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Measurements of tangible assets

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Introduction

´╗┐Introduction Tangible non-current assets may be measured at multitude of measurement techniques in a company?s accounts that under both IFRS and US GAAP regulations. The chairman of the IASB, Hans Hoogervorst, had a speech about ?The imprecise world of accounting? in the International Association for Accounting Education and Research conference recently, which has turned the spotlight on the impact of multitude accounting measurements. Under IAS 16, it prescribes that the accounting treatment for property, plant and equipment, users of the financial statements can recognise information about an organisation?s investment in its property, plant and equipment (PPE) and the changes in such investment (IFRS, 2012). Under the regulation, companies are allowed to choose diversiform measurement techniques either historical cost or fair value as its accounting policy. This essay will define and evaluate various measurements and consider whether the financial statements provide useful information under International Financial Reporting Standards (IFRS). Also, the qualitative characteristic, such as relevance, reliability, comparability and understandability will be applied to ensure the usefulness of the measurements. Depreciation and impairment of the assets will be mentioned which have significant impact of the assets. ...read more.

Middle

Cozma (2009) stated that the PPE is under-valuated and the performance of the company cannot be properly evaluated due to profit is over-valuated; the company is exposed to an inflation tax and distributes false dividends, which induces its capital losses. It indicates that that the data may not reliable after marked by inflation, which is not a precise performance indicator. In the following paragraphs, the alternative essential measurement of tangible non-current assets, fair value accounting will be evaluated from its pros and cons. Fair value accounting, which based on the policy of revaluation model, the property, plants and equipment is evaluated reliably can be approved at a revalued price, being its fair market value at the date of the revaluation less any depreciation and impairment. It ensures that the carrying value does not contrast materially from that which would be determined accessing fair value at the end of the accounting period (IFRS, 2012). Although it is very rare to find a company uses fair value accounting to measure the value of tangible non-current assets, it still has some merits to recommend it. First of all, fair value accounting is more appropriate to use the current market value of the asset as it indicates the economic reality of transactions rather than the past view, making it more useful and relevant to users of financial statements. ...read more.

Conclusion

While investors are the prime audience of the financial reports, that the accounting standards setters should enhance the pragmatism and strengthen the underlying principles for presenting useful information of entities? status. Therefore, they should eliminate the variances between methods of measurement, which improve the standards more precise and put more emphasis on qualitative information to enhance the reliability, relevance, comparability and understandability that assist the investors to make informed decisions. Reference Elliott, B. & Elliott, J. (2012) Financial Accounting and Reporting. 15th edn. London: Prentice Hall. Hans Hoogervorst (2012) The Imprecise World of Accounting. International Association for Accounting Education & Research Conference.[Online] Available at: http://www.ifrs.org/Alerts/Conference/Pages/HH-speech-Amsterdam-June-2012.aspx%5B [Accessed: 20 November 2012] IFRS Foundation (2012) IAS 16: Property, plant and equipment. Available at: http://www.ifrs.org/Documents/IAS16.pdf, [Accessed: 20 November 2012] HM Treasury (2012) Tangible Non-current Assets. Available at: http://www.hm-treasury.gov.uk/d/2012_13_frem_chap06_tangible_assets.pdf, [Accessed: 21 November, 2012]. J Sainsbury plc (2012) Annual Report & Financial Statements 2012, Available at: http://www.j-sainsbury.co.uk/about-us/financial-performance/annual-reports/#tabbed_section, [Accessed: 22 November, 2012] Tesco plc (2012) Annual Report & Financial Statements 2012, Available at: http://www.tescoplc.com/files/reports/ar2012/index.asp, [Accessed: 22 November, 2012] Dinan, C.I. (2009) Historical cost versus Fair value, Annals of Faculty of Economics. Shortridge R. P., Schroeder A., Wagoner E. (2006) Fair Value Accounting: Analyzing the Changing Environment, The CPA Journal, Available at: http://www.nysscpa.org/cpajournal/2006/406/essentials/p37.html, [Accessed: 22 November, 2012] ...read more.

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