ACCM4200 Financial Accounting and Reporting: Technical Issue Report

This report analyzes two key accounting issues faced by Pewter Ltd, addressing them in the context of Financial Accounting and Reporting. The first issue revolves around the application of AASB 13 for the fair value measurement of assets, discussing the conditions under which fair value can be applied and the required disclosures. The second issue focuses on the valuation of machinery under AASB 116, detailing how the cost of machinery should be determined, including import duties, and how revaluation increases or decreases should be accounted for in the financial statements. The report also covers the depreciation of machinery and clarifies the scope of AASB 116 regarding the manufacturing of machinery for other companies. The analysis is based on the provided assignment brief, which requires the creation of a business letter responding to a client's concerns and providing technical advice, supported by relevant accounting standards and references.

FINANCIAL ACCOUNTING AND
REPORTING

ISSUE 1
 There is an application of Accounting Standard AASB 13 for the standardization of company’s assets based on fair
value (Hu, Percy & Yao, 2015).
 This standard is applicable to this company as it is required to prepare its financial reports as per Part 2M.3 of
Corporations Act.
 AASB 13 is applicable in this company in order to set single standard framework for measurement of fair value of
their assets.
 Since this AASB 13 standard is applicable for measurement of fair value of their assets there will be the requirement
for disclosures in case of measuring the fair value of assets.
.

ISSUE 1
 Company would be having permission further for measuring fair value of assets only on price basis
 The company would have such permission for fair value asset measurement in order to sell out assets
of a long position for specific risk exposure.
 The company would further have such permission for fair value measurement as per AASB 13
standard for paying in order to transfer liability of a short position for specific risk exposure .
 Company’s fair value of asset measurement will pay transfer liability as a transaction that will be
occurring between market participants at the date of measuring the fair value as per certain conditions
of the market.
 Fair value is to be considered as a price for selling its assets in the form of transaction in the market
at the date on which assets are measured as per current conditions of market inspite of price being
directly observable(Whittington, 2015).

ISSUE 2
 AASB 116 is applicable in this case for the company related to the valuation of company’s machinery
as its assets(Hanlon, Navissi & Soepriyanto, 2014). As per this standard the price of machinery will
be considered as an asset as it would be giving economic benefit in future.
 This standard is applicable as the cost of its own machinery can be measured in an accurate way. The
cost of machinery should include its purchase price inclusion of import duties.
 As its own assets being machinery is recognizable as an asset such that company can measure its fair
value in that case it shall be carried as an amount being revalued as fair value.
 If further machinery’s carrying amount is increased due to revaluation in that case the increase will be
considered as other income and is to be accumulated as equity under surplus of revaluation.

ISSUE 2
 In case of machinery’s carrying amount gets declined due to revaluation as per AASB116 in that case
decline shall be considered either as profit or as a loss.
 The machinery’s depreciation amount should also be shown in financial statements as per AASB 116
as per systematic way and methods in such a way that will be applicable for economic benefits in
future(Pilcher & Gilchrist, 2018).
 As per AASB 116 manufacturing involved with making a machinery for other company as well as
being involved in its manufacturing process is not considerable and also it cannot be shown in its
financial statements.

Reference
 Hanlon, D., Navissi, F., & Soepriyanto, G. (2014). The value relevance of deferred tax attributed to
asset revaluations. Journal of Contemporary Accounting & Economics, 10(2), 87-99.
 Hu, F., Percy, M., & Yao, D. (2015). Asset revaluations and earnings management: Evidence from
Australian companies. Corporate Ownership and Control, 13(1), 930-939.
 Whittington, G. (2015). Fair value and IFRS. In The Routledge companion to financial accounting
theory (pp. 237-255). Routledge.

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