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What are the essential components of measuring assets as per the Accounting Conceptual Framework 2014?

Business and Finance

Business and Finance

What are the essential components of measuring assets as per the Accounting Conceptual Framework 2014?

Assignment information

 

· This is an individual assignment.

· This Assignment is worth 20% of the total assessment for this unit. This Assignment will be marked out of 100 and scaled down to being out of 20.

· Use 12-point Times font with 2cm margins on your page and 1.5 line spacing.

· Remember to reference your writing and include a reference list at the end of the Assignment.

· See the below Assignment marking sheet for mark allocation.

· Word Limit: 2600.

· Follow Harvard Referencing Style in the Assignment.

Assignment Description

Accounting Conceptual Framework 2014 states that measurement is the process of determining the monetary amounts at which the assets are to be recognized and carried in the balance sheet. This involves the selection of the basis of measurement. Several different measurement bases are employed to different degrees and in varying combinations in the statement of financial position to provide decision-useful information about entity’s economic resources. Paragraph 100 of conceptual framework of 2014 identifies a selection of different measurement bases as given below.

1. Historical cost

2. Current replacement cost

3. Realizable value

4. Present value.

Many accountants believe that value is the characteristic of an asset that should be measured (Henderson et al. 2017). According to Framework 2014, an asset brings future economic benefits to the firm. Therefore, the value of an asset should be the value of its future economic benefits. Furthermore, the essential requirement of the Corporations Act of 2001 is that the statement of financial position and the notes should comply with the accounting standards and present a ‘true and fair view’ of the entity’s financial position at the end of the financial year.

Further, the widely used historical cost has been subject to many criticisms. Some empirical research argues that historical cost reliability may be illusory (McDonald, 1968; McKeon, 1971). Revsine (1973) argues that current cost is an excellent approximation to value. Chambers (2006) supports realizable value. There is no consensus among empirical researchers on selecting the appropriate measurement basis of assets.

 

References:

1. Accounting Conceptual Framework 2014: Framework for the Preparation and Presentation of Financial Statements:

https://www.aasb.gov.au/admin/file/content105/c9/Framework_07-04_COMPjun14_07-14.pdf

2. Conceptual Framework for Financial Reporting:

https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf

3. Henderson, S., Peirson, G., and Herbohn, K. F., Ramsay, A & Borg, V. (2017). “Issues in Financial Accounting” (16th ed.) Frenchs Forest, NSW: Pearson Prentice-Hall

5. McDonald, D., 1968, Berkeley Symposium on the Foundations of Financial Accounting.

6. McKeown, J.C., 1971, “An empirical test of a model proposed by Chambers”, The Accounting Review, Vol. 46, No. 1, pp.12-29.

7. Revsine, L. (1973), “Replacement cost accounting”, Prentice Hall.

 

Required:

Consider the above requirements/arguments. Critically examine what bases of measurement of assets would you consider when preparing the statement of financial position to provide the true and fair view of the entity’s financial position.

The report should incorporate the followings:

1. Distinguish between the recognition and the measurement of assets of the statement of financial position.

2. What are the essential components of measuring assets as per the Accounting Conceptual Framework 2014?

3. Distinguish between value-in-use and value-in-exchange.

4. Identify and explain some of the perceived strengths and shortcomings of the above different measurement bases.

5. What arguments are usually advanced to support the measurement of the assets?

6. Why do financial statement preparers still use historical cost when it has been subject to many criticisms?

 

This Assignment must be written/structured in a ‘business report’. That is, it must have a/an:

1) Executive summary (between 100 to 150 words),

2) Introduction that; Succinctly summarizes this Assignment’s topic and its key issues, controversies, etc. (no more than 200 words), and

3) The body that addresses all the requirements – see above 1-6 (no more 2000 words),

4) The conclusion that sums up the main issues of this Assignment and your recommendations/suggestions (no more than 250 words), and

5) Reference list containing all cited works.

6) The report must contain properly constructed grammar. Must complete the information in an acceptable format.

7) The Assignment must contain at least seven peer-reviewed journal articles. See marking sheet and marking rubrics.

 

End of Assignment 2.

 

 

 

 

 

 

Please reference your answers based on the HD crateria for all of your criterions.

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