Accounting Treatment For TDM Ltd: AASB Conceptual Framework

Assets under the AASB Conceptual Framework

It is important to understand the fact that assets define as an economic resource that is determined by business entity due to previous events (ViscarraRossel et al., 2014). It is clearly mentioned in the framework for preparing and presenting the financial statements in the Para 89, that explains than business entity help in recognizing the assets that are presented in the balance sheet if it is probable where the entity will be able to get future economic benefits.

Addition to that, it is essential to record assets that include cost or valuation of assets of business entity that need to be measured on accurate terms. It is for this reason why photographs of the company founders as well as original building fail to suffice the definition or recognizing the asset criteria by any chance. It is not possible or expected that the future economic benefits have the potential to flow in the enterprise from the photograph. In that case, it can be stated that photograph should not be recognized in the financial statements as an asset (Rahman, 2013).  

As mentioned in the Para 49 of the Conceptual Framework, liability defines as the present obligation of the company that arises from the previous events. Further, in the Para 91 of the Conceptual Framework, there was clear mention of liability that need to be determined in the balance sheet that is possible where the outflow of economic resources is needed for settling in an obligations (Palmer, 2013).

It is noted that amount need to be determined where the liability should be reliably measured. In addition, the legal advice state involves the state that it is probable where the company had lost the case. In the Para 10 of the AASB 137, there was clear mention of the contingent liability that is considered as possible obligation that arises from previous events. In that case, there is existence present that need to be confirmed by the future events that is under the control of the business entity. In addition, in this case, the loss is probable but not significant and comes under the heading contingent liability where the probable liability cannot be disclosed in the notes to accounts in any case (Jorissen et al., 2014).

It is important to consider the fact that legal advice suggests that it is credible that the business will be winning the case. In addition, it is not a liability that does not fulfill the definition or recognition criteria of liability that has been recognized in the conceptual framework. Therefore, the situation cannot be a part of contingent liability due to the legal advice as it recommends there is no probable obligation of any sort. Hence, it can be stated that there is no treatment that can be shown in the financial statement that is needed in the case (Henderson et al, 2015).

It was clearly mentioned in the Para 92 of the framework where the income should be determined if there is an increase in the future economic benefit or decrease in the liability as a whole. In addition, there was even mention in the Para 94 of the framework that explains that expenses should be determined when there is decrease in the economic benefit or increase in the liability at the same time.

Liabilities under the AASB Conceptual Framework

It is the conceptual framework that offers disposal of obsolete plant as well as equipment and state that these should be recorded in the financial statement. In this, asset should be credited as well as bank account should be debited. In that case, if the amount received on the sale of assets is more than the book value of the assets, then the income can be easily determined. Therefore, the disposal amount is less than the book value of the assets then the loss should be treated as expenses (Gipper, Lombardi & Skinner, 2013).

It was clearly mentioned in the conceptual framework that helps in providing recognition of donation that depends upon the nature as well as type of donation. In addition, it is recommended that if the donations are of capital nature that it needs to be recorded in the financial position statement. Therefore, if the donation received is of revenue nature then it needs to be treated in the income statement (Downie & Stubbs, 2013).

• It is the case when component approach for depreciation is applied when fixed assets can be classified into separate identifiable units. It is necessary to consider the cost as well as useful life of the separate unit that are measure on reliable terms for applying the given method. On the other hand, the simple method of depreciation is the cost of the entire asset that is depreciated over the useful life of the assets. To that, the component approach of depreciation is used for application as there is a different component of the airplane that is easily identifiable as well as useful life of the elements as there are different by nature. It is necessary to use simple depreciation method for calculating the cost of airplane for specific period of ten years that will not reflect upon the correct amount of depreciation. Hence, it will be beneficial for using component method of depreciation for depreciating the cost of airplane (Deegan, 2013).
• It was clear mention in the Para 29 of the AASB 116 that explains business entity has the ability to measure the asset recognition through application of revaluation model or in that case cost model. In addition, in the Para 30 of the standard states, it was noted that in the code model, it takes into account assets that need to be measured at cost after deducting accumulated depreciation on impairment. In addition, one of the benefits of using this model is that implementation of model that is comparatively easier to use and has less cost at the same time. It was clearly highlighted in the Para 31 that explains that an asset should be determined at far value when the assets are measured on reliable terms. One of the benefits of using this model is the assets that are present in the financial statements that are presented at fair value. Hence, the aircraft is a class of asset that explains the fact when component is revaluated then the overall class of assets avoids selective revaluation. Therefore, the most relevant method for recognizing the cost of aircraft as well as components is cost model (de Villiers, Rinaldi & Unerman, 2014).
• It is clearly mentioned in the Para 60 of the AASB 116 that explains the selected depreciation method by the business should be able to reflect upon the future economic benefits that is derived from organization under the heading asset. Hence, the basis for making the selection of method of depreciation depends majorly upon the expected benefits from the assets at the same time.

Aircraft Body

It is noted that the inspection cost of aircraft body need to be determined or recorded as expenses (Biondi & Lapsley, 2014). In addition, it need to be recorded as expenses as it has no added value or increased in the useful life of an asset.

Engines

It is noted that the expenses of $300000 has been incurred as an annual maintenance cost that need to be determined as an expense. In addition, the expense of $1 million needs to be mentioned or used for upgrading the engines that should be further capitalized. Therefore, the amount that needs to be capitalized need to be include as it increase the life as well as usefulness of the engine (Benson et al., 2015).

Fittings

It is noted that the replacement cost of the seats need to be capitalized where the repair of torn seats should be recorded as expenses. Further, the cleaning costs need to be treated as expenses. It is the repairing for electrical component that need to be recorded as expenses. Therefore, the testing off cockpit equipment need to be treated as expenses

In addition, the upgrading cost needs to be capitalized when it improves over the usefulness as well as life of the asset as a whole.

Food Preparation Equipment

It is noted that repair as well as maintenance cost of food preparation equipment need to be treated as expenses.

Aircraft Body

Engines

Fittings

Food Preparation Equipment

Total Expenses

It was clearly mentioned in the Para 10 of the AASB 138, it explains that a non- non-monetary exacting asset with no any physical matter is termed intangible assets. The Brands falls within the meaning of intangible assets. Consequently, the accounting treatment of brands is conduct in agreement with AASB 138.The Para 21 of the average states that intangible asset is recognized if it is credible that the future financial benefit arising from the assets will flow to the unit.

In adding to this, the intangible assets should be evidence if the amount can be estimated dependably. The first dimension of intangible assets should be at cost as per Para 24 of the AASB 138. Though, it should be noted that within generate brand name should not be recognized in the financial declaration as per Para 63 of the customary. The effectual life of the brand name is not assumed to be imprecise so there is require for paying back of product names (Aiken, Lu & Ji, 2013).

It was recognized that all the brand names as well as formulas are not possible to mention in the AASB 138 where there is internally generated brand name present that need to be recognized as and when required. It was not possible to determine the cost that is incurred for generation of brand names. There was problem with the standard setting bodies that allows all the brand names or formulas to be determined as mentioned in the financial statements.

It was clearly mentioned in the Para 10 of AASB 137 that explains the fact where liability is considered as a present obligation that arises from previous events. It is all about the settlement of the obligation that need proper outflow of resources. It was the liability that was of uncertain amount as well as recognized based on timing under the heading provisions. It is the contingent liability that is possible obligation where they are dependent upon the future event that is beyond the control of the entity.

• It is provision for long service leave that is considered as a present obligation where it need to settle down the long service leave obligations to control over the outflow of resources that explains the economic benefits to the society as a whole.
• It was clear mention in the Para 10 of AASB 138 that liability is a present obligation that arises from previous events. Therefore, it can be stated that dividend payable need to treated as liability.
• The preference share capital symbolizes the amount that is required to be paid to preference shareholders. This is a current obligation and requires resources embodying financial benefits to settle this obligation. Consequently, the preference share capital should be recognized as a liability.

Reference List

Aiken, M., Lu, W., &Ji, X. D. (2013). The new accounting standard in China. Perspectives on Accounting and Finance in China (RLE Accounting), 8, 159.

Benson, K., Clarkson, P. M., Smith, T., &Tutticci, I. (2015). A review of accounting research in the Asia Pacific region. Australian Journal of Management, 40(1), 36-88.

Biondi, L., &Lapsley, I. (2014). Accounting, transparency and governance: the heritage assets problem. Qualitative Research in Accounting & Management, 11(2), 146-164.

de Villiers, C., Rinaldi, L., &Unerman, J. (2014). Integrated Reporting: Insights, gaps and an agenda for future research. Accounting, Auditing & Accountability Journal, 27(7), 1042-1067.

Deegan, C. (2013). The accountant will have a central role in saving the planet… really? A reflection on ‘green accounting and green eyeshades twenty years later’. Critical Perspectives on Accounting, 24(6), 448-458.

Downie, J., & Stubbs, W. (2013). Evaluation of Australian companies’ scope 3 greenhouse gas emissions assessments. Journal of Cleaner Production, 56, 156-163.

Gipper, B., Lombardi, B. J., & Skinner, D. J. (2013). The politics of accounting standard-setting: A review of empirical research. Australian Journal of Management, 38(3), 523-551.

Henderson, S., Peirson, G., Herbohn, K., &Howieson, B. (2015). Issues in financial accounting. Pearson Higher Education AU.

Jorissen, A., Lybaert, N., Orens, R., & van der Tas, L. (2014). Constituents’ Participation in the IASC/IASB’s due Process of International Accounting Standard Setting: A Longitudinal Analysis. In Accounting and Regulation (pp. 79-110). Springer New York.

Palmer, P. D. (2013). Exploring attitudes to financial reporting in the Australian not?for?profit sector. Accounting & Finance, 53(1), 217-241.

Rahman, A. R. (2013). The Australian Accounting Standards Review Board (RLE Accounting): The Establishment of Its Participative Review Process. Routledge.

ViscarraRossel, R. A., Webster, R., Bui, E. N., &Baldock, J. A. (2014). Baseline map of organic carbon in Australian soil to support national carbon accounting and monitoring under climate change. Global Change Biology, 20(9), 2953-2970.

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