Financial Accounting and Reporting: Plant, Property, and Equipment

This report delves into financial accounting and reporting, specifically examining the revaluation of plant, property, and equipment (PPE) under AASB 136. It explores the rationale behind revaluation, contrasting it with the cost approach, and analyzes the impact of non-revaluation on financial reports and shareholder wealth. The report highlights the advantages of revaluation in presenting a more accurate picture of asset values and its influence on key financial metrics like ROE and debt-capital ratio. It includes a case study of Audio Pixels Holdings Limited, analyzing their accounting practices concerning PPE. The report emphasizes the importance of faithful representation in financial reporting and concludes that revaluation is crucial for providing accurate information to investors and shareholders, guiding their investment decisions. The report also discusses the adverse impacts on shareholder wealth in case of non-revaluation of assets.

Running head: FINANCIAL ACCOUNTING AND REPORTING
Financial accounting and reporting
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Requirement 1
(a) Plant, property and equipment revaluation
According to the AASB 136 on asset impairment, revaluation must be done as per the
consistency system for assuring that conveying measure of the benefit is not substantially the same
as the sum that would have been the reasonable estimation of the advantage on the reporting date.
The main objective of this standard is to assure that the assets should be perceived under balance
sheet at the cost less the loss for impairment, if any and the collected depreciation (Jack, 2015).
Despite what might be expected, under the revaluation model, in the wake of perceiving the thing
under plant, property and equipment, the fair value for which can be dependably measured should
be represented in the financial report at the revalued sum that is the reasonable incentive on the
revaluation date in the wake of changing the aggregated depreciation and collected impairment
losses, assuming any.
However, in a few occurrences the executives are not persuaded to revalue the plant
property and the equipment, rather they keep on recognizing the asset as per the cost approach.
The reasons for that are perceived to be as follows –
 Simplicity: It is a not so much troublesome but rather more financially simpler and easier
system for valuation of the asset that does not interest for enduring work, assessment of the
changing business sector estimations with respect to the assets. It furthermore makes the
calculation of yearly depreciation significantly more straightforward estimation than
managing persistent changing estimations of the assets.
 Objectivity: It ensures that the financial statue proclamation of the business is objective and
can be affirmed by different reported verification, for instance, receipt, explanation, voucher
or voucher.
 Consistency: The cost approach is dependable with the wide reason and objective of
accounting which is principally capable of unequivocally recording and uncovering the
money related exchanges of the business. While accomplices use the fund related reports as
a techniques for evaluating the financial execution and position of a business and gauging
the future, this is not the primary reason for accounting that takes into consideration only
the past data (Mogylova, 2014).
 Conservative: It does exclude or perceive the records of the business, benefits created from
the valuation for resources that is not yet affirmed or demonstrated through the present
market deal. Valuation of the assets through the market esteem will empower for the

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innovative accounting and will open up the opportunities for the executives to misshape the
genuine result from the business with the end goal of individual benefits.
Further, the revaluation approach at times constrains the capacity of the organization to
control the revealed net benefit. Under revaluation model, the executives at some point organize
the offer of a few assets for utilize the losses or additions from deals to decrease or upgrade the
detailed net earnings on its favoured date. Further, the adjustment in cost is accounted for under
the period in which it happens and does not consider the past period. Thus, some of the times the
directors are not inspired to revalue the plant, property and the equipment.
(b) Effect on financial report for not revaluating the asset
Surplus amount arising from the revaluation may be supplemented with the retained
earnings while the asset is derecognized. Apart from this, the depreciation difference on the original
amount of the asset and the depreciation on the revalued amount can be charged to or credited to
the retained earnings during the period of the usage of the asset. IAS 16 does not evidently state if
these revaluation surpluses can be appropriated to financial specialists or not. Regardless, IAS 16
states in its disclosures portion that any confinements on the assignment of revaluation surpluses to
speculators must be divulged in the notes to the budgetary proclamation exposures. The revaluation
approach, which grants introduction of tangible and intangible assets of the organization with their
present esteems under the financial proclamation, offers the associations with a more sensible
introduction of the financial clarifications (Müller, Riedl & Sellhorn, 2015). Since the purpose of the
revaluation is to speak to the fixed assets with their present esteems in the fund proclamations, the
augmentations in esteem are not seen as procuring rather it is incorporated under value, without
considering it as a piece of the far reaching wage and is not related with the misfortune or benefit.
It is understood from the announcement that if the organization needs, it can force any
limitations on circulation of the revaluation surpluses to its financial specialists. Along these lines,
associations should drive impediments on the dissemination of the revaluation surpluses as benefits.
To settle this conflict, as demonstrated by the evaluation it is legitimate to exchange the difference
between the first devaluation and the deterioration on the revalued figure under the held income
for every period amid the helpful existence of the benefit. Subsequently, if the cost show is utilized
and the revaluation of the advantage is not embraced, the benefit in the money related articulation
won't uncover its actual esteem and the market estimation of the benefit won't be considered
(Small, Yaseen & Schmidt, 2016). Further, the wage explanation won't demonstrate the real benefit
as the advantage will be recorded at the authentic cost esteem though the deal will be recorded at
introduce esteems. In this way, amid expansion the benefit will be exaggerated.

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(c) Adverse impact on wealth of the shareholder owing to non-revaluation
The upward revaluation for the asset and the surplus associated with that are results into
enhancing the carrying amount of asset. However, the initial profit is not credited to the income
statement; rather it is added to the comprehensive income and is recognized under the
shareholder’s equity as the revaluation surplus. Thus, the upward revaluation results into increasing
the value of shareholder’s equity and reduce the net income owing to high amount of depreciation.
Therefore, if the revaluation for the asset is not considered, it will have an adverse impact on the
shareholder’s wealth as the ROE, debt-capital ratio and ROA will be decreased (Sellhorn & Stier,
2017). Moreover, the other impact with regard to non-revaluation will be as follows –
 As the increase in the asset’s book value results into increase of the equity and total asset,
non-revaluation will lead to increase of leverage
 Appropriate internal and external reconstruction will not be accounted for
 The fair market value of the asset with regard to sale and the leaseback transaction will not
be accounted for
 The firm will not be able to bargain for the fair value of the asset before acquisition or
merger with another form and thereby, the shareholders may deprive from getting actual
value.
 The company will not be able to accumulate the fund for the replacement of the asset.
Further, if the depreciation is charged as per historical cost, the profit will fictitiously be
shown at higher amount and it will be resulted into higher dividend payment to the
shareholders. Therefore, it will adversely impact the wealth of the shareholder when the
actual profit will be revealed.
As per the conceptual framework of AASB, the investors and shareholders are entitled to get
the actual value of the firm as their fund is invested with the firm. Thus, the fixed asset revaluation
will present the more accurate data for the assets that will assist the investors to evaluate the value
of the firm. on the contrary, the historical cost will show the share at enhanced value while in actual
the share price is lower. Moreover, based on the information provided in the financial report
regarding the asset, the shareholders make their decision regarding investment. Thus, the
management shall revalue the asset as and when the market falls or rises or the asset position of the
company will be misstated in the financial report and thereby the shareholders will be misguided
(Christensen & Nikolaev, 2013). However, at any point of time the shareholders as well as other
users of the financial statement are entitled to get the accurate information regarding the price of
the assets included in the balance sheet.

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(d) Equipment, plant and property evaluation - Audio Pixels Holding Limited
Established in 2006 July, Audio Pixels Holdings Limited developed a revolutionary platform
for the technologies for sound reproduction. It enables the company for producing totally new
speakers for exceeding the specifications related to demand for the designs from the top
manufacturer from the world for the top electronic consumer. The patented technology of the
company uses completely new technologies for generating the sound waves from digital audio
system directly through low cost structures of micro-electromechanical instead of using the
elements of conventional loudspeaker (Audiopixels.com.au, 2017).
Going through the annual report of Audio Pixels Holdings Limited, it is recognized that the
company recorded its equipment, plant and property at $ 166,587 for the financial year ended 31 st
December 2016 as against $ 165,578 for the financial year ended 31st December 2016. Therefore, it
can be seen that there is an increase in the amount of equipment, plant and property. The company
prepares its financial statements based on the historical cost approach with the exception of the
revaluation of derivative liability. However, the cost is based on the consideration’s fair value offered
for the asset’s exchange. The amount for the assets is stated in the Australian dollars. The
equipments and fixtures are recognised in the balance sheet at the cost reduced by the accumulated
impairment loss and depreciation. The company recognizes the depreciation of equipment, property
and plant to write-off the valuation or cost of the asset reduced by the residual values over the term
of their useful lives and the depreciation is provided based on the straight line method
((Audiopixels.com.au, 2017). The forecasted depreciation, residual values and useful lives are
reviewed and analysed at the end of every year along with giving the effect of changes in the
forecasted accounted on the prospective basis, if any.
Further, the disposal group and the assets are segregated as held for the purpose of sale, if it
is probable that the carrying amount is to be recovered primarily through transaction of sale rather
than through regular use. Further, the condition will be considered as fulfilled only if the non-current
assets are available for the purpose of immediate sale and moreover the probability of sale is high
under the current scenario. Further, the management shall also be committed towards sale that
shall be forecasted to be qualified as completed sale within the period of one year from the
segregation date. The disposal groups and non-current assets that are held for the purpose of sale
are valued at lower value among the fair value reduced by selling costs and earlier carrying value
(Audiopixels.com.au, 2017). Further, the useful lives of the assets for the purpose of calculating the
depreciation are estimatred as follows –
 Equipments and office furniture – 5 to 15 years

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 Computers and associated equipments – 5 to 10 years
 The leasehold improvements – 3 to 5 years
The faithful representation states that as per AASB and IFRS interpretation, the report’s
information shall be concise, complete, precise, reliable and neutral from all aspects. Further, the
report shall assure that it is free from any unintentional or intentional material misstatement, error
or fraud. It is found that Audio Pixels Holdings Limited follows the revaluation approach for
recording the value of equipment, plant and the property (Audiopixels.com.au, 2017). Thus, it is
evidential from the annual report that the recording of the closing amount for equipment, property
and plant is as the requirement of AASB framework for faithful representation and shall be
considered as appropriate and in order.

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References
Audiopixels.com.au. (2017). Reports. [online] Available at: http://www.amcor.com/investor-
centre/company-performance-news/reports [Accessed 25 Sept. 2017].
Christensen, H. B., & Nikolaev, V. V. (2013). Does fair value accounting for non-financial assets pass
the market test?. Review of Accounting Studies, 18(3), 734-775.
Jack, L. (2015). Book Review: Fair value accounting in historical perspective. Accounting
Review, 90(2), 825-828.
Mogylova, M. (2014). Institutional provision of agricultural fixed assets revaluation up-to-
date. Accounting and Finance, (2), 167-172.
Müller, M. A., Riedl, E. J., & Sellhorn, T. (2015). Recognition versus disclosure of fair values. The
Accounting Review, 90(6), 2411-2447.
Sellhorn, T., & Stier, C. (2017). Fair Value Measurement for Long-Lived Operating Assets: Research
Evidence.
Small, R., Yaseen, Y., & Schmidt, L. (2016). Amortisation of intangible assets: accounting
technical. Professional Accountant, 2016(28), 16-17.