Essays on IAS 16 - Financial Accounting Essay

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Executive SummaryThe report presents the way IAS 16 is being used by business units and the way it will help business units value their assets. The report presents the scope IAS 16 has for business units. It also presents the how the non current assets value will be found, situations when the assets need to be treated as long term, the treatment relating to deficiencies and surplus and impairmentThe report thus shows the way it will help business value their assets correctly which will act as a guide and help the users of financial statement to ascertain the value of the organisation correctly. ObjectiveIAS 16 deals with matters relating to the “treatment of assets, especially plant and equipment and property”.

(Deloitte, 2010) It tries to explain how the non current assets value will be found, situations when the assets need to be treated as long term, the treatment relating to deficiencies and surplus and impairment. This thus helps to “ascertain the correct value of the assets that will help the user of the financial statement gauge the correct value of the enterprises”.

(Deloitte, 2010)ScopeThe usefulness of IAS 16 has rapidly grown over time. Still there are certain areas where IAS 16 is not used. They are as follows“Assets which are procured to be sold again” (Putra, 2009) specifying the fact that the business trades in those and need to be treated as stock or current assetsExploration assets (Putra, 2009)Assets related to “agricultural field and being biological in nature” (Putra, 2009)Assets which are held as “mineral mines and reserves like coal, petroleum products etc” (Putra, 2009)RecognitionBusiness units need to recognize and classify those assets as long term in nature and being capital assets if they meet the following criteriaThe assets will help to “generate income in the future and that benefit will flow to the entity” (Issac, 2004)The “cost associated with the asset can be measured accurately”.

(Issac, 2004)It is important that when cost is ascertained all the cost like fitting of plant, transportation and labour should be included in the cost. In relation to the depreciation it should be ensured that “all parts which have value should be depreciated separately based on the useful life of the assets”.

(IAS, 2007) Also, some parts need to be replaced regularly and the value for those should be ascertained in the cost. Initial MeasurementAfter determining the assets as current or capital it is important that the initial measurement of the value of asset is correct. For this steps should be taken to ensure that “all cost associated with the assets are included to bring the asset in working condition including the interest cost if paid in instalments”. (Graf, 2009) This will help to ascertain the correct value of the assets. Measurement subsequent to initial measurementIAS 16 provides business units with two methods that can be sued to ascertain the fair value.

It depends on the business unit to identify one and mostly it is seen that business take up those models followed in the industry so that comparison becomes easy. The methods are as follows

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