ACC202 Corporate Accounting Case Study: Fair Value Method Comparison

This case study analyzes the adoption of the fair value method by two ASX-listed companies: Abundant Produce Limited (ABT) and Angel Seafood Limited (AS1). The study examines their financial reports for the year ending June 30, 2018, focusing on disclosures related to fair value accounting. Abundant Produce Limited uses fair value for asset impairment and valuation, referencing AASB 116. Angel Seafood Limited, in contrast, follows the AASB 13 Fair Value Hierarchy, providing a more structured approach with disclosures at different levels. The comparison highlights Angel Seafood's more systematic approach, including fair value measurement for oyster sales, while Abundant Produce lacks the same level of detail and hierarchy disclosure. The analysis underscores the differences in applying fair value accounting in similar businesses and its impact on financial statements.

Case Study- Fair value method adoption
For the above case study, we have to select two companies with ASX listing. Then the latest
annual reports of those companies are to be considered for discussion of their adoption of fair
value method as per disclosure.
The first company considered is Abundant Produce Limited with ASX code as ABT. As per their
latest annual report for the year ended on 30th June, 2018, the disclosure on Notes to Financial
Statements is enclosed herewith. (Ltd, 2018)
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The disclosure on fair value states that the company is practicing fair value to evaluate some of
its assets or liabilities by considering the present market value for disposal of any asset or
liability. The exercise of impairment of assets is done as per the standard procedure applying fair
value method of measurement of assets. The valuations of assets are done by deducting fair value
less costs to arrive at the realistic value of the assets following AASB 116: Property, Plant and
Equipment. The excess of fair value over costs is considered as addition to asset value and vice
versa. The screenshot is enclosed for reference.
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The second company selected for this purpose is Angel Seafood Limited with the ASX code
AS1. As per their annual financial report as on 30.06.2018, disclosure on fair value accounting is
mentioned for different assets and liabilities. The company exercises the practice of fair value
accounting as per AASB 13 Fair Value Hierarchy as per the requirement of accounting standards
prevailing as per AASB. Fair value concept is applicable for all assets with impairment
application. The company also sells the oyster as sea food considering fair value accounting to
get latest market rate from customers. (Holdings, 2018)
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Comparison of these two companies related to fair value accounting shows difference in
approach. Angle Seafood follows fair value hierarchy AASB 13 for measurement with respective
disclosure as per level of hierarchy to identify three possible levels. Level 1 is represented by
quoted price with unadjusted nature in current market as per identical assets or liabilities as on
measurement date. Level 2 provides input other than the prices of quotation covered in level 1
for specific assets or liabilities. Level 3 represents fair value with estimation. If the factors of fair
value are prevalent for level 2 as observable, the assets or liabilities are included in that level. If
some significant data is not available in the market and treated as observable, the fair values of
such assets or liabilities are to be considered in level 3.
This practice is not followed by Abundant Produce Limited as this company does not have
disclosure of AASB 13 for fair value hierarchy in their annual report of 30.06.2018.
Angle Seafood is also engaged in considering the sales price of oyster in fair value measurement
for the customers. This practice would have direct impact on the consolidated income statement
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of the company. Although both the companies are engaged in same type of business, Angle
Seafood is more systematic to follow AASB 13, which Abundant is not following.
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