Subject Code : ACC210
Assignment Task:

Question 1: Fair value measurement – Loftus et al Chapter 3 

Find and read the following article: Cain, A 2013, ‘Fair value continues to captivate’, 2 July, Charter, vol. 84, no. 6, pp. 31–2. (A link to the article may be found in the Course Readings folder on Blackboard) 

Required: 

From the article it is apparent that accounting practitioners are aware of some challenges when it comes to applying fair value measurement. Identify and discuss these challenges. 

Question 2: Property, plant and equipment – Loftus et al Chapter 5 

The long serving accountant at Safety Ltd has provided management with financial reports. Management have been looking at the equipment depreciation figures and are worried that the depreciation figures for the factory machines are too low. Their belief is that new technology in the factory machine industry means that these machines are becoming obsolete much faster than what the depreciation figures suggest. Management’s concern is that the machines will have to be replaced in the near future, and, with the low depreciation charges, the funds will not be sufficient to pay for the replacement machines. 

Required: 

Discuss the management’s position. 

Question 3: Provisions, contingent liabilities and contingent assets - Loftus et al Chapter 3  

Sandy Ltd is a leading company in the sale of frozen and canned chicken. These products are sold under two brand names. Chicken from southern Australia is sold under the brand ‘Southern Fresh’, which is the brand the company developed when it commenced operations and which is still used today. Chicken farmed in northern Australia is sold under the brand name ‘Wholesome North’, the brand developed by Big Chickens Ltd. Sandy Ltd acquired all the assets and liabilities of Big Chickens Ltd a number of years ago when it took over that company’s operations. 

Sandy Ltd has always marketed itself as operating in an environmentally responsible manner and is an advocate of sustainable free range farming. The public regards it as an ethical, humane and environmentally responsible company as a result of its previous campaigns to promote this impression. The marketing manager of Sandy Ltd has noted the efforts of activists in Tasmania to disrupt and hopefully stop caged chicken farming in the southern states of Australia and the publicity that this has received. He has recommended to the board of directors that Sandy Ltd strengthen its environmentally responsible image by guaranteeing to financially support jailed or charged activists by contributing to the legal costs that result from attempts by activists to disrupt the caged chicken farming practice. He believes that this action will increase Sandy Ltd’s environmental reputation, adding to the company’s goodwill. He has told the board that such a guarantee will have no effect on Sandy Ltd’s reported profitability. He has explained that, if any legal expenses occur, Sandy Ltd can capitalise the resulting legal costs to the carrying amounts of its brands, as such costs will have been incurred basically for marketing purposes. Accordingly, as the company’s net asset position will increase, and there will be no effect on the statement of profit or loss and other comprehensive income, this will be a win–win situation for everyone. 

Required: 

The chairman of the board knows that the marketing manager is very effective at selling ideas but knows very little about accounting. The chairman has, therefore, asked you to provide him with a report advising the board on how the proposal should be accounted for under accounting standards and how such a proposal would affect Sandy Ltd’s financial statements. 

Question 4: Leases - Loftus et al Chapter 8 

Provisions are recognised as a liability in the statement of financial position. Contingent liabilities are not recognised in the financial statements but are disclosed in the notes to financial statements. Paragraph 12 of AASB 137/IAS 37 Provisions, Contingent Liabilities and Contingent Assets states that ‘in a general sense, all provisions are contingent because they are uncertain in timing or amount’. 

Required: 

What are some of the possible reasons that provisions are recognised in the financial statements but contingent liabilities are not?

 

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