Kakadu: Mining vs Intangible Values - Assignment Example

Kakadu: Mining Vs Intangible values Name Course Tutor Date Kakadu: Mining Vs Intangible values Introduction This article is all about a national park in Australia called Kakadu, which has both the intangible values and the mineral deposits. Controversy rose on whether to exploits these precious minerals deposits such as Uranium for national gain or preserve the natural setting of the Kakadu for its heritage values that have even enabled it to be listed on the top world heritage sites (Aplin, G 2004). Kakadu national park has a various kinds of assets; assets in accounting are economic resources. Assets are divided into tangible, intangible and heritage assets. Tangible assets are those assets considered the goods of material nature and they can be perceived by senses. This means that tangible assets have a physical existence and they give the holders of the set of financial rights over them. For example, some of the tangible assets found in the Kakadu are; land, mineral deposits, trees, rivers, floodplains, mangroves, mudflats and mineral deposits such as uranium Aplin, G (2004). Moreover, Kakadu has a variety of wildlife such as birds, reptiles and many species of mammals. All these are called tangible assets because they exist and can be seen, they also have financial values to the nation. Intangible assets in accounting are those goods that lack physical substance and they are usually hard to evaluate, however, they provide value to the firm. In most cases, intangible assets are attached to how nature has endowed a particular organization or region over the other (Barth &Clinch, 1998:1). It is easy to acquire tangible assets but very hard to acquire the intangible assets. Thus, the intangible assets are associated with the gifts of nature, in other words, how nature poses the advantage to a particular region or organization over its competitor (Garger, 2010:1). Examples of intangible assets that are found in Kakadu national park are; archaeological sites, wildlife, physical features, the strategic location of the Kakadu and heritage values. Heritage assets are those goods that have value due to their contribution to the society’s knowledge and culture. These kinds of assets can be both physical and non-physical in nature. Sometimes, the social and spiritual values are termed to be heritage assets .Heritage assets are always described as inalienable because the holder of such kinds of assets cannot sell them out or dispose them. In addition, heritage assets are those that are unique for the following reasons; first, their historical; nature, cultural artistic or education importance and their architectural characteristics. Generally, heritage assets have to be preserved definitely for their unique characteristics (Fasab.gov 2005:1) Some of the heritage assets that are found in Kakadu national park are aboriginal arts such rock carvings and cave paintings that have been existed for thousands of years. Unique species of wild life such as poisonous snakes a variety of birds’ species and a variety of tree species that have medicinal values. Each of the elements of the financial statements has got a standard definition according to the conceptual framework. The conceptual framework definition of the word asset is that assets are future economic benefits controlled by the firm because of the past transactions or past events (Hhkicpa.org.hk, 2010:1). In this definition, the main criteria considered in identifying an asset are; when it is probable that the future economic benefits will eventuate. In addition to this, a good qualifies to be an asset, when it poses a cost or other measurable value. In Kakadu, we have seen that it has numerous assets, but according to the conceptual framework of the definition of the word asset, few of these assets qualify to be assets. Some of the examples of those assets that qualify are; Uranium mineral deposits water and forests. The uranium deposits qualify to be an asset according to the conceptual framework because it has a future economic benefit since from the past transaction; the deposits have been exploited and found that it can bring many benefits to the nation as a whole. (Hhkicpa.org.hk, 2010:1). Moreover, the uranium deposits bear the cost of measurable value. Expert can easily estimate the value of the deposits in case it can be exploited. For example, from the article, w find that studies were done to determine the value of the deposits as compared to the value of the conservative estimate of the benefits of preserving the conservation zone. It was found that the benefits accrued from the conservation could add up to $435 million while the benefits from the mine could add up to $102 million (Fitzgerald, B 2011).Thus, the benefits got from the conservation of this national park exceeded those that could be found when the mineral deposits could be exploited. Therefore, even if the benefits of the uranium deposits are low, this mineral still qualifies to be assets according to the conceptual framework definition of the term asset. Water found in rivers of Kakadu national park is also a big asset and qualify the definition of the term asset as per the conceptual definition (Hhkicpa.org.hk, 2010:1). Water is a very important economic resource since it has many economic benefits. Water is used for drinking by everyone, it is used in the processing industries, it is used in the farms for irrigation purposes and supports aquatic wildlife such as the reptiles mentioned in the article. The cost of water can easily be estimated and more so it has an enormous economic vale therefore this resource qualify to be an asset according to the conceptual framework definition of the term asset. We also find that in Kakadu there are forests, the trees that make up these forests have the economic value. People can extract timbers, firewood, medicinal products and even paper when these trees are processed. All these products have a big economic value to the citizens and the nation as a whole. The future economic benefits of these forests can still be ascertained and even the cost of these forest trees can be evaluated. Therefore, forests automatically qualify the definition of the term asset as per the conceptual framework definition. The Wildlife found in Kakadu is a big asset to the economy of the Australian nation. The article points out that there are over 60 kinds of mammal species and over 260 species of birds in this renowned national park. A variety of wildlife animals in Kakadu is of big benefit to the economy of Australia. These attract many tourists around the world who come to see the unique species of animals that are not found in their country. Tourism sector in Australia is one of the main economic boosters, therefore the wildlife found in this national park is considered to be an asset since it has an economic value and the value itself can be estimated. Moreover, the different animal species are sources of food; people eat reptiles and birds found in this national park. Uranium deposits, water, forests and wildlife found in Kakadu national park are the main goods that be classified as assets according to the current accounting principles due to their economic values. In regards to Fitzgerald, B (2011).The two main criteria used to determine if a good is qualified to be an asset is when that good has probable future benefit embodied in the asset. Secondly, when the asset posses a cost or other value that can be measured reliably. However, for an asset to qualify for recognition it must be probable that the future economic benefits will eventuate. The term probable means that the chance of the future economic benefit is more likely than less likely. For any asset to qualify the recognition criteria is should posses a cost of other value that can be measured reliably. The word reliably is used with the meaning of the term reliability. Once these two recognition criteria are met, then that particular asset can be said it has passed the conceptual framework recognition test. From the assets identified earlier on passes the recognition test since all of them i.e. Uranium deposits, forests water and wildlife are in their natural state. Their value cannot be measured reliably and their future is not probable because other condition may arise and in future, these goods considered being assets in the current times become of no economic value. Heritage assets as mentioned earlier are those goods that have value due to their contribution to the society’s knowledge and culture. They are said to be goods that have unique values that cannot be found anywhere. The unique characteristics of the wildlife, landforms, and the historical sites in Kakadu national made this national park to be listed on the world list of the top historical and heritage sites. We have the unique features that are not easily found in other places of the world, the archeological sites and aboriginal artistic such as stone carving and paintings. These features have existed for thousands of years and they are big resources for the current generation. They are used for education purposes for example the when teaching history, students learn the theoretical work in class and they go to these sites to see practically what they learn in class (Fitzgerald, B 2011).Moreover, the sites are of heritage purposes because they preserve the culture of the society. Therefore, the main point that qualifies these assets to be heritage assets are that they are used for educational purposes and preservation of the culture of the aboriginal people that lived in Australia for thousands of years. Actually, when making the decision on how to utilize Kakadu national, it becomes hard to determine the value of the intangible assets and the heritage assets (Wise-uranium.org. 2012) This is because it is hard to estimate exactly their value in financial terms. For example determining the value of archeological site or the olden artistic painting is almost impossible. Intangible assets are assets that have not physical existence, therefore estimating their value becomes so difficult unlike when one is estimating the value of the tangible assets. (Wise-uranium.org. 2012). In most cases, the value of heritage assets and intangible assets is attached to the aesthetic value. However, in accounting, the aesthetic value of goods cannot be accounted for when preparing the financial statements. This is because the is no basis one will estimate their value. Now from the ground, those people advocating for the preservation of the Kakadu national park, they lack the basis for their argument since they cannot account for or estimate its value (Wise-uranium.org. 2012). Indeed, many people agree that there are enormous economic benefits that the country would get from preserve this national park, but estimating the exact benefits for these intangible and heritage assets becomes a challenge for those arguing for (Wise-uranium.org. 2012). Such challenges are common in accounting for some assets in many firms. Some firms may have intangible assets that are really benefiting the firm but when it comes in accounting for these assets, it becomes difficult either to include them on the financial statements since they do not qualify to be assets or the methods of valuing such asse4ts become difficult. Therefore, for Kakadu, the energy firm that is advocating for mining the Uranium minerals has the accounting basis of argument since it can easily estimate the benefit the nation is going to gain from the exploitation of the mineral deposits (Wise-uranium.org. 2012). Mineral deposits are tangible assets, thus they can be reliably be valued. Even though we have been told that the preservation of the national park will bring $435 million and the mining the minerals would bring $105 million, the firm proposing the mining process has a good basis for its argument because the cost or the value of the minerals can be easily be estimated and accounted in the financial accounting records. The fair value is the price that would be received to sell an asset in an orderly transaction between the market participants at the measurement date (Thomsonreuters.com.au 2011:1). The far value is measured just for a particular asset. When measuring the fair value of an asset, the firm takes into account the features of an asset if at all the market participants would consider those features when making the price of those assets at the measurements date. Some of the features considered by the market participants are; the condition and the location of the said asset and the restrictions if any on the sale or the use of the asset. The effect on the measurement that arises from the certain features will differ depending on how those features would be taken into account by the market participants. The asset measured at its fair value might be either of the following; it may be a standalone asset for example a financial instrument or a non-financial instrument. Secondly, a group of assets for example cashes generating units or a business (aasb.gov.au 2011:11). Whether the asset is a standalone asset or group of asset for its recognition or disclosure depends much on their unit of account. Here, the unit of account for the asset shall be determined according to the standard that requires or even allows the fair value measure. In the transaction, the fair value measurement assumes that the asset is exchanged in an orderly transaction among the market participants in selling the asset at the measurement date under the prevailing market conditions (aasb.gov.au 2011:11). The fair value measurement assumes that the transaction to sell off the asset can take place either in the principal market for the asset and in the absence of the principal market in the advantageous market. When the transactions are observed directly in a market, it becomes easy to determine the fair value of the asset because it is relatively straightforward .However, when it is difficult to observe directly, another method called valuation technique is used (thomsonreuters.com.au 2011:1). There are three approach used in valuation technique. First we have the market approach, this where a firm uses the prices and other relevant information generated by the market transactions that involves identical and comparable assets. The second approach is the income approach, this where a firm converts future amounts for example the cash flows to a single current amount (thomsonreuters.com.au 2011:1). Then the last approach on valuation technique is the cost approach, this where the firm the value that reflects the amount that would be required currently to replace the capacity of a particular asset. Thus, from the discussion of the term fair market measurement and its scope, the geological formations, plants and animals of Kakadu national park can pass the active market test or the fair value measurement .This is because none of these assets meets the laid conditions. For example, we have found that the fair value can be measured for just for a particular asset. Measuring the fair value of an asset such as a river, or any other landforms is very difficult because its value consists of the waters and the aquatic life. More so, measuring the fair value of forests is quite difficult because the, it is difficult to separate all trees in the forests to measure their fair value. Therefore, landforms and forests in Kakadu cannot be measured in terms of fail\r value. We have mentioned earlier that when measuring the fair value of an asset, the form takes into account the characteristics of the asset if all the market participants would consider these features when determining their prices (Aasb.gov.au. 2011:1). However, it is not easy for the all of the market participants to take into account the features of a particular asset. People often have different perspective towards the same kind of assets just because of the background. For example assets such forests trees can viewed by an individual to be a source of firewood, while another person can view it as a source of timber yet another one would view it as a source of herbal medicine. Therefore, it is difficult to come up with a market fair value for trees because the market participants have different view over them hence their prices would be different when setting the prices. On the other hand, the fair value of the Uranium mineral deposits can be evaluated since it is just one particular asset (Aasb.gov.au. 2011:1). In addition, all the market participants can view this deposit having the same characteristics hence when determining the prices; it is easy to find a uniform price proposed by all the market participants. Therefore, the Uranium deposits pas the active market test. When it is extracted and processed, the products from this have high value and none of the market participant can complain that their prices are very high. This is because the process of extractions very expensive and Uranium is one of the most valuable mineral deposits that is coveted all over the world. In conclusion, Kakadu national park is one of the famous regions endowed with nature of all kinds. Its natural resources and the historical heritages sites enabled it to be listed to among the world’s top heritage sites. The main argument that rose recently over this region is whether to exploit the Uranium mineral deposits found in some parts of this region or whether to preserve the region for its natural heritage. It has been a controversial debate over a few past decades but the energy resources of Australia announced that it intends to exploit the mineral deposits since the benefits from these mining would benefit everybody other just preserving it for heritage purposes. Bibliography Aplin, G 2004,' Kakadu National Park World Heritage Site: deconstructing the debate, 1997- 2003', ABC News 2010,' Green group wants end to Kakadu uranium mining', ABC News, 30 May; Aasb.gov.au. (2011). Fair value measurement. Accessed on web 14th Oct 2012. Retrieved from http://www.aasb.gov.au/admin/file/content105/c9/AASB13_09-11.pdf Australian Geographical Studies, vol. 42, no. 2, pp 153-74; Carson,RT, Wilks, L & Imber, D 1994' Valuing the preservation of Australia's Kakadu conservation zone', Oxford Economic Papers, vol. 46 supplement, pp. 727-49; Fitzgerald, B 2011,' Jabiluka still on, says ERA', Sydney Morning Herald, 14 April; Statham, L 2011,' Kakadu owners want to stop uranium mining', Sydney Morning Herald, 7 April.  Barth, Mary &Clinch, Greg. (1998). Revalued financial, tangible, and intangible assets: Association with share prices and non-market based value estimates. Journal of accounting research. Vol. 36. Institute of professional accounting. USA. Retrieved from http://www.jstor.org/discover/10.2307/2491314?uid=3738336&uid=2129&uid=2&uid=7 0&uid=4&sid=21101315627547 Garger, John. (2010). How investors view the difference between the tangible and intangible assets. Accessed on web 14th Oct 2012. Retrieved from http://www.brighthub.com/office/finance/articles/19313.aspx Hhkicpa.org.hk. (2010). Conceptual framework for financial reporting 2010. Accessed on web 14th Oct 2012. Retrieved from http://app1.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeII/framewo rk.pdf Smith, John. (2009). What is the difference between tangible and intangible assets? Accessed on web 14th Oct 2012. Retrieved from http://voices.yahoo.com/what-difference-between- tangible-intangible-4984324.html?cat=3 Thomsonreuters.com.au. (2011). AASB issues new standards on fair value measurement and disclosure. Accessed on web 14th Oct 2012. Retrieved from http://sites.thomsonreuters.com.au/tainsight/2011/11/03/aasb-issues-new-standard-on- fair-value-measurement-and-disclosure/ Wise-uranium.org. (2012). Issues at operating Uranium mines and mills –Ranger Australia. Accessed on web 14th Oct 2012. Retrieved from http://www.wise- uranium.org/umopaura.html Read More