...article “Upward Revaluation of Nonfinancial Assets,” by David Sardone and Tom Tyson, explains that the two most widely recognized sets of accounting standards, namely Generally Accepted Accounting Practice in the US (US GAAP) and International Financial Reporting Standards (IFRS), address the measurement of non-financial assets differently, and compelling arguments exist in favor of each approach. Notes that, despite the challenges to auditing fair value estimates, some suggest that Financial Accounting Standards Board (FASB) should conform more closely to current IFRS procedures by allowing the revaluation of certain non-financial assets. The authors propose that FASB should allow the upward revaluation of fixed assets, such as property, plant, and equipment (PP&E), which have extended economic lives. The main difference discussed is revaluation of nonfinancial assets compared to fair value. GAAP does not permit revaluation whereas IFRS is in support of revaluation. Also, IFRS permits the reversal of impairment losses from prior periods for all nonfinancial assets besides goodwill. The IFRS standard for accounting for PPE differs from the treatment of available-for-sale investments under GAAP. Some similarities, however, include the fact that initial recognition of an asset is valued at cost. As always, the IFRS approach is a little bit more lenient, as it is more principles-based, and gives companies more freedom to decide how they want to value their assets. The cost model...
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...Understand the mechanics of revaluing assets. 2. Understand the mechanics of impairment testing. 3. Revisit the accounting treatment of inventory. ACCT1511 4. Be technically competent in journal entries and T-accounts relevant to asset revaluation, intangible assets, and inventory measurement. Topic 5. Be able to identify the accounting principles relevant to the accounting treatment of assets. Assets (2) General Principles Methods for Measuring Value Australian School of Business Measurement at Recognition: PPE The value put on the asset when first recorded. An item of property, plant and equipment that qualifies for recognition shall be measured at its cost (AASB 116, para 15) 1. Historical Cost 2. Current or Market Value (value in exchange) 3. Value in use (present value) 4. Liquidation Value Elements of costs: – Its purchase price, including import duties and non-refundable purchase taxes after deducting trade discounts and rebates – 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. – The initial estimate of the cost of dismantling and removing the item and restoring the site on which it is located (if the company is required to do so) 5. Price-adjusted Historical Cost Measurement after Recognition: PPE An entity shall choose either the cost model… or the revaluation model… as its accounting policy...
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...1. IAS 16 PROPERTY PLANT AND EQUIPMENT This standard regulates the measurement, recognition, derecognition and disclosure requirements of non-current assets and its related expenditure or income in the financial statements. It also defines the scope of it by stating clearly all assets falling within it. 1.1. Definition Property, plant and equipment refer to all tangible non-current assets used in the production or supply of goods and services, for administrative purpose or for rental to others. This definition emphasizes 4 important features of assets qualifying as PPE. a) They are tangible non-current assets. This creates the delineation well excluding clearly any asset that does not have physical appearance or used in the working capital cycle or to be realized just in the following year. b) Used in the production of goods and services. Also PPE are involved in the production process like machines or they are used to supply the goods after production has been made like motor vehicles. c) For administrative purpose.PPE again help businesses to carry out their official duties. For instance staff use cars of the company in their activities of the organization or this can be used as a place of conducting daily operations like building. d) Used for rental purpose.PPE are also used to earn investment income.i.e by giving it out for hiring for others to use (but excludes land and building for capital appreciation or hiring purposes) 1.2 Measurement This refers...
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...choose to analyze the revaluation of PP&E are: 1. They are often involved in large amount of transactions and initially recognized at cost, and depreciated subsequently, as a result, it takes a lot of work to keep record of its carrying value; 2. PP&E makes up a large percentage of the total assets, especially for manufacturing companies, and is expected to be long-term assets held for use in production; 3. Mostly they are carried on the Balance Sheet based on the cost no matter how much their actual values are. So 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...
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...in return of a payment series the payments the right to use an asset for an agreed period of time. Step 1 Define a finance lease Lease Risks and rewards has the ownership being transferred Where ownership being risks and rewards Step 2: Discuss risks and rewards Risks: Insurance, maintenance, potential drop in residual value Rewards: use of assets, potential increase in residual value Who bears? Who enjoys? URV MLP MLP MLP Minimum lease payments All minimum payments required by the lessee to the lessor 1. Rental 2. GRV * Guaranteed residual value * The asset will buy the asset from the lessor 3. BPO * Bargain purchase option * Gives the right to lessee to buy the asset that lower than market value MLP = CI 1-11+In +(GRV+BPO1+in) URV * unguaranteed residual value 3 types of leases * Direct finance * Manufacture/ dealer * Sales & lease back Lessor 1. Initial recognition DR Lease receivable xx CR asset xx 2. Subsequent measurement Lease receivable = Pv (MCR) + PV( URV) 3. Subsequent measurement Lease schedule Lessee 1. Initial recognition (Sales & lease back) DR cash xx CR lease asset xx CR deferred gain (L) xx *Deferred gain needs to be amortized 2. record lease Dr increase asset xx Cr lease liability xx *Lease liability is measured...
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...of view. E.g. corporate jets and huge officers with expensive art Risk aversion – managers and shareholders may prefer different levels of risk when it comes to project selection. Shareholders would generally prefer more risky investment because they are well diversified and know that any loss will be offset by another investment. Managers however are generally not as diverse, if the firm suffers a substantial loss, their salaries may be at risk, or it would be extremely difficult to find another job. Hence managers are usually more reluctant to take risk than the shareholders. Agency cost of debt Claim dilution – The value of existing debtholders’ claims can be diluted by the issue of additional debt of the same or higher priority. Asset substitution – If a firm sells debt for the stated purpose of investing in a low risk project, for example like a building, and subsequently invests in a high risk project, for example mineral exploration, the value of the debt falls while that of the equity rises. Accounting Standards Harmonisation Benefit – For users, consistency in interpretation of financials * For preparers, reduced costs in restating and reconciling reports Disadvantages – culture differences,...
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...ACCOUNTING ASSIGNMENT 1 QUESTION 1 PART A: EROSION OF CAPITAL Historical cost is adopted and used by many businesses in Australia. Despite being used by majority, one of the main disadvantages of Historical cost is fails to maintain intact other concepts of capital like constant purchasing power capital, except money capital. It fails to measure assets at their current cost but only use their current cost. In order to maintain capital properly, it should be able to cover the replacement cost of the asset. Air Monash have been able to maintain its capital of $1,000,000 and also conclude with a profit of $500,000 for the whole year, which all together sums to $1,500,000 of total capital for thy year ending June 2008. However if the replacement cost of the aircraft is taken into account, erosion of the capital and its extent is dependent upon whether the capital can cover the replacement cost of the aircraft. Air monash is dependable on their aircraft to function their business properly and must always have fault free, and latest up to date equipment and technology, in order to have a competitive status in the industry. The current aircraft was purchased ten years go only at a cost of $2,000,000. Unlike money capital, which does not consider replacement cost, physical capital does. In order to replace the aircraft, it is going to cost Air Monash $10,000,000 to replace their current aircraft. Looking at their total current capital of 1,500,000, Air monash will not be able to...
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...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. Property, plant, and equipment yield services over a number of years. Companies allocate the cost of the investment in these assets to future...
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...Comment on valuation of Fixed Assets, Depreciation and Inventories of Asian Paints and Berger Paints: To comment on these we require the internal and external audit reports and the system and procedures adopted by the company to maintain its records. As per the Annual report given, both the companies are reasonably following all the accounting practices, physical verification and no qualifying remarks by the Auditors on these three items. Fixed Assets: Asian Paints: The Company is increasing Fixed Assets base on year on year basis. Net FA is increased from 707 crores to 2012 crores in five year term. The company wants to increase the capacity further in their Haryana Plant. So FA is likely to increase in a phased manner. Replacement of old assets with energy efficient equipment will further increase FA base. There is no revaluation of fixed assets during the period under review. Fixed assets of which values are below Rs.5000 are charged to revenue as per income tax guidelines. Research and Development assets can be debited to revenue according to Income tax provisions where as the company has chosen to capitalize and provide depreciation according to company law. Impairment assets provision in Profit and Loss account to the tune of about 15.30 crores is again a matter for dispute. Otherwise Fixed assets are valued as per norms, cost plus taxes and other erection charges and the other permissible expenses. Berger Paints: The company is also in to...
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...entry for purchase of machine on 1.1.2014: |Date |Accounts |DEBIT ($) |CREDIT ($) | | | | | | |1/1/2014 |Machinery |140,000 | | | |GST Collections |14,000 | | | |Accounts Payable | |154,000 | Note: Assets are always capitalized net of GST. GST Amount Calculation: $154,000 / (110 x 10) = $14,000 B) Relevant journals entries for 2014, 2015 & 2016: with or without revaluation (a) There is no entry for with revaluation because machinery is not revalued in this time period i.e. 2014 to 2016 (b)Without revaluation: |Date |Accounts |DEBIT ($) |CREDIT ($) | | | | | | |30/06/2014 |Depreciation Expense |10,000 | | | |Accumulated Depreciation | |10,000 | | | | | | |Date |Accounts ...
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...as the elements related to performance. (2)Define it as a resource from which a future economic benefit is expected. (3)Use “probable” to define the criteria for recognition. Financial statements elements (1)List revenues, expenses, gains, losses and comprehensive income as the elements related to performance. (2)Define an asset as a future economic benefit. (3)Use “probable” to define assets and liabilities. (4)Don’t allow the values of most assets to be adjusted upward. Figure 2: Differences in 会计事项 会计事项 US GAAP 强制性规定 选择性规定 Balance Sheet Marketable Investment Securities Classified as held-to-maturity, trading and available-for-sale. LIFO, FIFO and the average cost method. Inventory Once an inventory write-down occurs, any subsequent recovery of value is ignored. Subsequent recovery of value can be included. Trading securities are known as held-for-trading securities. FIFO and the average cost method. IFRS 强制性规定 选择性规定 Case 1 Property and Equipment Don’t permit upward revaluations. Permit upward revaluations. Property and equipment are reported at fair value at the revaluation date less the accumulated depreciation since revaluation. The equity method can be used and proportionate consolidation is preferred. The firm must expense costs...
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...| Ruckman, Inc.: Converting from U.S. GAAP to IFRS | ACTG 4240 – Assignment #4 | | Fannie Fang, Yingqi Gu, Ya Wang | 1/24/2013 | | Ruckman Part I Solutions Page 1. For each of the 16 items listed below, briefly describe the difference in GAAP treatment and IFRS treatment. Just start with this form and type in your responses in the appropriate cells. You don’t need to give too much detail, just enough so your client can tell the difference. 2. In the “Needed to Convert?” column, very briefly describe the information you would need in order to convert the U.S. GAAP statements to comply with IFRS. If you were going to make a journal entry, what measurement or other information would you need? Please follow the bullet format I used below, if feasible. For an example – see “Inventory Flow assumption” below, which I completed for you. | Item | GAAP | IFRS | Needed to Convert to IFRS? | | Income Statement Items | 1 | Revenue | * Contingent amounts generally not being recorded as revenue until it’s resolved. * The residual method is precluded * The amount allocable to a delivered item is limited to the amount that is not contingent on the delivery of additional items. * Utilizing a multiple element account model or an incremental cost model to account for customer loyalty program. * When there is a loss on the first element but a profit on the second element, the company may defer the remaining costs until delivery of the second element...
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...Objective The objective of IAS 16 is to prescribe the accounting treatment for property, plant, and equipment. The principal issues are: the timing of recognition of asset; the determination of their carrying amounts; and The depreciation charges to be recognized. Scope IAS-16 applied to all Property, Plant & Equipment until and unless any other standard requires or permits a different accounting treatment. Definition Property, Plant & Equipment are tangible items that: are held for use in the production or supply of goods or services; for rental to others; for administrative purposes; and are expected to be used during more than one period. Recognition The cost of an item or Property, Plant & Equipment shall be recognized as an asset if, and only if: it is probable that future economic benefits associated with the item will flow to the entity; and The cost of the item can be measured reliably. Measurement at Recognition An item of Property, Plant & Equipment that qualifies for recognition as an asset shall be measured at its cost. Elements of Cost Purchase price + (Import duties + Non refundable taxes) - (Trade Discounts + Rebates) Directly attributable costs. Initial estimate of the cost of dismantling and removing the item and restoring the site in which it is located. Costs that are not Costs of Property, Plant & Equipment Costs of opening new facility; Costs of introducing new product or service; Costs of conducting business in new location or with...
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...showing reconciliation of net cash from operating activities to profit (indirect method), both the bad debts write-off of $35,000 and the increase in allowance for doubtful debts of $45,000 are taken into account automatically by the increase in the gross accounts receivable balance and the increase in the allowance for doubtful debts can be disclosed separately. ii. Depreciation expense is a non-cash item, which is included in the statement of comprehensive income and does not cause cash flows. It is therefore excluded from cash from operating activities. Journal entry: Depreciation Expense Dr $75,000 Accumulated Depreciation Cr $75,000 iii. As it is a disposal of an item of plant, which is a non- current assets, this transaction is an investing activity. The only cash flow resulting from the disposal of the...
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...differed? It doesn’t matter if the FASB or IASB is followed; the steps taken to move to fair value measurement for financial instruments are to be noted in the financial statements regarding fair value measurement practices. Under each system, a company must report the assets at book value or fair value situational depending. Every asset in the same class of assets must get the same valuation. When valuing receivables, the IFRS operates under a two-tiered method that will analyze individual receivables first then takes a look at receivables as a whole to see if there is any impairment. IFRS 9-1 What component depreciation, and when must it be used? Component depreciation should be used when parts of the assets are fundamentally different. It is when the asset has different components with varying lifespans. Under IFRS, companies are required to use component depreciation if the different parts of the assets have varying patterns of benefit. The reason that this is required is because it provides a clear picture of the asset’s book value. Component depreciation is also allowable under GAAP but U.S. companies use it rarely in their practices. IFRS 9-2 What is revaluation of plant assets? When should revaluation be applied? The standard definition...
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