Determining Carrying Value Of Property, Plant And Equipment, Fair Value, And Accounting Errors

Question 1

The AASB 16 “Property, Plant and Equipment” deals with the accounting of the property, plant and equipment and provides detailed explanation of the accounting treatment. In accordance to the AASB 16 the cost of the Property or the Plant is measured and depreciated either by cost or revaluation model to distribute the actual value of the asset over the functional useful life of the assets (Bird et al., 2017,p. 150-166).

The Para 6 of AASB 16 defines carrying amount of an asset as the amount that is determined after recognising accumulated depreciation and the accumulated loss on impairment. The accumulated depreciation is measure as the summation of all the depreciation that is being provided on a particular asset or group of asset. The business or entity can either use the cost model or revaluation model as the accounting policy for valuing property, plant and equipment.

The Para 30 of standard states that as per cost model the carrying value of an assets is determined after deducting accumulated depreciation from the carrying value of an assets (Doxey et al., 2015). This technique is called as the cost technique as the original cost used to determine the actual present value of the asset.

Answer to Question 2

            The Para 6 of the AASB 16 defines fair value of an asset as price that can be received on the transfer or sales of the assets between the participant in the market. In the accounting procedure the fair value concept is use to display the actual value of the assets. Whenever a new plant, property, or any asset is, acquire by an entity with the intention to use in the production or consumption the value of that particular asset decrease due to the usage and general wear and tear (Vera-Muñoz, 2015, p.77-80). Therefore, the overall value of the asset decreased. The fair value is the depreciated or current value of that asset. In possible cases, the fair value may be equal to the depreciated amount, but it is not necessary to be. The fair value is the price a particular asset that the owner will get from the sale of it.

Answer to question 3:

             In the given journal, the accountant has not followed the accounting methods. The accountant makes wrong calculation of depreciation and the profit on revaluation. The first journal entry is made for recognising additional depreciation by debiting revaluation loss and transferring accumulated depreciation (Parker & Fleischman, 2017). In the second journal entry the loss on revaluation loss is recognised in the statement of comprehensive income as per accounting standard.

             In the given case the accountant has not followed the actual accounting procedure. The asset is depreciated from 240000 by 10 percent of the cost of $300000 on straight-line basis. Then the actual caring amount comes to $210000 but the value determined of the asset is $225000. The fair vale less disposal is considered here. However, the fair value is deducted from the opening amount of the asset not from the determined value. The accountant booked double loss in the books.

            In this portion, the asset is again revalued on July 1 2017, at $240000. The accounting procedure are.

Reference

Bird, A., Edwards, A., & Shevlin, T. (2017). We examine whether the Public Company Accounting Oversight Board (PCAOB) international inspection program improves audit quality for a sample of non-US-listed foreign public client companies from 55 countries audited by foreign (ie, non-US) auditors. For a sample of non-US-listed clients of PCAOB-registered foreign auditors, we find that initial PCAOB inspections improve audit quality, over and..

Doxey, M. M., Geiger, M. A., Hackenbrack, K. E., & Stein, S. E. (2015). Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2015-004, Supplemental Request for Comment: Rules to Require Disclosure of Certain Audit Participants on a New PCAOB Form: Participating Committee Members. Current Issues in Auditing, 10(1), C1-C10.

Gimbar, C., Hansen, B., & Ozlanski, M. E. (2015). Early evidence on the effects of critical audit matters on auditor liability. Current Issues in Auditing, 10(1), A24-A33. 

Parker, L. D., & Fleischman, R. K. (2017). What is Past is Prologue: Cost Accounting in the British Industrial Revolution, 1760-1850. Routledge.

Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues, concepts and practice. 

Vera-Muñoz, S. C. (2015). Commentary on “The effect of an audit judgment rule on audit committee members’ professional skepticism: The case of accounting estimates”(Kang, Trotman, and Trotman). Accounting, Organizations and Society, 46, 77-80.

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