Question

Theoretical Discussion - Asset Measurement

There has been a general tred for accounting standard setters to issue accounting standards that measure assest at 'fair value'. Other valuation approaches including cosy, net realizable value and present value are also required for particular classes of assests and liabilities as stipulated by particular accounting standards. Thus, we have a 'mixed approach' in measuring a company's financial performance and finanical position in Australia.

In light of the above statement, you are required to:

1. Briefly explain the various measurement models mentioned (max. 150 words).

2. Describe two accounting standards that utilize the fair value valuation model (mx. 100 words).

3. From the Australia Security Exchange (ASX) website, select two companies' 2017 annual reports. Identify valution model/s adopted by these companies in measuring their non-current asses (note: please focus on tangible non-current assets rather than intangibles or financial assets) and comment on whether the adoped valuation model/s enchances the information usefulness for the various users of the annual reports, by referring to the qualitative characteristics of financial information defined by the AASB Framework (max. 750 words).

Answer 1

1)

a)Fair value model: This model requires all the assets and liabilities to be revalued at fair value at the end of every financial year. This helps in ascertaining the exact position of the business on the B/S Date.

b)Cost-Approach Model: According to this model the assets and liabilities are presented at cost price on which they were acquired. This model is based on historical cost concept.

c) NRV Method: Net Realisable value refers to the value which one can receive in the market by selling the asset net of all the expenses that will occur for selling it. The NRV approach measures the B/S on NRV value of each asset.

d) Present value approach: According to this method the value is determined in today's terms. Discounting factor plays the major role.

2) AS-10 Accounting for Fixed assets: After recognition of an asset, those assets are revalued whose Fair value are available at the date of revaluation.This AS follows the Fair value approach for measuring the fixed assets.

Ind AS 113- Fair Value Measurement.