Discuss about the Adopting International Financial Report Standard.
The accounting statements of the corporate entities are the primary books that are referred to for the purpose of assessing the financial accounts of the corporate entities. This means that the financial information that has been provided by the accounting statements reflect the fact in regards to the financial and the liquidity positions of the corporate entities. The financial statements that are prepared by the administration of the corporate entities are utilized by the stakeholders and the other third party investors who have been utilizing the accounting statements for the purpose of assessing the business structure and the financial performance of the corporate entities.
This particular study aims to look into the corporate entity of Farm Pride Foods Limited and aims to analyze the financial accounts and other aspects of the business entity.
The issue that has been presented in the question refers to the particular financial component of provisions and contingencies that have been disclosed in the books of accounts of the corporate entities. It has been stated in the financial report of the corporate entity that the provisions have been recognized at the time of the consolidated entity is having a constructive or a legal obligation. The financial component of provisions have been raised due to the past events due to which an outflow of the benefits that are economic in nature will come out and the outflow can be carried out in measurable terms. It must be noted here that the effect of the time value of money if material, then the discounts on the provisions are charged by utilizing a pre-tax rate that results in the reflection of the risks that are only applicable to the liability.
It must further be noted here that there has been no mention of contingencies in the books of accounts. This means that the annual report of the corporate entity consists of no such information in regards to the contingencies of the business entity (Barth 2013).
It has been mentioned in the annual report of the corporate entity that the recognition criteria that has been utilized by the administration of the business entity is the new accounting standard that has still not been issued in terms of operations of the corporate entity. It has been further mentioned in the books of accounts of the corporate entity of Farm Pride Foods that the firm has undertaken the adoption of the particular standard. Moreover, a detailed review of the obligations of the company that have been included in a number of contracts in regards to the performance of the company on the basis of the material revenue streams. Moreover, the assessment that has been conducted reveals the fact that the adoption of the process of recognition and measurement of the revenue by the Group. It has been further mentioned in the annual report of the corporate entity that the adoption of the new accounting standard will result in the increase in the volume of the financial disclosures.
It must be further noted here that the fixed assets of the firm like the property plant and equipment has been measured on the basis of the particular method of impairment and the other intangible assets like goodwill and related assets have been measured on the basis of the fair value method, impairment method or other related method. The financial component of provisions have been recognized with the help of the method of impairment (Barth, 2015).
Figure: Provisions
Source: (Mardini, Crawford and Power 2015)
It must be stated here that there has been no mention of a contingency recorder in the books of accounts of the corporate entity. This means that the administration of the business entity has not mentioned any contingency in the annual report of the firm. Therefore, the recording of the contingency cannot be stated.
It has been mentioned in the annual report of the corporate entity that the leases that have been disclosed in the financial report of the corporate entity shall be recorded on the basis of the new accounting standard that will be effective from the financial year of 2019. The particular accounting standard of AASB 16 that has been established by the Australian accounting Standards Board has been established for the purpose of designing the new leasing standard. The different components of the leases that have been included in the books of accounts are the operating leases, finance leases and the other leases that have been associated with the fixed assets and other equipment. It must be noted here that the property leases refer to the non-cancellable leases that vary within the terms of one to eleven years. It has also been mentioned in the accounting statements of the corporate entity that the leases that are related to property cannot be cancelled and should be paid in advance. Furthermore, it has been mentioned in the accounting report of the corporate entity that the rental provisions that have been contingent in nature under the agreements of the lease require the minimum amount in regards to the payments of the lease (Barth, 2015).
Figure: Leases
Source: (Mardini, Crawford and Power 2015)
It has been mentioned in the annual report of the corporate entity that the leases have been classified at their inception and have been categorized on the basis of operating or the finance leases. These leases have been based upon the economic substance in regards to the agreement for the purpose of reflecting the particular benefits and risks that have been incidental in regards to the aspect of ownership.
The component of finance leases refer to the leases that have been associated with the fixed assets. It has been further mentioned in the annual report of the corporate entity that the capitalization of the finance leases have been carried out and the recording of the liability and the asset of the corporate entity have been carried out on the basis of the present value in regards to the minimum amount of the payment of the leases. The expense in relation to the interests have been calculated on the basis of the rate of interest and have been included in the financial costs that have been included in the statement of the comprehensive income. It must be noted here that the depreciation on the leased assets have been carried out on a straight-line basis in regards to the useful lives that have been estimated (Newberry, 2015).
The component of the operating leases or the payments of the operating leases have been recognized on the basis of a straight-line method. The incentives in regards to the lease payments that have been received in regards to the operating leases have been recognized on the basis of a liability and has been amortized on the basis of the term over the lease.
A hypothetical situation in regards to the reclassification of the lease might be necessary when the particular situation that has been mentioned in the leasing contract needs to be changed or altered. Often there are times when the conditions or the terms of the contract is required to be changed for the purpose of mutual agreement between the two parties of the contract. This means that the alteration in the leasing contract can be carried out with the help of a change in the already prepared contract. Therefore, changes in the conditions will result in the changes in the leasing contract which will ultimately lead to the reclassification of the leased item. Moreover, changes in the particular accounting standard might also lead to the change in the reclassification of the leased item. This is because the terms of the contract will change which will further lead to the reclassification of the leased item. Thus, these are the situations in which a leased item needs to be reclassified (Newberry, 2015).
The particular non-current asset that has been included in the financial report of the corporate organization refers to the intangible asset of goodwill. The goodwill is an intangible asset that has been recognized by the particular method of impairment. The particular method that has been utilized by the firms is the method of impairment for the valuation and the recognition of the intangible asset.
There are other methods that might be utilized for the purpose of measuring the non-current asset. One of the potential method has been the fair valuation method. The fair value method can be utilized for the purpose of measuring recognizing the intangible asset. Moreover, the goodwill of the firm is mostly computed on the basis of the fair value method in most of the business entities (Newberry, 2015).
Figure: Non-current asset
Source: (Mardini, Crawford and Power 2015)
References and Bibliography
Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting Horizons, 28(2), pp.331-352.
Barth, M.E., 2015. Financial accounting research, practice, and financial accountability. prAbacus, 51(4), pp.499-510.
Chand, P., Patel, A. and White, M., 2015. Adopting international financial reporting standards for small and medium?sized enterprises. Australian Accounting Review, 25(2), pp.139-154.
Crawford, L. and Power, D.M., 2015. Perceptions of external auditors, preparers and users of financial statements about the adoption of IFRS 8. Journal of Applied Accounting Research, 16(1), pp.2-27.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Mardini, G.H., Crawford, L. and Power, D.M., 2015. Perceptions of external auditors, preparers and users of financial statements about the adoption of IFRS 8: Evidence from Jordan. Journal of Applied Accounting Research, 16(1), pp.2-27.
Newberry, S., 2015. Public sector accounting: shifting concepts of accountability. Public Money & Management, 35(5), pp.371-376.
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