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The relevant costs of computing for Machine A in this scenario are therefore, purchasing price, less the discount allowed, then adding the delivery charge, installation charge and testing charge. Minor spare parts and service contract quotations are irrelevant in computation of the cost of the machinery. ii. IAS 16 provides for methods of depreciation on fixed assets. Under the straight line method, Machine B has an annual depreciation of 60,000 per year since it had an expected or useful life of 10 years. Since its acquisition date on June 2009 through to its revaluation in 2012, it had a carrying amount of 420,000 which is gained after deducting the accumulated depreciation through the first 3 years of its expected life. On a straight line basis and a remaining expected life of 4 years, the depreciation for Machine B is expected to be at 105,000 per year. The scope provides for a revision of the asset’s depreciation method, if the expected economic benefit to be consumed off it by the entity changes appropriately. iii. IAS 40 sets out the guidelines under which assets should be treated and the criterion for the treatment of investment property and also disclosures requirement in their reporting. Investment property is that which is held not for resale but for an economic benefit of the organization. It is that where future economic benefit is expected from. Under IAS 40, the company or organization is allowed to either use the fair or the cost model policy of accounting for these items. In fair value representation, the property (investment) is revalued where it is recognized as “an asset that could be exchanged between knowledgeable and willing parties in an arm’s length transaction” (Willey, 2011).  Since Building Y is an investment property, the revalued amount of 2million as at 31st December is the actual cost of the building at the end of this year. The increment in its value of 1 million should be treated as an income in the income statement for year 2011. Additionally, the buildings were revalued again and the investment property increased to 2.5 million. This should be treated by taking it as an income in the income statement at the value of 500,000, while reflecting the value of Building Y as 2.5 million at the end of year 2012. In the case of building Y, the scope provides the value of a fixed asset (such as Building X) to be treated on the fair value. In this case, the value should therefore be expressed on the current value less the depreciation. Revaluation amount should be computed and the current value is the amount shown on the balance sheet as the current value, while the gain in revaluation is shown on the credit of the balance sheet as a revaluation reserve. The revalued amount was done on the last day of the financial year and therefore be reflected on the following year 2012 as 2.5million. (b) Certain criteria should be followed when reporting these compilations of the costs of the assets, their depreciation amounts and their revaluation treatments. The scope provides for a detailed schedule that should be followed in the presentation of these analyses and as well, their reporting should be detailed and reported accordingly. The relevance in comparing the costing of Machine A and Machine B, as well as the treatment of Building X an Building Y best explains the financial reporting of these different circumstances of each of the two different genres of fixed assets of an entity. i. Machine A is purchased at a discounted ...Show more
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FINANCIAL REPORTING STANDARDS FOR ASSETS NAME: COURSE: COURSE INSTRUCTOR: DATE DUE: Financial reporting for fixed assets (a) i. International Financial Reporting Standards provides for the costs that should be added up to sum up the actual cost of a fixed asset…
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