Australian Accounting Principles- Free-Samples for- Assignmenthelp

Questions: 1.Discuss how these Costs should be Accounted for in the books of MyNextProblem Ltd. 2.Critically Evaluate the Councils Accounting Policy for its Library Collection. Answers: 1.Case facts In accordance with the given case scenario, MyNextProblem Ltd had purchased the building at $2 000 000. Along with this, they had incurred an additional cost of $30000. However, the fair value of market of the asset is $2 000 000. Now the dilemma is an asset to be recorded at $2 000 000 or $2 030 000. Accounting principles As per Australian Accounting principles, fixed assets is to be accounted by considering the provision of AASB 116 and IAS 16. This AAS states that initial cost of an asset should be recorded at it purchase value and cost incurred to make it in usable condition (Compiled AASB Standard AASB 116, 2009). Further, historical cost principle states that fair value is to be affected if there is a permanent reduction in value of an asset, not a temporary adjustment. However, this principle is affected in the subsequent year of assets as in the initial year asset is to be shown at purchase value and expenses incurred for its installation (Henderson and et.al. 2016). Provision of this AAS clearly states that in a situation where the asset is traded in, the cost of the acquired asset is accounted for the cash amount in addition to the trade-in value acquired for the asset traded in. Accounting for cost of asset By considering above principle, MyNextProblem Ltd is required to show asset at $2 030 000 instead of $2 000 000. It is because the cost is directly incurred in connection with the purchase of the asset to make it ready for use so it should be capitalised with the purchase cost. 2.Case facts By considering the given case situation, City of Darwin Council does not record library book as assets. The cost of these books is considered as an expense in income statement by giving justification of the same in the annual report. Accounting principles As per Australian accounting principles, assets are something that provides future economic benefits to business, and it is controlled by it as a consequence of historical transactions. Library books are covered under provisions of FRS 30 and FRS15. As per this standard, tangible asset with artistic, historical, technological, scientific, geophysical or environmental qualities detained and conserved predominantly for the purpose of contribution to knowledge and culture. Provision of this standards states that amount incurred can be capitalised and recorded in following manner: Should be presented in balance sheet as part of other tangible fixed assets Description in notes to accounts as heritage assets Changes in the valuation should be recognised (Rahman, 2013). By considering this definition cost of library books can be capitalised by showing it as tangible assets under provisions of FRS 30 and FRS15. In order to record reducing the value of business, provision for depreciation can be made by business by making an estimation of its residual value and life of use on the basis of their previous experience (Parker, 2013). With this approach, a business can record their assets at fair value by complying with all accounting principles of Australia. Accounting policy for business case In accordance with the applicable accounting standards, it can be concluded that accounting policy adopted by business is not justified as reasons given by them is not viable to explain the contradiction of accounting policy. As library books clearly satisfy the definition of capital asset as well as heritage assets. Instead of this, City of Darwin Council can record library books as capital assets and charge depreciation on an annual basis in this manner they will be able to charge declining value of assets as expenses without making contradiction to the accounting principles. Recommended accounting policy is supported by the provisions of FRS 30 and FRS15 through which City of Darwin Council can show true and fair view of their financial position References Books and journals Compiled AASB Standard AASB 116. 2009. Property, Plant and Equipment. [Pdf]. Available through https://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun09_07-09.pdf . [Accessed on 8th May 2017]. Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU. Parker, R.H., 2013. Accounting in Australia (RLE Accounting): Historical Essays (Vol. 58). Routledge. Rahman, A.R., 2013. The Australian Accounting Standards Review Board (RLE Accounting): The Establishment of Its Participative Review Process. Routledge.