...The Economic Substance of Accounting Treatment of Property, Plant and Equipment Related IASs and Faithful Representation April 03, 2010 Introduction Theoretical principles of conceptual framework help determine which events should take place and when. They aid professionals with development of new standards and principles. The users of financial statements of public companies depend on the faithful representation of the entity’s financial statements. The financial statements must be adjusted on a regular basis to reflect economic substance of their information, as the users need these amounts to faithfully represent the account balances as an indicator of a company’s future earning power. As IFRS is introduced into Canadian practice in 2001, companies will be required to focus on which methods will emphasize economic substance with the changes in accounting policies. In the following discussion, we will focus one aspect of the conceptual framework around IFRS, in particular, economic substance, as it relates to the application of IFRS in reporting Property Plant and Equipment (PPE.) Recognition of PPE to Reflect Economic Substance Changes to the recognition of property, plant, and equipment Among the most significant changes are the options of accounting policy regarding the ongoing valuation of an asset on a class by class basis. Under GAAP, the cost model was the only choice; IFRS provides two options, the cost model or the revaluation model. These options are...
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...Property, Plant and Equipment Property, Plant and Equipment I- Nature of Accounting Issues Businesses purchase and use a variety of fixed assets, such as equipment, furniture, tools, machinery, buildings, and land. These fixed assets are long-term or relatively permanent assets. Also, they are tangible assets because they exist physically. They are owned and used by the business and are not offered for sale as part of normal operations. Perhaps the most descriptive titles these assets are known under are plant assets or property, plant and equipment. Depending on the industry, the plant assets of a business can be a significant part of its total assets. That is why the accounting for these long-term assets has important implications for a company’s reported results. In this paper, we discuss the proper accounting for the acquisition, use, and disposition of property, plant, and equipment. Before going over a brief overview of the nature of accounting issues, we ought to take a deeper look at what plant assets really are. The major characteristics of property, plant, and equipment are as follows: * They are acquired for use in operations and not for resale. Only assets used in normal business operations are classified as property, plant, and equipment. For example, an idle building is more appropriately classified separately as an investment. Also, land developers or sub dividers classify land as inventory. * They are long-term in nature and usually depreciated...
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...reports should meet the objective of general purpose financial reporting and along with that the qualitative characteristics as outlined in the 2010 Conceptual Framework. The aim is to examine Fairfax Media Limited’s 2013 Annual Report and how the relevant disclosures in the company’s report concerning to PPE align with the Conceptual Framework’s objectives and qualitative characteristics. Introduction: Fairfax Media Limited is a prominent multi-platform media company throughout Australasia. The Fairfax Media Limited stock price is currently trading at $0.9600 and is currently in an upward trend. Fairfax Media financial reports are based on the International Financial Reporting Standards (IFRS) that is issued by the International Accounting Standards Board (IAS) to improve performance and quality of its reports for the company. This report’s purpose is to identify whether Fairfax Media Limited...
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...In accounting, historical cost is the original monetary value of an economic item.[1] Historical cost is based on the stable measuring unit assumption. In some circumstances, assets and liabilities may be shown at their historical cost, as if there had been no change in value since the date of acquisition. The balance sheet value of the item may therefore differ from the "true" value. While historical cost is criticised for its inaccuracy (deviation from "true" value), it remains in use in most accounting systems. Various corrections to historical cost are used, many of which require the use of management judgment and may be difficult to implement or verify. The trend in most accounting standards is a move to more accurate reflection of the fair or market value, although the historical cost principle remains in use, particularly for assets of little importance. Depreciation affects the carrying value of an asset on the balance sheet. The historical cost will equal the carrying value if there has been no change recorded in the value of the asset since acquisition. Improvements may be added to the cost basis of an asset. Historical cost does not generally reflect current market valuation. Alternative measurement bases to the historical cost measurement basis, which may be applied for some types of assets for which market values are readily available, require that the carrying value of an asset (or liability) be updated to the market price (mark-to-market valuation) or some other...
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...There are still many differences in accounting treatment between International financial reporting standards (IFRS) and the U.S Generally Accepted Accounting Principles (GAAP). While IFRS are widely used by many countries around the world, FASB of the U.S still working on the intention of either adopt the IFRS or converge towards it. Until the convergence actually happens, there are still many critics about the accounting treatment at the same subject under U.S GAAP and IFRS. Example of this is the argument about whether U.S GAAP should allow upward revaluation of non-financial asset of IFRS which was described in details on the article “Upward Revaluation of Non-financial” in the CPA journal November 2012 by David Sardone and Tom Tyson. Base on the article, this paper will explore further the comparison of the IFRS standard for accounting treatment for Property Plant Equipment with the treatment of available-for-sale investments under GAAP, along with the support about the authors’ suggestion about the US GAAP’s adoption of IFRS treatment to the property, plant, equipment especially with those have lives in excess of ten years. Even though many differences between IFRS and U.S GAAP exist and can be the critic target for U.S companies, there are still similarities from these two accounting standards. Asset held for sale under GAAP is defined as those which meet the following criteria: “It must be available for immediate sale in its present condition; the entity is actively trying...
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...Types of Assets Used by Companies Garzoria, Raul Principles of Accounting 2311 Ruby Campuzano, M.S. Abstract Assets are resources owned by a company as the result of transactions and are recognized by being an economic resource to a business that adds value. Assets should hold future economic value for the owner or business. Types of Assets Used by Companies An item owned by individuals or corporation that holds some type of economic value that in turn can be converted into cash, is an asset. Assets equal the sum of total resources for that particular business as opposed to liabilities. A few examples are office equipment, vehicles, cash, real estate, and other property owned by the business. In a business accounting point of view, there are different types of assets used, such as current, long-term, intangibles, property, plant, and equipment. This list is basically items that hold cash value, which bring in income to the business. Current assets are important to most companies as a source of funds for day-to-day operations. This asset considered as work in process or cash that’s always flowing in and out of the business. A balance sheet item which equals the sum of cash and cash, accounts receivable, inventory, marketable, prepaid expenses, and other assets that could be converted to cash in less than one year. Creditors of a company, will often be interested in how much that company has in current assets, so that if the company goes bankrupt; the creditors...
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...University of Phoenix Running head: Response to Client Request I 2 An arrangement that qualifies as a lease is an arrangement that conveys the right to use property, plant, or equipment if the arrangement conveys to the purchaser (lessee) the right to control the use of the underlying property, plant or equipment. The right control the use of the underlying property, plant, or equipment is conveyed if any of the following conditions is met: A. The purchaser has the ability or right to operate the property, plant, or equipment in a manner it determines while obtaining or controlling more than a minor amount of the output or other utility of the property, plant, or equipment. B. The purchaser has the ability or right to control physical access to the underlying property, plant, or equipment while obtaining or controlling more than a minor amount of the output or other utility of the property, plant, or equipment. C. Facts and circumstances indicate that it is remote that one or more parties other than the purchaser will take more than a minor amount of the output or other utility that will be produced or generated by the property, plant, or equipment during the term of the arrangement, and the price that the purchaser will pay for the output is neither contractually fixed per unit of output nor equal to the current market price per unit of output as of the time of delivery of the output...
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...Chapter 13 Auditing the Inventory Management Process Answer Key True / False Questions 1. The "cradle-to-grave" cycle for inventory begins when goods are purchased and stored and ends when the finished goods are shipped to customers. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-01 Develop an understanding of the inventory management process. Topic: Overview of Inventory Management Process 2. A receiving report records the shipment of goods to customers. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-02 Be able to identify and describe the types of documents and records used in the inventory management process. Topic: Types of Documents and Records 3. Sale of finished goods is a part of the inventory management process. FALSE AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-03 Understand the functions in the inventory management process. Topic: The Major Functions 4. Once the controls in the inventory system have been tested, the auditor sets the level of control risk. TRUE AACSB: Analytic AICPA BB: Industry AICPA FN: Risk Analysis Blooms: Remember Difficulty: 1 Easy Learning Objective: 13-06 Know how to assess control risk for the inventory system. Topic: Control Risk...
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...different users and so each different way might be appropriate in different circumstances and values are affected by the purpose of measurement. Property, plant and equipment are the main non-current assets that a company holds. Similar assets can be valued differently in different companies due to several different factors which I will discuss in this essay. Tangible non-current assets are usually valued by using the historical cost, which is the initial cost of acquiring the asset to the company. The IFRS states that the historical cost of an item not only includes the price paid for it, but also “any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.” This includes transportation and labour costs, and the cost of site preparation. Different companies may have different views on whether costs involved in bringing the asset into use should be counted as part of the asset or an expense, and often small costs that should be capitalised are recorded as expenses for convenience. Costs added to the value of the asset should be capitalised only for the period in which the activities that are necessary to get the asset ready for use are in progress. One must decide whether any of the costs incurred have a life longer than the end of the accounting period, for example, maintenance costs may be included under expenses. The...
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...Canadian Professional Exams Careers Continuing Education Exam Prep Quizzer FAQs Calculators Tweet 1 Disqus Email Print Feedback Frequently Asked Question November 18 2009 | Filed Under » Accounting, Consumer Goods, Electronics Should computer software be classified as an intangible asset or part of property, plant and equipment? In accounting terms, an intangible asset is something of value that is not of physical nature. On the other hand, property, plant and equipment (PPE) are just as the name suggests. PPE refers to physical long-term assets, such equipment that is vital to a company's operations and has a definite physical component. Under most circumstances, computer software is classified as an intangible asset because of its non physical nature. However, accounting rules state that there are certain exceptions that permit the classification of computer software as Property Plant and Equipment (PPE). Some of the statements that have rules concerning the classification of software include: Financial Accounting Standards Advisory Board (FASAB) Statement of Federal Financial Accounting Standards (SFFAS) No. 10, Accounting for Internal Use Software. Governmental Accounting Standards Board (GASB) Statement No. 42, Accounting of Costs of Computer Software Developed or Obtained for Internal Use. There are two general rules that are applied to determine whether or not software must be...
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...1 historical cost accounting (hca) is the situation in which accountants record revenue, expenditure and asset acquisition and disposal at historical cost: that is, the actual amounts of money, or money's worth, received or paid to complete the transaction. 2 nature of historical cost accounting this is one of those idiosyncratic headings that teachers dream up (me too, probably!) that meant nothing to me without further explanation 3 the big advantage of hca is that it leads to absolute certainty and it fits in perfectly with the cash flow statement. Hca tells us exactly what has been paid and what has been received and therefore there is no doubt about balance sheet amounts. The alternatives, where accountants attempt to take inflation into account, can lead to many problems. There have been several forms of current cost accounting, purchasing power accounting and so on since the mid 1970s that have been proposed as alternatives to hca. The reason the alternatives have not survived, and IAS 15 on inflation accounting is about to be replaced, if it hasn't been already, is that no one can agree on the best way to represent accounting values. Hca provides definite values, other methods don't! 4 the disadvantages of hca include the fact that hca values can relate to transactions that could be a year old, 10 years old and as much as 100 years old. It's true that some businesses have old equipment and old stocks (inventories) that are still working well but that were bought a...
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...it is possible for companies to inflate or write down the value of PP&E by managers. Therefore, the investors have to pay attention to the policy of the PP&E and in this memo we tend to analyze the account deeply and understand how to the amount is reported on financial statement. In order to find the differences between IFRS and U.S GAAP on this subject, summaries of the requirements of GAAP and IFRS separately will lay a foundation for the comparison. IFRS: IAS 16 An entity may choose 2 accounting models for its property plant and equipment: an entity shall apply the same model to the entire class of PP&E (IAS 16-29: An entity shall choose either the cost model in paragraph 30 or the revaluation model in paragraph 31 as its accounting policy and shall apply that policy to an entire class [Refer: paragraph 37] of property, plant and equipment.) 1. Cost model (IAS 16-30: After recognition [Refer: paragraph 7] as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation [Refer: paragraphs 6 (definition of depreciation) and 43–62] and any accumulated impairment losses [Refer: paragraph 63]) An entity shall carry an asset at its cost less any accumulated depreciation and...
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...ISSUES IN ACCOUNTING EDUCATION Vol. 26, No. 1 2011 pp. 155–162 American Accounting Association DOI: 10.2308/iace.2011.26.1.155 Bioscience Company: Accounting for Idle Plant Assets Victoria Dickinson, Paul Kimmel, and Terry Warfield ABSTRACT: Bioscience Company and its auditors have been in discussions with the SEC concerning the accounting for its long-lived assets. Among the issues being discussed is the company’s discontinuation of depreciation on productive assets that it had used previously, but it was not currently using. The case permits a technical examination of depreciation and impairment accounting issues with consideration of the FASB’s asset/liability measurement approach, fair value accounting, use of the FASB Codification, and comparisons to International Financial Reporting Standards. The case requirements are divided into basic requirements, which would be appropriate for intermediate level students; and advanced requirements, which would be more appropriate for accounting seniors, as well as M.B.A. and fifth-year accounting students. Keywords: accounting for long-lived assets; depreciation; impairment. INTRODUCTION ristin Murphy recently joined the audit team of one of the more interesting clients in her accounting firm’s practice. An important issue has arisen for this client on a topic that she has not encountered in her four years with the firm. Following is some background on the client and the accounting issue under consideration. K BIOSCIENCE...
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...COVER SHEET for SUBMISSION of INDIVIDUAL/ GROUP ASSIGNMENTS Course Code | Course Name | Dept. Date Stamp | ACCT2159 | Corporate Accounting | | Assignment Title | Assignment No: | Date Due | | Corporate Accounting Assignment 2012 semester 3 | 1 | Friday, 7th December 2012 | | Academic’s Name: | | | Ms. Sue | | (For Office use only) | STUDENT(S) Family name | Given Names | Student Number | 1) Vu Ly Bao | Ngoc | s3357828 | 2) Bui Mai | Phuong | s3372823 | 3) Nguyen Thi Phuong | Mai | s3345216 | 4) Lee | So Huyn | s3357820 | Declaration and Statement of Authorship: 1. I/we hold a photocopy of this assignment which can be produced if the original is lost/damaged. 2. This assignment is my/our original work and no part of it has been copied from any other student’s work or from any other source except where due acknowledgement is made. 3. No part of this assignment has been written for me/us by any other person except where such collaboration has been authorised by the academic/teacher concerned and as detailed in the assignment. 4. I/we have not previously submitted this work for any other course/unit. 5. I give permission for my assignment to be scanned for electronic checking of plagiarism. 6. I give permission for a copy of my/our marked work to be retained by the Department for review by external examiners. I/we understand that: Plagiarism is the presentation of the work, idea or creation of another...
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...Chapter 17 Audit ing the Investing and Financing Cycle |Learning Check | 17-1. Investing activities represent the purchase and sale of land, buildings, equipment, and other assets not generally held for resale. In addition, investing activities include the purchase and sale of financial instruments not intended for trading purposes (discussed in chapter 18). Financing activities include transactions and events whereby cash is obtained from or repaid to creditors (debt financing) or owners (equity financing). Financing activities would include, for example, acquiring debt, capital leases, issuing bonds, or issuing preferred or common stock. Financing activities would also include payments to retire debt, reacquiring stock (treasury stock), and the payment of dividends. 17-2. When auditing the investing and financing cycles auditors typically address the following issues: • What assets are necessary to support the operations of the entity, and what are management’s long-range plans for growing the entity’s asset base? Answering this question assists the auditor in developing expectations of long-term assets needed to support operations. • What assets were acquired, or disposed of, during the period? Answering this question confirms the auditor’s expectations regarding assets needed to operate effectively. It also assists the auditor in developing expectations of regarding financing activities. • How were newly acquired assets...
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