Financial Statements At Or Revalued Amount â€Myassignmenthelp.Com

Question: Discuss About The Financial Statements At Or Revalued Amount? Answer: Impairment of assets: Non-current assets are depreciated over economic life of the asset and are valued in financial statements at cost or revalued amount. At times carrying amount of noncurrent asset are not equal to recoverable financial accountingamount. According to IAS36- Impairment of assets an asset should not be carried at value greater then recoverable amount (Bond, Govendir and Wells 2016). According to IAS-36 Impairment asset recoverable amount is defined as higher of fair value and value in use. Where fair value is calculated by deducting cost of disposal IAS 36 impairment of asset was revised on 31st march 2004 In this statement we will discuss about recoverable amount, Value in use, Fair value in detail Recoverable amount: According to IAS 36 term recoverable amount means higher of the market value of an asset or the value in use. This concept of recoverable amount is use for determining the impairment of assets (Zhuang 2016). Calculation Financial Statements At Or Revalued Amount Financial Statements At Or Revalued Amount The recoverable amount of an asset is the higher of the two calculations shown below: Recoverable Amount = FV- Cost of Disposal Recoverable Amount equal to Value in Use Where: Fair Value: the amount for selling an asset in the market. Cost of Disposal: additional expenses directly attributed to the sale of asset. Explanation As per accounting standards enterprises are required to mark their balance sheet happenings where carrying amount of an asset is greater than the recoverable amount. IAS 36 concept is similar to the concept of cost or MV whichever is lower business inventories (Bond, Govendir and Wells 2016). Company is required to estimate fixed asset recoverable amount if it belief that asset value has been impaired: , the recoverable amount =l to its value in use if the asset's fair value less the cost of disposal not possible to be calculated. The recoverable amount of companies fixed asset=to its FV less the cost of disposal if company wants to sell its asset. If carrying amount is greater than the FV of an asset less its cost of disposal, or the asset's value in use then it is not necessary to calculate recoverable amount because asset is not impaired (Kabir and Rahman 2016) Definition The term value-in-use is equal to the PV of future cash flows derived from the asset. Companies will determine an asset's value-in-use in order to determine recoverable amount to calculate impairment loss (Laing and Perrin, 2014). Calculation Value-in-Use = Present Value of the Asset's future cash flow by putting it to use Explanation If a company believes asset's scale value will be impaired, it is required to perform an estimate of its recoverable amount. IAS 36 also provides guide lines to calculate value in use. Cash Flow: calculate future cash flows derived from the use of the asset. The accountant-analyst should also consider possible components while calculating expected cash flow Discount Rate: the calculation of value-in-use should consider the time value of money, which is depicted by the company's weighted average cost of capital. This rate is then used as discount rate (Khokan Bepari, Rahman and Taher Mollik 2014) Other: other factors are liquidity, or the ability to sell the asset There should be supportable assumptions for cash flow projections such as recent forecasts, planning budgets. Companies normally forecast budgets for only five years, but in this case company should make long term projections. The discount rate used when determining the present value of the benefits from the asset should be one of the stated below: company's weighted average cost of capital (pre-tax) incremental cost to borrow other markets borrowing rate Note: Value-in use is normally estimated using a conservative approach therefore; the value in use will be lower than its fair market value. Fair value of the asset: Fair market value is the price at which asset would sell in market. Where both the parties seller and buyer both are interested in the transaction and there is no pressure on either of them. There is an easy way to determine the selling price of the asset. One can do that by comparing the prices of identical items sold in the market. Examine product having any special characteristics. Study the history of the asset and consider its age Find at least five or four of the same or nearly similar items. These items must be as similar as possible to the item is to be valued in age, physical condition and history. By taking out the average selling price of the identical items sold. This will be calculated by dividing the aggregate selling price by the number of units sold... To double-check the fair market value of the item Take the sample item to specialist in the valuation of this particular type of item to confirm the fair market value. Cost of disposal The term cost of disposal is means the additional expense that company has to incur which proportionately attributed to the sale of an asset. Cost of disposal is aliability in future that is debited as an expense to the income statement when it is incurred(cost of disposal). IAS 36 Impairment of asset requires companies to calculate the cost of disposal when the company determines the asset's value has been impaired. If the fair market value cannot be determined by the company in this case companies can defer recording this liability until the cost can be determined. Reference Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136.Accounting Finance,56(1), pp.259-288. Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairment decisions by Australian firms and whether this was impacted by AASB 136. Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting discretion under IFRS: Goodwill impairment in Australia.Journal of Contemporary Accounting Economics,12(3), pp.290-308. Khokan Bepari, M., F. Rahman, S. and Taher Mollik, A., 2014. Firms' compliance with the disclosure requirements of IFRS for goodwill impairment testing: Effect of the global financial crisis and other firm characteristics.Journal of Accounting Organizational Change,10(1), pp.116-149. Laing, G.K. and Perrin, R.W., 2014. Deconstructing an accounting paradigm shift: AASB 116 non-current asset management models.International Journal of Critical Accounting,6(5-6), pp.509-519. Zhuang, Z., 2016. Discussion of An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136.Accounting Finance,56(1), pp.289-294.