Research Assignment on Corporate Accounting

Research Assignment on Corporate Accounting

Introduction

The paper aims at researching relevant information on corporate accounting related to fair value measurement principle. The paper critically evaluates the concept of measuring assets at fair value under the provided accounting standards. Moreover, the paper provides examples to illustrate the difference or similarities, if any among the identified standards of accounting.

In addition to this, the paper inspects the possible impact of differing accounting methods on financial reports. The paper also critically evaluates the requirement of active market for intangible assets by highlighting the other possibility and occurrence of possible problems. Finally, the paper draws a conclusion on the overall understanding of corporate accounting under the defined accounting principles.

Discussion

According to ECCB (2012), the term 'fair value' is defined as the selling price of an asset or the exit price to be paid on an obligation transfer in a transaction that may take place between different market participants at the date of measurement. It is a market based measurement that might receive varied treatment under different accounting standards (ECCB, 2012).

Accounting Requirements to Measure Assets at Fair Value

Under all accounting standards, assets and liabilities are measured at fair market value at the measurement date. However, these standards vary on the selection of fair value model and initial cost recognition that may reflect differences on financial reporting under each standard.

IAS3/AASB 3 Business Combinations

In accordance with AASB 13, fair value of an asset should incorporate asset characteristics that are considered by market participants in evaluating price of the asset at the date of measurement (AASB, 2011). These characteristics of assets may involve asset condition and location. Moreover, measurement of fair value of an asset may incorporate ant restriction on the use or scalability of a specific asset (AASB, 2011). Under this principle, assets that are measured at fair value may be categorized as a group of assets (such as a business unit) or a standalone asset (such as a financial instrument) (AASB, 2011).



IAS116/AASB116 Property, plant and equipment

Under this section of IAS, measurement of asset at fair value can be done by the choice of accounting policy i.e. the model of revaluation (ECCB, 2012). According to this accounting principle, fair value of an asset is measured at the initial recognition of cost. The initial recognition cost might be calculated by the following equation. In addition to the above defined elements, cost of initial recognition may comprise of intended operating cost and conditions that might be assumed by the management (ECCB, 2012).

Recognition Cost = Cost of purchase + cost of construction + cost of transportation or logistics (The amount incurrent to bring the asset to desired location)

IAS138/AASB138 Intangible assets

Similar to IAS 116, the principle of intangible assets asks for the deployment of revaluation model to determine the fair price of an asset. However, under this accounting standard, equation of initial cost recognition differs (ECCB, 2012):

Initial Cost = Cost of purchase + cost of development + cost of logistics (cost incurred to bring the asset to desired location)

Additionally, the ...