Valuation premise for measurement of fair value
The highest valuation of the premises is mainly identified, if the plot is used for residential purposes. The residential valuation directly includes only the plot value and excludes the value of factory. Therefore, the demolition cost for the factory is estimated to be $100,000, which directly helps in reducing the overall value of the land from $1,000,000 to $900,000. The overall value of the plot is identified to be $900,000 under the residential valuation. However, the second valuation technique that could be used for identifying the value of a plot includes the factory outlet, where relevant cost of around $780,000 will be included for setting up new factory. However, the existing factory plant if used will only cost around $390,000 for the factory work. There are many other low budget plots in which the factory could be built for reducing cost of factory. The evaluation of the overall land for residential purposes is relatively higher and could directly allow the company to generate high return from investment (Abbott Tan?Kantor, 2017).
The overall case directly indicates that selling the land for residential purpose could directly provide higher returns from investment Maple Ltd.
From the evaluation it could be identified that there are two different types of valuation that needs to be conducted identifying the actual value of the asset. The first valuation needs to be conducted for the overall plot and the second valuation is to be conducted on the factory (Malone, Tarca Wee, 2016). However, the overall is it could also be valued as a single unit for deriving the actual value of the plot and actually.
Two different types of approaches are used for evaluating the fair value of the land, which is determined under the residential purposes as $900,000. The highest value of the land needs to be identified, which could directly allow the organisation to generate higher returns from investment. The first valuation is mainly conducted for only the plot, where no inclusion is conducted on factory outlet. Furthermore, the second valuation is conducted on the factory outlet, which is for industrial purposes. The second valuation does not provide the adequate returns, as the first valuation of residential plots. Therefore, the use of the plot for residential purpose could directly allow the organisation to generate higher returns from investment (Wang, 2016).
|
1st July 2016 |
Machine A…………………………………………………..Dr Machine B…………………………………………………..Dr Cash………………………………………………..Cr |
100,000 60,000 |
160,000 |
|
30th June 2017 |
Depreciation-Machine A…………………………………………Dr Accumulated Depreciation……………………….Cr (1/5 * $100,000 = $20,000) |
20,000 |
20,000 |
|
Depreciation-Machine B…………………………………………Dr Accumulated Depreciation………………………..Cr (1/3 * $60,000 = $20,000) |
20,000 |
20,000 |
|
|
Accumulated Depreciation Machine A……………………..Dr Machine A……………………………………………Cr (being writing down the carrying amount) |
20,000 |
20,000 |
|
|
Machine A………………………………………………………..Dr Gain on revaluation of Machine A (OCI)……..Cr (being revaluation of increment $80,000 to $84,000) |
4,000 |
4,000 |
|
|
Gain on revaluation of Machine A (OCI)……………………Dr Asset revaluation surplus Machine A…………..Cr (being increase in net revaluation gain in equity) |
4,000 |
4,000 |
|
|
Accumulated Depreciation Machine B……………………..Dr Machine B……………………………………………Cr (being writing down the carrying amount) |
20,000 |
20,000 |
|
|
Loss on revaluation-Machine B………………………………Dr Machine B……………………………………………Cr (being revaluation to fair value at 30-06-17) |
2,000 |
2,000 |
|
1st January 2018 |
Machine C…………………………………………………………Dr Cash………………………………………………………Cr (being acquisition of machine C) |
80,000 |
80,000 |
|
Depreciation expense-Machine B……………………………Dr Accumulated Depreciation……………………….Cr (1/2 * 1/2 * $38,000 = $9,500) |
9,500 |
9,500 |
|
|
Cash………………………………………………………………..Dr Proceeds from sale of Machine B………………..Cr (being received cash flow sale of Machine B) |
29,000 |
29,000 |
|
|
Carrying amount of Machine B Sold………………………..Dr Accumulated Depreciation Machine B………………………Dr Machine B…………………………………………..Cr (being carrying amount of machine sold) |
28,500 9,500 |
38,000 |
|
|
General reserves………………………………………………….Dr Asset revaluation surplus Machine A……………………….Dr Share capital…………………………………………..Cr (being increase in value of machine A) |
8,000 2,000 |
10,000 |
|
30th June 2018 |
Depreciation-Machine A…………………………………………Dr Accumulated Depreciation……………………….Cr (1/4 * $84,000 = $21,000) |
21,000 |
21,000 |
|
Depreciation-Machine C…………………………………………Dr Accumulated Depreciation………………………..Cr (1/4 * 1/2 * $80,000 = $10,000) |
10,000 |
10,000 |
|
|
Accumulated Depreciation Machine A……………………..Dr Machine A……………………………………………Cr (being writing down the carrying amount) |
21,000 |
21,000 |
|
|
Loss on revaluation-Machine A (OCI)……………………….Dr Machine A……………………………………………Cr (being witting down the plant from $63,000 to $61,000) |
2,000 |
2,000 |
|
|
Asset revaluation surplus Machine A……………………Dr Loss on revaluation of Machine A (OCI)……..Cr (being decrease in net revaluation loss in equity) |
2,000 |
2,000 |
|
|
Accumulated Depreciation Machine C……………………..Dr Machine C……………………………………………Cr (being writing down the carrying amount) |
10,000 |
10,000 |
|
|
Loss on revaluation-Machine C………………………………Dr Machine C……………………………………………Cr (being revaluation to fair value at 30-06-18) |
1,500 |
1,500 |
AASB 138/IAS 38 directly depicts the relevant accounting treatment and measures that could be used by organisations for the intangible assets in the annual report. The section directly helps in identifying the relevant presentation, recognising method, measurement, and disclosure of intangible assets that needs to be used by organisations. Furthermore, AASB 138/IAS 38 Also states that the intangible assets will have no physical form, while relevant monetary future benefits needs to be provided from the asset. The relevant recognition methods depicted in AASB 138/IAS 38 could eventually allow the organisation to formulate a annual report (Russell, 2017).
There are two different types of valuation that could be conducted for intangible assets, as depicted in AASB 138/IAS 38, which directly portrays cost and revaluation method. Only one of the methods can be used by the organisation for the valuation of intangible assets in the overall annual report. Moreover, the disclosures conducted for amortization rates, reconciliation of carrying amount, and gross carrying value needs to be provided for each period (Carvalho, Rodrigues Ferreira, 2016).
The relevant difference between generated intangible and acquired intangibles can be identified from AASB 138/IAS 38, which are depicted as follow.
- According to the paragraph 63, acquired intangible assets are not allowed to be recognised as internal is generated intangible assets of an organisation.
- After the recognition of the overall intangible assets the following treatment for both acquired and internally generated intangible assets are relatively same.
- The acquired intangible assets can be used for data mining fair value of intangible assets in the overall annual report of an organisation.
- Relevant recognition method can be used identifying the value of acquired intangible assets, whereas it is difficult to use a method for internally generated intangible assets. The use of acquired intangible assets directly helps the organisation to detect market transaction, which could be used as the fair value in the annual report (Ramachandra, 2017).
From the valuation it would be identified that there are relevant restriction the limitations that is imposed by AASB 138/IAS 38 on overall organisations. The management of the organisations are relevantly concerned about the implication of AASB 138/IAS 38 on the annual report. The management directly aims in inflating the future profits which could help in luring in more investors. The overall restriction that is been imposed on organisation by AASB 138/IAS 38 are depicted as follows.
- In paragraph 63 there is relevant instructions regarding intangible assets recognition method as internally generated publishing titles, customer list, mastheads, and brand is restricted from being listed in the intangible assets criteria.
- The paragraph 57 directly states that internally generated intangible assets valuation does not allow upper limit of capitalisation.
- Relevant limitations are also imposed on identifying or defining the intangible assets, as reputation, labour relations, customer relationship, and human resource are not considered to be intangible assets that could be listed by the organisation in the annual report.
- AASB 138/IAS 38 directly indicates the overall intangible assets can be valued under the revaluation method which could help in identifying the fair value conditions of an asset (gov.au, 2017).
|
Particulars |
Amount |
|
PV of the defined benefit obligation as of 31 December, 2016 |
$23,000,000 |
|
Fair value of plan assets as of 31 December, 2016 |
$20,130,000 |
|
Deficit fund as of 31 December, 2016 |
$2,870,000 |
$2,870,000 is mainly identified as the net defined liability and deficit fund of Wattle as of 31st December 2016.
From the overall calculations the net interest that is been recorded in the books is $300,000 for 31st December 2016.
|
Particulars |
Amount |
|
Interest income components |
$19,000,000 * 10% |
|
Interest income components (A) |
$1,900,000 |
|
Defined benefit obligation |
$20,000,000 |
|
Past service cost |
$22,000,000 * 10% |
|
Past service cost (B) |
$2,200,000 |
|
Interest (C = B – A) |
$2,200,000 $1,900,000 |
|
Interest |
$300,000 |
|
Particulars |
Net Defined benefit liability |
Defined benefit obligations |
Plan assets |
|
Balance 1/1/16 |
1,000,000 |
20,000,000 |
19,000,000 |
|
Past service cost |
2,000,000 |
||
|
Revised balance |
22,000,000 |
19,000,000 |
|
|
Interest |
2,200,000 |
1,900,000 |
|
|
Current service cost |
800,000 |
||
|
Benefit paid by fund |
(2,100,000) |
(2,100,000) |
|
|
Contribution received by fund |
1,000,000 |
||
|
return on plan interest recognised |
330,000 |
||
|
Accrual loss |
100,000 |
||
|
balance as of 31-12-16 |
2,870,000 |
23,000,000 |
20,130,000 |
|
Workings |
Amount |
Amount |
|
Fair value |
20,130,000 |
|
|
Less:- |
||
|
Opening balance |
19,000,000 |
|
|
Interest income |
1,900,000 |
|
|
Benefit paid |
(2,100,000) |
|
|
Contribution received |
1,000,000 |
19,800,000 |
|
Return on plan asset |
330,000 |
|
30-12-2016 |
Superannuation expense…………………………………Dr Superannuation income (OCI)………….Cr Bank……………………………………………Cr Net Superannuation liability………………Cr (being superannuation expense and contribution for the year) |
3,100,000 |
230,000 1,000,000 1,870,000 |
|
Workings |
Profit or Loss |
Other comprehensive income |
Bank |
Net DBL (A) |
|
Balance 1 Jan 2016 |
1,000,000 Cr |
|||
|
Past service cost |
2,000,000 Dr |
|||
|
service cost |
800,000 Dr |
|||
|
net interest |
300,000 Dr |
|||
|
gain on plan assets |
330,000 Cr |
|||
|
contribution paid to the fund |
1,000,000 Cr |
|||
|
Actuarial loss on DBO |
100,000 Dr |
|||
|
Journal entry |
3,100,000 Dr |
230,000 Cr |
1,000,000 Cr |
1,870,000 Cr |
|
Balance 31 Dec 2016 |
2,870,000 Cr |
Reference and Bibliography:
Aasb.gov.au. (2017). Aasb.gov.au. Retrieved 30 September 2017, from https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf
Abbott, M., Tan?Kantor, A. (2017). Fair Value Measurement and Mandated Accounting Changes: The Case of the Victorian Rail Track Corporation. Australian Accounting Review.
Carvalho, C., Rodrigues, A. M., Ferreira, C. (2016). The Recognition of Goodwill and Other Intangible Assets in Business Combinations The Portuguese Case. Australian Accounting Review, 26(1), 4-20.
Malone, L., Tarca, A., Wee, M. (2016). IFRS non?GAAP earnings disclosures and fair value measurement. Accounting Finance, 56(1), 59-97.
Ramachandra, S. (2017). Does NZ IFRS 38 Impact Equity Values and Borrowing Capabilities? Evidence from New Zealand. Asian Journal of Business and Accounting, 4(2).
Russell, M. (2017). Management incentives to recognise intangible assets. Accounting Finance, 57(S1), 211-234.
Wang, S. (2016). Discussion of Unrealised earnings, dividends and reporting aggressiveness: an examination of firms behavior in the era of fair value accounting’. Accounting Finance, 56(1), 251-257.
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