ACCM4200: Financial Accounting and Reporting Analysis for Pewter Ltd

This report provides an analysis of the accounting policies that Pewter Ltd should adopt for asset and inventory recording. It addresses queries from the managing director regarding fair value accounting, inventory valuation, and the valuation of a newly developed machine. The report suggests that the company should adhere to AASB 16 for asset valuation, record inventory at the lower of cost or net realizable value, and value the machine at its original cost, not the customer's offered price, to comply with accounting standards and ensure transparent financial reporting. The report also includes an executive summary and a letter to the managing director, offering professional advice on the issues raised.

Running head: ACCOUNTING AND FINANCIAL REPORTING
Accounting and Financial Reporting
Name of the Student
Name of the University
Author note

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Accounting and financial reporting
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................4
Conclusion..................................................................................................................................6
Reference....................................................................................................................................6

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Executive summary
The aim of the report is to give a brief analysis of the accounting policies that pewter ltd
should adopt in order to record the assets and the inventory of the company. The company
seeks a suggestion regarding the correct accounting standard that will be required to follow to
ensure that the financial statements can be prepared on a transparent and efficient way.

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Accounting and financial reporting
To
The managing director
Pewter ltd
Respected sir
In response to your query I want to inform you about some recent issues that has been
detected in the accounting policies of your organization. Recently your marketing director
Mr. martin kellick bring to our attention that some of the other companies has adopted a new
standard in the fair value of accounting and whether our company is following the same
method or not. He also asked that this change is applicable for your company or it is
applicable for the public listed company only. Another query that has been raised by you
regarding the valuation of the inventory and what measures the company should take to
account the value of inventory.
Another issue that has been raised by you is regarding the valuation of the machinery
that has been designed by the manufacturing engineer as some of your clients has offered
more value than original cost of the machine. In regard to these issues our firm has some
suggestion which is discussed in detail in a separate report which is attached with this report.
Yours faithfully
Assistant Accountant
Mckenzie and Associates

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Accounting and financial reporting
Introduction
In response to the issues that has been mentioned by the director of the pewter ltd
some of the suggestions are provided to you. It is essential to understand that the basic
principle of accounting has some specific standards and guidelines that are specified by the
various governing bodies which frame the accounting standard and the rules that are framed
by these authorities are considered to be fixed ones and any variation in these rules will be
treated as the violation of the accounting policies and if any company adopt such policies
then it would be treated as a wrong accounting practice and in that situation the auditor will
give a unqualified report.
Discussion
In response to the two issues that has been asked by the director of the pewter ltd the
issues and the solutions are stated one by one in the details:
Issue 1
In the first case the problem is regarding the valuation of the inventory of the
company. The marketing director raised the question that he has observed that in some of the
other companies has adopted a different rule for the valuation of the assets to a new standard
on the fair values. In respect to the query it can be said that the AASB 16 is the standard that
frame the guidelines regarding the accounting of assets of the entities in Australia. As per the
new amendments that are made in the AASB 16 some changes are made in regarding to the
leasehold assets and no other physical assets so as per that rule the company does not have to
get confused with the new rules and should follow the existing rule of fair value of the assets
(Joubert Garvie and Parle 2017).

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Accounting and financial reporting
In regard to the other question which is related to the change in the fair value of the
assets it is suggested that there is no need to show them at cost and the assets should be
recorded as per the fair value (Kabir and Rahman 2016).
In case of the valuation of the inventory the method prescribed by the AASB is that
the inventory should be recorded on the basis of cost or net realizable value which ever is
lower. So according to that provision it can be stated that your opinion in regard to the
reduction of the value of inventory is right and as the net realizable value of some of the
assets are less than the original costs so it will be authentic to record the inventory at the net
realizable value (Hana and Patrik 2017).
Issue 2
In this case the main issue is related to the valuation of a machine that has been
designed by one of the engineer of the company. The issue is that one of the engineers of the
company has developed a machine which is very effective and that the machine has been able
to reduce the cost of the manufacturing time by 2 hours per batch. Some of the customers of
the company has tested the machine and states that they are ready to buy the machine and
will pay a million for that machine (Bandyopadhyay Chen and Wolfe 2017). The actual cost
of the machine is $250000. The company is confused with the concept of valuing the
goodwill of the machine. The customer advised the company to value the machine as per the
value that has been offered by them as this will increase the value of the goodwill of the
machine. The efficiency of the machine is so high that the company is also get confused with
the suggestion given by the customer (Svoboda and Bohušová 2017).
Regarding this issue the provision of the AASB 16 states that it will not be possible
for any company to record the machine at a cost which is higher of its original costs and if

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any company record its machines at a cost which is higher than the original cost then it will
be treated as violation of the accounting standards mentioned by the AASB and that will
impact the true and fair view of the financial statements (Kulikova Samitova and Aletkin
2015).
So as per that rule it will be advised to the company to record the machine at the
original costs which is $250000 and that it will never try to record the assets at the cost that
has been offered by the customer. As that if the company record the assets at the offered cost
of the customer then it will violate the provision of the AASB and that will adversely affect
in the preparation of the financial statements (Mita and Siregar 2019).
Conclusion
From the above discussion it can be sated that from the analysis of the two issues that
has been raised by the director of the company it is suggested that the company is not
violating any provision of the AASB, and that, if the company does not record the assets as
per the fair value and the inventories at lower of the net realizable value or the original cost
then in that case it will violate the provision of the AASB and at that time such transactions
will be treated as void and will effect in the preparation of financial statement.

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Reference
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.
Hana, B. and Patrik, S., 2017. Will the amendments to the IAS 16 and IAS 41 influence the
value of biological assets?. Agricultural Economics, 63(2), pp.53-64.
Svoboda, P. and Bohušová, H., 2017. Amendments to IAS 16 and IAS 41: Are There Any
Differences between Plant and Animal from a Financial Reporting Point of View?. Acta
Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 65(1), pp.327-337.
Kulikova, L.I., Samitova, A.R. and Aletkin, P.A., 2015. Investment property measurement at
fair value in the financial statements. Mediterranean Journal of Social Sciences, 6(1 S3),
p.401.
Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting discretion
under IFRS: Goodwill impairment in Australia. Journal of Contemporary Accounting &
Economics, 12(3), pp.290-308.
Mita, A.F. and Siregar, S.V., 2019. The Use of the Fair Value Accounting Method for
Investment Property in Indonesia. Pertanika Journal of Social Sciences and
Humanities, 27(1), pp.195-212.
Bandyopadhyay, S.P., Chen, C. and Wolfe, M., 2017. The predictive ability of investment
property fair value adjustments under IFRS and the role of accounting
conservatism. Advances in accounting, 38, pp.1-14.

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Ratnatunga, J., Tse, M.S. and Wahyuni, D., 2015. Societal role expectations of management
accounting professionals: An Australian study. In Advances in management accounting (pp.
29-48). Emerald Group Publishing Limited.