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Question - Riley Ltd is a medium-sized public company which operates within the manufacturing sector. The assets include a large number of non-current assets such as Plant and Machinery items. The CFO currently prepares the annual financial statements using the Cost model however is considering changing to the Revaluation (fair value) method.
In order to assist with the CFO's decision, he needs to know the impact that this change will have on the financial statements and reports. The company is in its growth stage and wants to continue attracting new investors with its impressive financial results.
Required - Discuss the differences between the Cost model and the Revaluation model. In particular, highlight the different impact each model will have on the financial statements. Discuss the effect on each financial statement individually; Balance sheet, Statement of Changes in Equity and Income statement. Also, consider any effects on financial analysis and the cost of implementing each model. Each point of discussion needs to address the differences and whether it will encourage new investors to Riley Ltd.
Provide a recommendation in your conclusion as to which model you suggest Riley Ltd to follow given the company's current strategy of new investment.
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