Measurement of the Constituent of the Financial Statement - Assignment Example

Abstract The Framework for the Preparation and Presentation of Financial Statements was assumed by AASB in 2001. The framework concern the following objectives The goals of the financial statement The qualitative traits that establishes the importance of information in financial statement The meaning, recantation and assessment of the content from which financial statement are constructed Concept of capital and its management The framework therefore is concerned with the general purpose financial statement entailing the comprehensive financial statement. They are prepared as well as presented every year. Numerous corporations prepare their annual report by management that appraise as well as explains the key features of corporation’s financial situation as well as financial position and its challenges it encounters. They as well provide the sustainability compliance which ecological factors are important as well as when workers are considered as a significant user group. Measurement of the constituent of the financial statement The measurement is the progression of establishing the monetary value at which the constituent of the financial statement are to be realized as well as accounted for in the statement of financial position as well as the income statement (Barry J. Epstein, 2009). This entails the selection of the specific basis of measurement. Some of the diverse measurement basis that used in diverse magnitude and varying combination in financial statement are discussed in details below. A).Historical cost. Under this approach, asset is accounted for at the amount of cash paid or the fair value of the asset that need to be paid for at the date of acquisition. The liabilities are accounted for at the value of proceeds acknowledged in exchange for obligation at the value of cash anticipated to be paid to guarantee the liability in the usual course of trading. (b) Current cost. Under this approach, assets are accounted for at the value of cash that may be paid where the similar asset was bought presently. The liabilities are accounted for at the undiscounted value of cash that may be mandatory to settle the obligation at present. (c) Realizable (settlement) value. In this method, assets are accounted for at the value of cash that may presently be accessible by disposing the asset in a standard disposal. The liabilities are accounted for at their settlement worth, that is, the undiscounted value of cash anticipated to be paid to guarantee the liabilities in the standard course of trading. D. Present value Under this approach, the asset are accounted for at present discounted value of the anticipated net cash inflows that item is anticipated to create in the ordinary course of trading. The liabilities are accounted for at present discounted value of the anticipated net cash outflow that are anticipated to be mandatory to settle the debt in the ordinary course of doing business The measurement that is frequently assumed by corporations in preparing the comprehensive annual reports is the historical cost basis. This is normally combined with other measurements for instance; inventories are normally accounted at lower of cost and net realizable value. Some corporation employees the current cost basis as a retort to the incapacity of the historical cost basis in order to deal with impact of changing prices of non monetary item (Hennie van Greuning, 2001). B. Two publicly listed Australian companies from two different industries Introduction Paradise computing limited Paradise computing is a company that is registered in ASX. The business entails an assortment of venture. The annual report for paradise computing is prepared on an historical cost basis which is in compliance with Australian account ting standard board and the general accepted accounting principles. The requirement provides that a company that prepare its books of accounts on an historical cost basis should therefore account for their asset and liabilities in the followed g standards (Irene M. Wiecek, 2009). Accounting for Asset It can be observed that the annual report of paradise computing that venture in property is accounted for on an historical cost basis. The cost includes the purchase cost, transfer of equity due to gain or loss for proceeds on disposal of the qualifying asset like plant and equipment. The asset residual value and its useful life is evaluated and adjusted that is deem significant is accounted for in the financial statement in order to portrays a true and fair view of the company statement of financial position. The company’s financial disclosure for the financial year 20014/15 is superior and reliable for decision making this is in accordance to the financial reporting framework in compliance with the generally accepted accounting principle (GAAP) as well as the Australian Accounting Standard Board (AASB).The integrated financial report entails an comprehensive information together with the governance report which is deem appropriate by users of the financial report as well as the compliance of international financial reporting standards (IFRS). Accounting for Asset depreciation and impairment The Paradise limited uses the historical cost basis with straight-line method of depreciating its asset in order to appraise the written down value of its asset at the end of the financial period. Paradise computing therefore assumes the accounting policy in depreciating its. The property plant and equipment is depreciated using string line method which is applicable at present by the company (Krishna G. Palepu, 2007). It can be observed from the Paradise limited’s annual report that straight-line method of fixed asset depreciation is used. The company tested for goodwill impairment by appreciating the AASB 136 (Impairment of asset). The standard provides that the company appraised with the worth as well as the carrying amount inclusive of the goodwill, the surplus of the fair value from the book value calculates the fair value of the reporting unit. The company then calculates the value of goodwill impairment and realizes loss in the income statement as expense. This methodology is in compliance with the accepted accounting principles which are applicable with the global business operation and consequently the corporation performance in terms of asset net worth is comparable with other global world (Nick Antill, 2005). 2. Sky City Entertainment Group Sky City Entertainment Group is a New Zealand as well as Australian registered company in the stock exchange with a principal gaming and entertainment business activity. The center trade of Sky City Group is amusement and the casinos. Assessment of the Accounting policy adopted by the company The business assumes the historical cost basis in accounting for its asset with a straight-line of depreciating its asset in order to get the asset written down value at the end of the financial period. The business assumes the elasticity of accounting standards in accounting for its asset and depreciation method employed in when preparing financial statement on an historical cost basis. The sky city financial disclosure for the financial year 2014 is therefore is sufficient and reliable for investment decision making since, it is in compliance with the financial reporting framework in compliance with the generally accepted accounting principle (GAAP) as well as the internal accounting standard (IAS).The comprehensive financial statement entails an inclusive information combined with governance report which is deem significant by users of the reports and also the conformity of international financial reporting standards (IFRS). It can therefore be observed that both companies account there for the asset on an historical cost basis which provides that asset should be recorded at historical cost with an accumulated depreciation in order to derive net realizable value of the asset at the time of reporting (Peter Holgate, 2009). This is a requirement by the accounting standard and as a result, both businesses are in conformity with this study and thus the company financial position depicts a true and fair view of the business situation. C. the relationship between accounting information and market reaction with reference to the fair value The quality of accounting information is established by the capability to capture the realism concerning the financial position as well as performance of the business by tackling the concerned parties. The quality of accounting information in stock exchange depicted from the trustworthiness standpoint may be appraised by way of impact of the outcome in the financial statement on the market value of the business. Accounting information is important to entire shareholders of the company in order to make an informed investment decision. Detailing and providing accounting information is concern on controlling the power relation between the agent and the principal’s parties. The importance of accounting information as well as its impact on user’s verdict comes from the qualitative traits (Peter Holgate, 2009). As per the Conceptual framework of the international accounting g standard board (IASB0, the key qualitative traits of the accounting information focus on depicting significant for its key users as well as to express the true and fair view presentation obtained for the right use of the fair value accounting standards. The accomplishment of the requirement from the International Financial Reporting Standard (IFRS) accounting referential suggested by the IASB leads to the enhancement of the accounting information excellence because of the improved presentation of the financial position and performance. In this regards, there is a positive correlation between accounting information and the market reaction since, the users of the annual report will place more reliance in the accounting information provided to anticipate for the future stock price trend (Peter Holgate, 2009) Reference list accounting, I.a.A.p.c.t.l., 2015. Financial Accounting Standard Board. Barry J. Epstein, R.N.S.M.B., 2009. Wiley GAAP 2010: Interpretation and Application of Generally Accepted Accounting Principles. 6th ed. New york: John Wiley & Sons. BHATTACHARYYA, A.K., 2012. Essentials of Financial Accounting: BASED ON IFRS. Sydney: PHI Learning Pvt. Ltd., 2012. Bruce Mackenzie, ‎.C.‎.N., 2013. Wiley IFRS 2013: Interpretation and Application of. Hennie van Greuning, ‎.K., 2001. International Accounting Standards. Irene M. Wiecek, ‎.M.Y., 2009. IFRS Primer International GAAP Basics - Page 152. Krishna G. Palepu, ‎.M.H., 2007. Business Analysis and Valuation: Ifrs Edition. Kurt Ramin, ‎.R., 2013. IFRS and XBRL: How to improve Business Reporting. Nick Antill, ‎.L., 2005. Company Valuation Under IFRS: Interpreting and Forecastin. Opperman, 2009. Accounting Standards - Page 585. Peter Holgate, ‎.B., 2009. Accounting Principles for Non-Executive Directors. . Read More