Financial Accounting Advice for Pewter Ltd: Addressing Key Issues

This assignment analyzes accounting issues faced by Pewter Ltd, as presented in a case study where a graduate accountant advises the company's managing director. The analysis focuses on two main concerns: the impact of new amendments to AASB 16 on fair value methods and inventory valuation, and the appropriate method for valuing machinery designed by the company's engineer. The advice provided clarifies that the new AASB 16 amendments primarily affect lease assets, and the company should continue using the lower of cost or net realizable value for inventory. Furthermore, the assignment emphasizes the importance of recording machinery at its original cost as per AASB provisions, even if external offers suggest a higher value. The document stresses adherence to accounting standards to ensure a true and fair view of the company's financial statements and compliance with auditing requirements.

Accounting policies
• The Pewter ltd should follow the AASB 16 guidelines to record the assets and the
inventories in the books of the accounts.
• The ASSB 16 states the provisions relating to the record of assets of an organization .
• The organizations should follow the guidelines as prescribed by the AASB 16.
• The AASB provides all the accounting policies that are essential to bring more
transparency in recording the accounting entries and by that it will be possible for the
company to provide a true and fair view of the financial statements.

Accounting policies
• In the case of Pewter ltd the managing director raised two issues:
• The first one is related with the change in the rules of fair value methods and also with
regard to the valuation of the assets.
• The company is confused with the concept that whether to record the inventory at lower of
net realizable value or the actual cost.

Accounting policies
• In regard to the first issue it has been suggested to the company that new amendments that are
made in the AASB 16 is only related with the lease assets.
• So apart from the lease assets the company is not required to make any change in the fair value
method.
• In regard to the issue related with the inventory method the perception of the director that they
should record the inventory at the net realizable value is correct.
• As the rule of the AASB states that the company should record the inventory at the cost or net
realizable value which ever is lower.
• So in accordance to that rule the company should record the inventory at the net realizable
value as the net realizable value of the inventories are less than the cost of the inventory.

Accounting policies
• So as per that AASB 16 rule it can be suggested to the company that it should follow the existing
method of fair value and the inventory should be recorded at the net realizable value.
• The company should only make changes in the method of fair value for its leasehold assets as there
is an amendment regarding the valuation of the leasehold assets. If the company does not have any
leasehold assets then it will not be required to make any changes in the fair value method.
• So in that context it can be said that the marketing manager should not be worried with the
information that he heard from other companies.

Accounting policies
• The second issue in the case is related with the valuation of the machinery that has been designed
by one of the engineer of the company.
• The director needs suggestion regarding what process to be followed to record the value of the
machinery

Accounting policies
• The concept of the valuation of the machinery states that the machinery of the company should be
recorded in the original cost and not the cost that is offered from the market.
• The AASB provision states that it will be prudent for the company to record the machinery at the
original cost.

Accounting policies
• In case of Pewter ltd one of the machine which is designed by one of its engineer works very efficiently
and that it helps the company to save more costs.
• One of the client of the company liked the machinery and quoted that they aare ready to pay the company
one million to get the ownership of the machine.
• The customer further suggest the company to record the machine at the coast that is offered by them and
not in the original value which is $250000.

Accounting policies
• The company with this proposal of the customer finds it difficult regarding at what value it should
record the machinery in the books of accounts.
• As per the provision of the AASB the company will be required to record the machinery at the
original value and not at the value that is offered by the customer.
• The company should follow the provision of the AASB other wise it will not be possible for the
company to provide a true and fair valuation of the assets of the company.
• The company will not face any complications by recording the machinery at the cost value and it
will ensure that the company does not overvalued its assets.
• The recording of the machinery at the cost value will further meet all the compliances that the
auditor will look for while auditing the accounts of the company
• Further the recording of the machinery at the original costs will enable the company to calculate
the fair value of the machinery after specific period.

Accounting policies
THANK YOU