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Financial Accounting - Property Plant & Equipment, Proceeds before intended use

Introduction

Financial accounting is the crucial tool which is used by the organisation in order to assist managers and potential managers in order form reasonable investment and financial decisions. Assessing that financial theories which investment and financing decisions which must be relied upon the cash flow and risk. This report is going to cover the issues which could arise in IFRS exposure draft related to the Prope

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TASK 1

1. Memo:

Memo

To: Micheal Johnson

From:Amitabh Bhattacharyya (Senior cost Accountant)XYZ Consultancy firm

Date: 21st April, 2018

Subject: Issues  emerged in IFRS exposure draft and it amendments process

The main issues arise which has emerged in the IFRS exposure draft about the property, plant and Equipment- which proceeds before intended use. In the initial time, this has been observed that the IFRS has interpreted committee which has made in order to emerge an interpretation of the IAS 16 Property, Plant and Equipment in order to deal with it. IFRS interpretations Committee attained a request to clarify the accounting for net proceeds from selling items generated at the time of testing an item of property, plant and equipment as per the construction (Weil, Schipper and Francis, 2013). This has been observed that the interpreted that committee which has been elaborated into two parts. The first part reduce amount of proceeds an organisation reduced form the costs of testing in profit or loss, rather than, as a  reduction from the cost of the PPE to only those proceeds of organisation reducing from the cost of PPE to only those procedures emerge form testing tasks, and elaborate that net proceeds an organisations reduced which must not exceed the cost of testing covered as a portion of the costs of the PPE.

Under this Exposure Draft, International Accounting Standard Board aims to amed IAS 16 which is totally related to the property, plant and equipment. This amendments will restrict to reduce the costs from the item of property, plant and equipment any procedures from the selling products from the cost of an item of the property, plant and equipment which has been proceeds  from selling items emerged while manufacturing that assets to the location and also condition essential for it to be capable of operating in manner deliberate by the management (Bhattacharyya, 2012). Irrespective of an organisation will identify  those sales proceeds in profits and loss.

Paragraph 17 of IAS 16 particularly examples of the costs directly attributable to introducing an item of the property, plant and equipment to the location and condition essential for it. Which is capable of operating in the manner that has been intended by the management in order to test the costing. Paragraph 17 (e) of IAS 16 mentioned that the cost of PPE covers the testing costs form the proceeds form selling of any items generated at the time of introducing assets to that location and condition.

The IFRS  Interpretation Committee attained a request under which two questions were asking about paragraph 17(e) of IAS 16:

a). At the time of proceeds referred to in that paragraph link to the items manufactured from testing; and

b) If an organisation reduces from the cost of a product of time of item of the property, plant and equipment any proceeds which above the cost of testing.

When elaborating the issue, Committee determined concerned questions about the cost of the property, plant and equipment. After exploring diverse approaches, committee suggested that the Board aim an amendment to the IAS 16 to stop the reducing sales proceeds from cost of a goods of property, plant and equipment. Board agreed along with the committee's recommendations.

The main aim of the Board is to invite the comments on the proposals in this Exposure Draft, more specifically fix out hereunder. Comments are highly supportable if they:

a). Statement on the question as mentioned;

b). Point out the particular paragraph(s) to which they concerned;

c). covers clear rationale;

d). Determine any alternative the Board must consider.

e). Covers any alternative Board must consider.

The Board does not express comments on the content which are not mentioned in this Exposure Draft. However, Comments must be submitted in the writing henceforth, as to attained no later than.

The Board is intending to amend IAS 16 restrict reducing from the cost of an item of property, plant and equipment any equipment any proceeds from selling items  manufacturing at the time of introducing that the assets to the location and condition essential for it to be capable of operating intended by the management (Ruhl and Smith, 2013). Irrespective of it, an organisation will address proceed from offering such items, and costs of manufacturing those items, in profit or loss.

Paragraph 16 (b) of IAS 16 PPE elaborates that the cost of an item of the PPE covers costs directly attributable to introducing that asset to location and condition essential for it to be capable of operating in the manner which has been forecasted by the management. Paragraph  17 of the IAS 16 emphasis examples of directly attributable costs (Flood, 2012). One example particularly is the costs of testing whether asset to the location and condition essential for it to be capable of operating in the manner which has been intentional by the management. For instance, identified the costs of testing whether asset is the operating in an adequate manner, after reducing the net proceeds from offering from any items manufactured while introducing the asset to that location and condition.

International accounting standard 16 Property, Plant and Equipment also named in short IAS 16 this is an international financial reporting standard adopted by IASB (International Accounting Standard Board). This standard concern accounting for fixed assets such as plant, property, equipment and so on. Simply these are intangible assets. IAS 16 was introduced in December 1993  as well the same was reissued in December 2003.  these tangible assets are measured at it cost later on measured either exploitation of  cost or revaluation model, and depreciated so that its depreciated amount is allocated on a systematised basis all over its utile life. Knowing actual price of fixed assets is important for owner and all other staff who are working with them. Financial company can implement this IAS 16 property, plant and equipment for identifying proper value of their tangible assets. Instead of this IAS 16 permits two accounting models such as:- · Cost model: The asset is carried at cost less accumulated depreciation and damage.· Revaluation Model: In this model assets is carried at the amount which is revalued, depreciation is calculated from the date of asset is purchased and amount of depreciation is deducted from actual purchasing amount. When organisation implement IAS 16 :- financial company have to implement all these standards in their working for knowing actual cost of their assets. Plant, property and equipments are important for meeting day to day activity of business without all these it is not possible to complete their work. Knowing actual price of assets is important so they can identify exact price if the owner want to sale that. Along with this there are several other benefits also such as knowing depreciation value, actual price of assets, if want to sell than can because price are already known by them so no one can do fraud with them.

2. Letter

Letter

Amitabh Bhattacharyya(Senior cost Accountant)XYZ Consultancy firm

6th, Sunny Street, Wales, UK

Rowlinson1234@yahoo.co.in

21st April, 2018

Dear sir,

To effectively implement the IFRS standard, cited company could implement the IFRS standard so that it could gain the sustainable development in an effective manner.

Sincerely,

Amitabh Bhattacharyya(Senior cost Accountant)XYZ Consultancy firm

Project have Property, Plant and Equipment which have $2.5 million which have 10  useful years. Which simply means that the PPE have the testing charge which have amounted to $150000. So, the total costs of the of the PPE upto the the installation of the project is considered.

Henceforth, the depreciation of the PPE equipment 2,650,000/10= 2,65,000.

Particular

Amount

Sales

1000000

Less: Cost of Production

120000

Gross Profits

8,80,000

Less: Depreciation

265000

Net Profits

615000

Conclusion

From the above mentioned report, this can be said that the IFRS standards are the supportive factors which could help the organisation to gain the sustainable development. Issues about the PPE are mentioned in IAS 16  and suggestion has been given under this so that the sustainable development.

References

  • Weil, Schipper and Francis, 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.
  • Bhattacharyya, 2012. Financial accounting for business managers. PHI Learning Pvt. Ltd.
  • Ruhl and Smith, 2013. The Accounting Entity, Relevance, and Faithful Representation: Linking Financial Statement Notes to the FASB and IASB Conceptual Frameworks. Issues in Accounting Education, 28(4), pp.1009-1025.
  • Flood, J.M., 2012. Wiley GAAP 2013: Interpretation and application of generally accepted accounting principles. John Wiley & Sons.
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