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MA511 Financial Accounting & Reporting - Melbourne Institute of Technology

Learning Outcome 1: Describe and discuss the application and basis of selected IFRSs set by the IASB.

Learning Outcome 2: Apply IFRSs including the framework in the preparation of general purpose financial statements.

Learning Outcome 3: Design and develop an entity's accounting system to maintain financial information and facilitate the preparation of general purpose financial statements.

Learning Outcome 4: Compare, contrast and review financial accounting systems to ensure efficient and reliable financial accounting information.

Learning Outcome 5: Evaluate and appraise stock exchange listed entity's financial statements.

Learning Outcome 6: Develop and communicate solutions to ethical issues orally and in writing.

Assessment Task Description

Paragraph 2 of AASB 116 states that:
"This Standard shall be applied in accounting for property, plant and equipment except when another Standard requires or permits a different accounting treatment" (AASB 116, pp10). The International Accounting Standards Board (IASB) first issued this standard as IAS 16 in 1982 and amended on numerous occasions. Paragraph 1 of AASB postulates that AASB 116 standard applies to "general purpose financial statements of each other reporting entity" (AASB 116 pp9).

Leo et al, (2018) argue that at the point of initial recognition of an item of property, plant and equipment, the asset is measured at cost, which is the purchase price plus directly attributable costs and removal or restoration costs. After this initial recognition, an entity has a choice on the measurement basis to be adopted. AASB 116 paragraph 29 recognizes two possible measurement models; the cost model and revaluation model.

Furthermore, paragraph 31 of AASB 116 states that:
"After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period" (AASB 116 pp19).

Leo et al (2018) also state that General Purpose Financial Statements and notes published by reporting entities must disclose a true and fair view of the financial position and performance of the company in accordance with the Corporations Act 2001. Henderson et al (2017) argue that true and fair view needs to be looked at from the ethical point of view, because most of the company accountants are the members of the Accountants professional and ethical standard board and they are bound to comply with APESB's ethical standards.

Further, widely used historical cost has been subject to many criticisms. Some empirical research argues that the reliability of historical cost may be illusory (McDonald, 1968; Barlev & Haddad 2007; Alexander, 1993) and does not support the true and fair view of entities financial position and performance. On the other hand extant research also argues that fair value measurement have underlined the significant lack of reliability (Kaya, 2013; Ijiri & Noel, 1984; Christensen, & Nikolaev, 2013).

Required:
With reference to above requirements/arguments, critically examine what measurement model of PPE you would consider, when preparing the statement of financial position, to provide the true and fair view of the financial position of the entity.

In your report:

1. Explain the recognition criteria for property, plant and equipment

2. Explain choices of measurement model exist subsequent to assets initially recognized and factors that should entities consider in choosing alternative measurement models.

3. Under the revaluation model, how is a revaluation increase and decrease accounted for. Explain.

4. Identify and explain some of the perceived strengths and shortcomings of the above two models with the arguments that are usually advanced to support each measurement model of PPE.

5. Critically examine which model meets the requirements of "True and Fair view" that needs to be looked at from the ethical point of view.

6. Select one of the top 50 listed companies' financial statements and examine which measurement model used to account for PPE.

7. In your opinion, is a cost model of PPE preferable to a revaluation model of PPE or vice versa?

Attachment:- Financial Accounting.rar