Assignment 1 – Corporate Reporting – Second Trimester 2007

Question 1

A)
The AASB 116 states that an asset must be revalued to its fair value, which is defined as “the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s-lenght transaction”. Fair values must be capable of reliable measurements and revaluations must be made, either upwards or downwards, with sufficient regularity to guarantee the carrying amount of each asset does not differ materially from its fair value. The carrying amount of an asset (also referred to as book value) refers to the amount at which an asset is recorded in the entity’s accounts after deducting accumulated depreciation and accumulated impairment losses. It is important to observe that the standard does not require an entity to revalue its assets, but if revaluations are made, the measurement method to apply is fair value. The main aim of the standard is to stipulate the accounting entries to use if an entity decides to revalue classes of its non-current assets to fair value.
Under the AASB 136, if an asset’s carrying amount is in excess of its recoverable amount, an impairment loss should be recognized and the asset therefore written down to its recoverable amount. Recoverable amount is defined as the higher of an asset’s fair value less costs to sell and its value in use. Value in use is based on present value calculations of future net cash flows expected from the continuing use of an asset and from its disposal at the end of its useful life. In the standard, the impairment test must be applied to an individual asset, but if this is not possible, it must be applied to a cash-generating unit, which is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflow from other assets or groups of assets.

B)
Property,