Entities or organizations do not have any voluntary change in accounting policies if it applied Australian accounting standard at an early basis. In accordance with paragraph of AASB 108, management of an organization can apply accounting policies from the recent pronouncement of other standard setting bodies. This is applied in the absence of an Australian accounting standard that is applicable to a specific certain event, transactions and conditions. Standard setting bodies that is making recent pronouncements should have similar conceptual framework for developing accounting standards.
If the entities are choosing an accounting policy following pronouncement amendment, then such change or adoption of that particular accounting policy is accounted and they are divulged as a voluntary change in accounting policy. Voluntary change in accounting policies has an impact on current period. Furthermore, entities are required to disclose nature of change in accounting policy if it is impracticable to determine the adjustment amount. Application of new accounting policy should provide relevant information (Stice&Stice, 2013).
The change in accounting policies from cost model to revaluation model are required to determine the accounts that are to be restated. In the given scenario, Magenta Ltd is applying a retrospective change that is regarded as the application of new accounting policy to the conditions, events and transactions as if the policy have been already applied. Change is accounted according to transitional provisions that is applicable and is specified in relevant standards is the initial application of Australian accounting standards results change in policy.
Change is specified retrospectively if there is no specification of transitional process. Magenta ltd is required to assess all the accounts that would be affected by the change in accounting policy and implementation of revaluation model. In the event of discovery of material error in presentation, measurement and recognition of elements of financial report. In such situation, it is required by entity to restate the financial statement retrospectively as per AASB 108.
Workings:
|
Depreciation Schedule: |
||||||||||
|
Date |
Op. Balance |
Estimated Life |
Residual Value |
Depreciation p.a. |
Period (in years) |
Depreciation Charged |
Depreciated Value |
Fair Value |
Revaluation Gain/(Loss) |
Closing Value |
|
1/7/2014 |
$200,000 |
8 |
$0 |
25000 |
1 |
$25,000 |
$175,000 |
$175,000 |
$0 |
$175,000 |
|
1/7/2015 |
$175,000 |
7 |
$0 |
25000 |
1 |
$25,000 |
$150,000 |
$150,000 |
$0 |
$150,000 |
|
1/7/2016 |
$150,000 |
6 |
$0 |
25000 |
1 |
$25,000 |
$125,000 |
$135,000 |
$10,000 |
$135,000 |
|
1/7/2017 |
$135,000 |
5 |
$0 |
27000 |
1 |
$27,000 |
$108,000 |
$92,000 |
($16,000) |
$92,000 |
|
1/7/2018 |
$92,000 |
4 |
$0 |
23000 |
1 |
$23,000 |
$69,000 |
$69,000 |
$0 |
$69,000 |
Requirement a:
According to AASB 137, contingent liabilities are the existence of possible events that might arise from past are confirmed by non-occurrence or occurrence of some events that are not within the control of entity. Recognizing the possible obligations arising from such events is difficult because it is not possible to measure the obligation amount with sufficient reliability. Moreover, for settling the obligations, it is not plausible there would be requirement of that an outflow of resources.
The operation of chemical manufacturing plant by Greymouth Ltd requires licences from government as it satisfies the definition of major hazard facility. It is required by organization to decommission the manufacturing plant after its useful life. For decommissioning, it is required by organization to incur some cost in recycling some of equipment and dismantling the chemical plant. It can be seen that the cost of decommissioning of the chemical manufacturing plant by Greymouth Ltd cannot be determined. The outflow of resources is not probable and it is difficult to measure the obligation amount with sufficient reliability.
Requirement b:
Three methods for estimating the amount to be recognized as provision according to AASB 137 Provision, contingent liabilities and contingent assets are depicted below. The best expenditure estimate is to be recognized as provision for settling the obligation at the date of balance sheet.
As per the standard, it is required by Greymouth ltd to record all the transactions regarding the provision recognition. In nutshell, it can be said that the methods of recognizing the provision is done at reliable basis and valid estimate, measuring the provision based ion time value of money and valuation to be done by considering the uncertainties and risks in transactions and events.
It is essential on part of organization to recognize the amount of cost or expenditure relating to decommissioning of the chemical manufacturing plant in the current year itself along with considering the future risks associated with the operation. Concerning the estimation of the present value of cost or expenses of decommissioning, it would be suitable for organization to adopt the measurement method of time value of money. The provision amount is represented as expenditure value when the effect of time value of money is material.
Cash outflow provisions after the reporting period are more onerous compared to cash outflow for same year. Employing the method of time value of money would help organization in estimating the present value of decommissioning cost of chemical manufacturing plant. Discount rate used by organization for estimating the present value of future cash outflow regarding this can be pre-tax discount rate. Risk in adjusted estimation of future cash outflow regarding decommissioning of the plant does not reflect the risks.
Therefore, in this situation, the most appropriate method for estimating the amount to be recognized as the cost of provision of manufacturing plant decommissioning is the time value of money.
As per AASB 137, provision is recognized by an entity when it has present obligation resulting from past events, the amount of obligation has reliable estimate and for settling the obligation, it is required to have a probability of any resource outflow representing economic benefits. Appropriate measurement bases and recognition criteria are required to be applied to provisions as per AASB 137 (Russell, 2017). Recognition of provision is done when there is liability .
On the basis of the information provided, the amount of contingent liability for decommissioning is calculated below:
|
Particulars |
Amount |
|
$520,000 |
$78,000 |
|
$500,000 |
$400,000 |
|
$300,000 |
$15,000 |
|
Expected Cost of Decommissioning |
$493,000 |
|
Discount Rate |
5% |
|
Period |
25 |
|
Contingent Liability |
$145,584 |
Requirement a:
IAS 138 prescribes the measurement, recognition and disclosure that is applicable to intangible assets that are not specifically dealt with another standard. The definition of intangible assets as per AASB 138 is provided as an identifiable non-monetary assets that does not have any physical substances. The two characteristics of intangible assets as per the standards includes that intangible assets are not identifiable and they lack physical substance (Pandey et al., 2014).
One of the two characteristics is required to be met for an intangible asset to be identifiable is that they arise from contractual or legal rights and such assets have capability of being transferred and are separate from entity. For an intangible asset depicting that they do not have any physical resources are that there are several recognition and requirement of measurement for non-physical assets. Moreover, there are number of unique characteristics of intangible assets.
In option 1, prime media would be acquiring license for using computer software packages from Digital solution. However, the acquired license cannot be transferred, exchanged and sold after the expiry. As per the definition of intangible assets according to AASB 138 standard, an intangible asset can be transferred. As given in option 2, computer software package is internally developed and they would be patented at an additional cost of $ 15000. Since, software is internally developed; it would be regarded as intangible assets. However, in option 3, the internally developed software is not patented and therefore no additional cost is incurred. In both the options that is option 2 and option 3, assets is controlled by entity and therefore the internally developed software is considered as intangible asset.
In option 2, computer software is internally developed and patented at an additional cost. Therefore, patent acquisition would help in transferring the assets that also gives them other legal rights (Huang, 2014). Therefore, option 2 satisfies the criteria of identifiability in the intangible asset definition.
Requirement b:
Prime Media ltd is requires applying the recognition criteria before they have been recognised as asset. Before the items is recognized as intangible asset, it is required that their definition meets the following recognition criteria. Recognition criteria of intangible assets are faced with number of issues. For intangibles that have been separately acquired, it is considered as per AASB 138 that probability recognition criteria is always taken into consideration. An intangible assets is recognised by Prime media if and only if
Reference
Fischer, D. (2016). Backward Design for Intermediate Financial Accounting 2.
Hu, F., Percy, M., & Yao, D. (2015). Asset revaluations and earnings management: Evidence from Australian companies. Corporate Ownership and Control, 13(1), 930-939.
Huang, Z. (2014). Intermediate Financial Accounting.
Maynard, J. (2017). Financial accounting, reporting, and analysis. Oxford University Press.
Pandey, S., Chaubey, D. S., &Tripathi, D. M. (2017). Financial Accounting Information and Its Impact on Investment Decision in Equities. Management Convergence, 7(2).
Russell, M. (2017). Management incentives to recognise intangible assets. Accounting & Finance, 57(S1), 211-234.
Stice, E. K., &Stice, J. D. (2013). Intermediate accounting. Cengage Learning.
Tran, A. (2015). Can taxable income be estimated from financial reports of listed companies in Australia?. Browser Download This Paper.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download