Government Has Defined the Policies Whether â€Myassignmenthelp.Com

Question: Discuss About The Government Has Defined The Policies Whether? Answer: Introducation For having the smooth functioning of every company, it is very important for them to have the good business practices and that too shall be within the limits of the defined procedures and the policies laid down by the government. These have been enacted through the Corporations Act, 2001, Accounting standards and similar policies. In this report, the major focus has been made on the accounting standards. Accounting standards helps the company in getting the financial statements prepared in the uniform and consistent manner so that the financial statements of the company can be compared with the financial statements of the other company operating in the same industry by the users of the financial statements. In this report, three case studies have been discussed and all the cases have been cleared by making the reference to the relevant accounting standard and wherever necessary separate calculation has been made. With this aims, the report has been made available to the use On the beginning of the financial year 2014, Magenta Company has bought the machinery amounting to $200000. The company has recognized the machinery on the basis of the cost model and not revaluation model. At the end of the financial year 2017, the company has decided to change the method of valuation to the revaluation model and thereby the accounting policy has been changed. At first the requirements of the Australian accounting standard 108 on accounting policies and changes in accounting estimates has been detailed and after that the requirements of the Australian accounting standard 116 relating to property plant and equipment have been discussed. Change in Method of Valuation In this part, reference has been made to the provisions of the Australian Accounting Standard number 108 which is on accounting policies and changes in accounting estimates. In accordance with Para number twenty and of twenty one, following are the situations where accounting standard allows the adoption of the accounting standard on the voluntary basis (Australian Accounting Standard Board (AASB), 2011): Where the entity applies the provision of the accounting standard before the date of its becoming applicable, it can never be stated that the company has adopted the accounting standard on voluntary basis. The entity will be said to have the accounting standard applied on voluntary basis during the financial year only when the declarations have been made by the other standard setting bodies or the professional bodies who is responsible for making the standards and also when there is no accounting standard on the relevant and given subject. The accounting treatment for change in accounting policy from the cost model to revaluation model shall be done in the following manner: If the revalued amount is higher than the cost, then the difference shall be transferred to the revaluation surplus and otherwise the amount will be written off from the revaluation surplus. The assets so revalued are then recognized at the revalued amount less the depreciation expense and the amount of impairment loss. (Taplin, Tower and Hancock, 2002) Journal entries in relation to Machinery As per the Australian accounting standard 116, the journal entries have been detailed below relating to the machinery and depreciation for consecutive period of six years (Australian Accounting Standard Board (AASB), 2010). Journal Of Magneta Limited Date Particulars Debit Credit 01/07/2014 Machinery - Asset $200000 To Bank $200000 30/6/2015 Depreciation $25000 To Accumulated Depreciation $25000 30/6/2015 Accumulated Depreciation $25000 To Machinery - Asset $25000 30/06/2016 Depreciation $25000 To Accumulated Depreciation $25000 30/06/2016 Accumulated Depreciation $25000 To Machinery Asset $25000 30/06/2017 Revaluation Surplus $15000 To Machinery - Asset $15000 To Accumulated Depreciation $22500 30/06/2017 Accumulated Depreciation $22500 To Machinery Asset $22500 30/06/2018 Revaluation Surplus $20500 To Machinery - Asset $20500 30/06/2018 Depreciation $18400 To Accumulated Depreciation $18400 30/06/2018 Accumulated Depreciation $18400 To Machinery - Asset $18400 30/06/2019 Depreciation $19640 To Accumulated Depreciation $19640 30/06/2019 Accumulated Depreciation $19640 To Machinery Asset $19640 1/7/2019 Cash $60000 Accumulated Depreciation $19640 To Profit on Sale of Machinery $25680 To Machinery Asset $53960 Greymouth Limited is the company which has the business of chemicals has commenced the operations for constructing the chemical plant in the year of 2014. The company is required to obtain the license from the government and has obtained the same. The condition of the license has moved the company to look into the applicability of the accounting standard number 137 and how the same shall be complied with. The accounting of the same has been detailed below: Cost of Decommissioning Provisions or not As per paragraph 10 of the Australian Accounting Standard 137 on the Provisions, Contingent Assets and the Contingent Liabilities, provisions are defined as the amount set aside by the company in order to meet the obligation that will arise or become due in the future will full probability. In accordance with the paragraph number 14 of the Australian Accounting Standard 137 on the Provisions, Contingent Assets and the Contingent Liabilities, the provision shall be recognized only when the following conditions are satisfied (Wells, 2011): The company possess the liability for any act which has been derived as the result of the past event; There is the high chances that the there will be the outflow of the resources of the company to meet out the obligation and The company will be able to measure the cost in real terms (Australian Accounting Standard Board (AASB), 2010) Since in the case of this company, the cost of decommissioning is predefined and is clear that the company will be require to dismantle the plant after the expiry of the useful life of the asset. Thus, first condition is satisfied that the liability has occurred as a result of the past event. As there is the full probability that the company will pay the amount of liability and thus second condition is satisfied. As the cost of decommissioning has been measured and thus third condition is also satisfied. Thus, the amount shall be recognized as the provision. AMOUNT OF PROVISION Following methods have been prescribed by the paragraph number 36 to 50 of the Australian Accounting Standard 137, for calculating the amount of the provision that shall be recognized in the financial statements of the company. First method that has been specified is the best estimate. According to this method, the value of provision is recognized which is equivalent to the estimate of expenditure equal to the funds required to meet the present obligation. It represents the amount to be settled at the end of the reporting period. Second method is the present value method. It is usually applied where the effect of the time value of money is very material to the financial statements. The amount of provision will be the present value of the expenditure that will be incurred in order to settle the obligation. The company shall use the pre tax discounting rate equivalent to the cost of capital of the company. Third method is the method which is related to the happening or non happening of the future events. If there is high certainty that the future event will definitely occur then the amount of provision will be equal to the liability that will come when the event will happen in the future. As per the given case study, the best and appropriate method will be the present value method as neither the liability can be estimated on the basis of the best judgment nor it can be calculated on the basis of future event. As in the given case the risk and uncertainty factor which is the probability has been given. The amount of provision shall be calculated by multiplying the cost with the percentage of the chance of occurrence. The calculation has made in the given table: S. No. Cost Probability Amount A $520000 15% $78000 B $500000 80% $400000 C $300000 5% $15000 GRAND TOTAL 493000 D Discounting rate Given 5% E Provision 447166 As per the above table, the chances of occurrence of the $50000 cost are very high and the provision is come out as $400000. Keeping in view the consideration of the prudence, the amount of provision of $447166 shall be recognized as the provision under the head of Current Liabilities in the Balance Sheet. JOURNAL DATE PARTICULARS DEBIT CREDIT 30/06/2016 Decommissioning Expense $493000 To Provision $493000 30/06/2017 Decommissioning Expense $469524 To Provision (493000/1.05) $469524 Checking for Fulfillment of the Definition under each option The Para number eight of the Australian Accounting Standard number 138, the asset shall be said to be intangibles only if they are identifiable but does not possess any physical existence through which it can be touched and does not have any form of the consideration which can be measured in monetary terms easily. Further as per Para Nine of the same standard, intangible asset shall contain the following to fulfill the criteria: It should be Identifiable Shall possess the Control and Shall possess the future benefits in economic terms. For checking the criteria of identifiable, following conditions are required to be checked: The asset which can be easily separated or is capable of being divided and can be easily available for sale, exchange or rent or similar activity; The asset shall be derived from any form of the contractual rights or any form of legal rights irrespective of the fact of being transferable or separable. (Australian Accounting Standard Board (AASB), 2015) In the case of the Option 1, the computer software doesnt satisfy the criteria and hence cannot be said as identifiable as there is the restriction on selling or transferring or separating it. In the case of Option2, the computer software has satisfied the criteria as the same is easily separable and transferrable. In the case of Option3 also, the computer software has satisfied the criteria as the same is easily separable and transferrable. Parameters for Recognition The intangible assets shall be recognized only if there is the high probability that the asset will be able to generate economic benefits in the future and the cost of that asset can be easily measured in reliable terms. This has been mentioned in paragraph number 20 of the Australian Accounting Standard 138 on the Intangible Assets. Further as per paragraph 52 of the Australian Accounting Standard 138 on the Intangible Assets, there are two phases. One is research and other one is development. No asset is recognized in research phase rather it is charged to profit and loss statement. The asset is recognized in the development phase on the fulfillment of the conditions like measurement of cost in reliable terms, technical feasibility, etc. In case of Option 2 and Option3, amount of $40000 will be recognized as the cost has been measured reliably and project is technically feasible. Conclusion the above analyses of the each of the case study, it is to conclude that the accounting standards are the basic for each accounting work and helps in providing the useful information to its users including the stakeholders of the company. Recommendation has been to include the adoption and correct application of the accounting standards as the core part of the policies of the company. References Australian Accounting Standard Board (AASB), (2010),"AASB 137 Provisions,Contingent Liabilities and Contingent Assets"Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPoct10_01-11.pdf Australian Accounting Standard Board (AASB), (2010),"AASB 116 Property, Plant andEquipments" Retrieved fromhttps://www.aasb.gov.au/admin/file/content102/c3/AASB116_0704_ERDRjun10_07 -09.pdf Australian Accounting Standard Board (AASB), (2011),"AASB 108 Accounting Policies, Changes in Accounting Estimates andErrors" Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB108_0704_COMPmay11_07-11.pd Australian Accounting Standard Board (AASB), (2015),"AASB 138 Intangible AssetsRetrievedfrom https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08 15_COMPoct15_01 -18.pdf Taplin, R., Tower, G. and Hancock, P., 2002, June. Disclosure (discernibility) and compliance ofaccounting policies: AsiaPacific evidence. InAccounting Forum (Vol. 26, No. 2, pp. 172 -190). Blackwell Publishers Ltd.. Wells, M.J., 2011. Framework-based approach to teaching principle-based accounting standards. Accounting Education, 20(4), pp.303-316.