historical cost of assets includes the
initial cost of the asset plus any other cost incurred to put the asset into its intended use (para 16,
AASB 116). The additional costs here include the following;
a. The purchase price, including import duties and non-refundable purchase taxes after
deducting any discounts provided.
b. Any costs directly attributable to bringing the asset into the location and condition
necessary for it to provide the required services and operate as expected by the
management.

Financial Report 3
c. The initial estimated costs for dismantling the asset or renovating the asset just to make it
work as expected.
Total cost for the building total cost for the Machinery
Original cost = $ 960,000 original cost $300,000
Renovation cost $30,000 installation cost $ 9,900
Total cost $ 990,000 training cost $3,600
Shipping cost $ 2,100
Total $ 315,600
Depreciation table
Financial year Building Machinery
30th June 2012 Depreciation=(cost –
residual)/useful life
=$(990,000-150,000)/10
= $ 84,000/2
= $ 42,000
Dep =(book value-
accumulated
dep)*depreciation factor
$ 315,600*20%
=$ 63,120/2
=$ 31,560
1st July 2012-30th June 2013 $ 84,000 (315,600-31,560)*20%
=$ 56,808
1st July 2013- 30th June 2014 $ 84,000 (315,600-88,368)*20%
=$ 42,446
1st July 2014- 30th June 2015 $ 84,000 (315,600-130,814)*20%

Financial Report 4
= $ 36,957
1st July 2015- 30th June 2016 $(1,050,000-250,000)/15
=$ 53,333
(315,600-167,771)*20%
=$ 29,566
According to AASB 116 (para 48), Canadian Beach Pty Ltd should charge depreciations
for assets for each period of the year. Such depreciation expenses are transferred to profit and
loss accounts as an expense and a contra entry is done to the accumulated depreciation account
for the respective assets (Zakaria, et al., 2014).
Unlike other assets, land is not subject to depreciation. This is because land has unlimited
useful life. Other assets are depreciated because they are only useful to the business for certain
duration of time called useful life, after which they will cease to be help in business operation.
On the other hand, land has an infinite life span and in most cases it tends to gain value with time
due to its increased scarcity as time goes on.
Qns 2.
According to Laing and Perrin, (2014), a revaluation model is used to adjust the value of
the assets either downwards or upwards to take care for the depreciations and appreciations for
fixed assets. Increase in revaluation is always credited directly to shareholder’s account and the
corresponding asset account is debited (para 41, AASB116). This is because an upward
revaluation is not considered normal and thus is not recorded in the income statement of the

Financial Report 5
business. On the other a decrease in revaluation is accounted by debiting the revaluation surplus
account and crediting the corresponding asset account.
Under the revaluation model, the land’s fair value is valued at $ 1, 500, 000 which is an
upward adjustment compared to the initial cost of $ 990,000. For the building, the fair value is $
1,050,000 which is also an upward adjustment since the initial cost was $ 309,900. This means
that there is increase in revaluation of the assets and this is recorded in the general journals as
follows.
Revaluation of land
Fair value after revaluation is $ 1,500,000
Historical cost is $ 990,000
Increase in revaluation is $(1,500,000-990,000) = $ 510,000
General journal entries
Dr Cr
Land a/c 510,000
Revaluation surplus 510,000
Revaluation for building
Fair value after revaluation is $ 1,050,000
Historical cost is $309,900
Increase in revaluation is $(1,050,000-309,900) = $ 740,100

Financial Report 6
General journal entries
Dr Cr
Building a/c 740,100
Revaluation surplus 740,100
Conclusion
Since Canadian Beach Pty Ltd has now changed the business line from manufacturing
beach furniture into providing annual club membership, the company needs to make some
adjustments. For example there may be need to scrap the machinery and any other assets which
are not going to be useful to the new business venture. The value of such assets will be arrived at
by considering the book value of the asset less the accumulated depreciation. Valuation can also
be done to determine the fair value of the asset (Joubert,Garvie and Parle, 2017)
Under the new venture, Canadian Beach Pty Ltd needs to follow the guideline provided
by the AASB 15. For example AASB 15 (para 9), there is a guideline on how an entity shall
account for a contract with a customer. AASB 15 (para 10) goes ahead to define the contract
agreement and stipulated the obligations of each party of the contract. The company’s
management should also make proper management of the loan facilities to ensure that there are
no penalties related to the loans and that repayment of such loans is made on time.
References

Financial Report 7
Joubert, M., Garvie, L. and Parle, G., 2017. Implications of the New Accounting Standard for
Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance Sheet. The
Journal of New Business Ideas & Trends, 15(2), pp.1-11.
Küpper, H.U. and Pedell, B., 2016. Which asset valuation and depreciation method should be
used for regulated utilities? An analytical and simulation-based comparison. Utilities Policy, 40,
pp.88-103.
Laing, G. and Perrin, R.W., 2014. Deconstructing an accounting paradigm shift: AASB 116 non-
current asset measurement models. International Journal of Critical Accounting, 6(5/6), pp.509-
519.
Zakaria, A., Edwards, D.J., Holt, G.D. and Ramachandran, V., 2014. A Review of Property,
Plant and Equipment Asset Revaluation Decision Making in Indonesia. Mindanao Journal of
Science and Technology, 12.