University Accounting Assignment: Revaluation and Fair Value Analysis

This report provides a comprehensive analysis of company accounting principles, addressing the revaluation model and fair value measurement of fixed assets. The report begins by evaluating the appropriateness of adopting the revaluation model for Simba Ltd, considering the challenges in determining fair value and the potential impact on financial statements. The report then delves into the application of fair value measurement hierarchy, using the example of Medibank's investment portfolio. It examines the fair value measurement across different asset classes, including equities, property, and fixed income, and discusses the accounting treatments applied to various financial instruments, such as trade receivables, cash equivalents, and intangible assets. The report also explores the recognition of premium revenue, share-based payments, and the adoption of AASB 9. Overall, the assignment offers a practical application of accounting standards and provides insights into financial reporting practices.

Running head: COMPANY ACCOUNTING
Company Accounting
Name of the Student
Name of the University
Authors Note
Course ID

1COMPANY ACCOUNTING
Table of Contents
Answer to Question 1:................................................................................................................2
Answer to Question 3:................................................................................................................2
Answer to A:..........................................................................................................................2
Answer to B:..........................................................................................................................3
References:.................................................................................................................................6

2COMPANY ACCOUNTING
Answer to Question 1:
The board of director of Simba Ltd should not adopt the revaluation model. This is
because the revaluation model requires the business with the option of carrying the fixed
assets at the revalued model. Consequent to the revaluation model, the business would be
required to carry on the books based on the fair value of the asset following the deduction of
the subsequent accumulated depreciation and impairment losses (Hughes et al., 2019). As
evident, the board of directors of Simba Ltd are uncertain regarding the fair value of certain
items of fixed assets in the present accounting year and there are also certain assets that are
difficult to obtain. As a result, determination of fair value for certain assets appears to be
difficult.
Adopting the revaluation model would further create an impact on the fair value
materiality of the firm since the model would require the board of Directors of Simba Ltd to
continuously revalue the fixed assets sufficiently at the regular interval to assure that the
carrying value is not materially different from the fair value during any period (Andison &
Nasser, 2017). Undertaking the revaluation model without the sufficient knowledge regarding
the fair value of certain assets may provide results that may inflate the carrying amount of
certain assets in the statement of financial position. Furthermore, the board of directors
should understand that assets cannot be revalued every year or the cost might not decline. As
a result, no depreciation can be charged on the asset (Yao et al., 2015). If the fair value of
assets is unknown, then the sum of depreciation that is charged may be miscomputed.
Conclusively the board of directors of Simba Ltd should abstain from adopting the
revaluation model.
Answer to Question 3:
Answer to A:
The fair value of the Medibank investment is measured based on the fair value
measurement hierarchy
For the year ended 30th June 2018
Particulars
Level 1
($m)
Level 2
($m)
Level 3
($m)
Total
($m)
Financial Assets at fair value through
profit or loss
Australian equities 143.2 143.2
International equities 168.8 168.8

3COMPANY ACCOUNTING
Property 2.2 156.2 158.4
Infrastructure 49.8 49.8
Fixed Income 85.9 1670.4 1756.3
88.1 2188.4 2276.5
Answer to B:
Medibank Private Insurance financial reports has been prepared based on the
convention of historical costs, excluding the financial assets that are measured in terms of fair
value with the help of profit or loss. The land and building are measured based on fair value.
Investment portfolio disclosure:
Under the notes 7, the investment portfolio that are listed and not listed securities held
by the Medibank’s health insurance fund are categorized as the financial assets that back the
insurance liabilities and hence it is recognized at fair value. Financial assets that are measured
at fair value with the help of profit and loss comprises of outwardly administered equity trust,
direct mandates and fixed income portfolio that are internally managed (Maas et al., 2016).
Other investments that are listed and not listed securities are categorized as held for the
purpose of trading and bought mainly for selling the short-term and are hence measured at the
fair value upon the primary recognition.
Net Investment Income:
The income from the trust distribution that are derived from the financial assets are
measured at the fair value with the help of profit or loss that are recorded in the consolidated
comprehensive profit and loss statement.
Trade and other receivables disclosure:
Under the notes 9 C, disclosure relating to trade and other receivables are originally
measured at fair value. The trade and other receivables are measured subsequently at
amortised costs by using the “effective interest” method after deducting the impairment loss.
Cash and cash equivalents:
Under the notes 9 the cash and cash equivalents of Medibank have been recognized at
fair value which also includes the hand, short-term bills of bank, commercial paper, term
deposits and short-term liquid investment that has the maturities of less than three months and
readily convertible (Schaltegger et al., 2017).

4COMPANY ACCOUNTING
Property, plant and equipment:
Under the notes 11 the land and building are classified at recognized at fair value after
deducting the depreciation for building (Medibank.com.au, 2019).
Intangible assets: Goodwill:
Under the notes 12 the goodwill and the intangible assets that are having the
indeterminate lifespan are not considered for amortization purpose and they are tested on
yearly basis for the impairment purpose (Medibank.com.au, 2019). The company recognizes
the impairment losses for the amount based on the carrying cost of the asset that exceeds the
recoverable value (Kaplan & Atkinson, 2015). The recoverable sum of the assets is
recognized at greater than the fair value after deducting the costs of disposal and the usable
value.
Customer contracts and relationships:
Under the notes 12C of the annual report the customer agreements and relations that
are bought as the portion of business grouping are carried at fair value on the day of purchase
after deducting the accumulated amortisation and impairment losses.
Premium revenue:
Under the notes 3 Medibank recognizes the premium revenue in the consolidated
comprehensive income statement when the sum can be dependably measured and it becomes
likely that the forthcoming financial profits would come in the organization (Hoyle et al.,
2015). Measurement of premium revenue is based on the fair value in respect of the
consideration that is received or receivables.
Share based payments:
Under the notes 16 the share based payment arrangements represents the fair value
relating to the performance rights is recognized as the employee benefit expenditure
(Medibank.com.au, 2019). The company anticipates to expense the total amount by referring
to the fair value of the performance rights that are granted including the market performance
situations.

5COMPANY ACCOUNTING
Medibank applies the AASB 9 for the annual reporting period that commences from
1st July 2018. All the financial assets are recognized at the fair value except the debt
instrument that are managed based on the contracted yield basis (Medibank.com.au, 2019).
The company recognizes the investment at the fair value with the help of profit or loss and
there would not be any material effect.

6COMPANY ACCOUNTING
References:
Andison, A., & Nasser, E. M. (2017). Operating Cash Flow, Earning Response Coefficient,
and Fixed Asset Revaluation: Study on Manufacturing Company. Etikonomi, 16(1).
Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015). Advanced accounting. McGraw Hill.
Hughes, S. B., Lowensohn, S., & Tefre, E. (2019). Portable Power: An Application of IAS 16
Including Self-constructed Assets and the Revaluation Model. Issues in Accounting
Education.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.
Maas, K., Schaltegger, S., & Crutzen, N. (2016). Integrating corporate sustainability
assessment, management accounting, control, and reporting. Journal of Cleaner
Production, 136, 237-248.
Medibank Private Health Insurance | For Better Health | Medibank. (2019). Retrieved from
https://www.medibank.com.au/
Schaltegger, S., Etxeberria, I. Á., & Ortas, E. (2017). Innovating corporate accounting and
reporting for sustainability–attributes and challenges. Sustainable
Development, 25(2), 113-122.
Yao, D. F. T., Percy, M., & Hu, F. (2015). Fair value accounting for non-current assets and
audit fees: Evidence from Australian companies. Journal of Contemporary
Accounting & Economics, 11(1), 31-45.