...ANALYSIS OF BIOLOGICAL ASSETS VALUATION WITH FAIR VALUE ACCOUNTING AND HISTORICAL COST ACCOUNTING METHOD IN PLANTATION SUBSECTOR OF INDONESIAN AGRICULTURAL INDUSTRY IN THE PERIOD OF 2007-2012 Karina Putri Ramadhani1 and Indra Pratama2 1 Thesis Writer, Swiss German University 2 Thesis Advisor, Swiss German University Abstract The analysis of biological assets valuation with fair value accounting and historical cost accounting method in plantation subsector of Indonesian agricultural industry, in the period of 2007-2012, tries to evaluate the relevance of historical cost towards the fair value of biological assets. It also tries to look for empirical evidence on the differences in calculations on biological assets between FVA and HCA toward company’s EBIT, net income, and potential tax liabilities. The research tests 5 companies within the plantation subsector in agricultural industry listed in Bursa Efek Indonesia (BEI). This study shows that there is a strong correlation between all variables tested. Among all statistical tests conducted, all hypotheses are rejected. This study concludes that the historical value of biological assets does not represent its real fair market value, or irrelevant. Also, the change in biological assets valuation from historical cost to fair value accounting would significantly affect the company’s EBIT, tax expense, and net income. Keywords: Fair Value, Historical Cost, Agricultural Industry, Plantation, Fair Market, EBIT, Tax Expenses, Net Income...
Words: 3520 - Pages: 15
...Financial Accounting – Historical Cost Accounting Student Name: Richard Simpson B00580164 Total Word Count: Contents Page Executive Summary The purpose of this report is to analyse historical cost accounting providing information on the strengths and weaknesses, alternatives to historical cost accounting and current regulatory guidance on how to deal with the effects of inflation on the financial statements. This report has also considered and explained the following statement: “Historical cost accounting is used almost exclusively in practice but it is generally accepted that the resulting historical cost accounting financial statements suffer from a number of weaknesses.” 1.0 Introduction 1.1 – What is meant by historical cost accounting? The historical cost accounting model is a measure of value in accounting that allows, ‘transactions to be recorded in the accounts at the original price. An item then remains in the accounting records at that original price until disposal’ (Alexander and Britton, 2004) even though their value may have changed over time. Historical cost accounting or commonly referred to as ‘historical cost convention’ is the ‘practice of recording the historical cost of an asset as its cost on a balance sheet’ (financial-dictionary.thefreedictionary.com, 2012). For example, ‘assets are recorded at the amount paid to acquire them. Liabilities are recorded at the amount of proceeds received in exchange for the...
Words: 321 - Pages: 2
...Limitations of historical cost accounting Financial statements prepared on the historical cost basis do not necessarily lead to a true and fair presentation of an entity’s performance or future potential if capital is not being maintained. Furthermore, actual assessment of performance through ratios such as return on capital are meaningless if profit are overstated, capital undervalued, and assets are valued under a mixture of conventions. Limitations of historical cost accounting include : • Depreciation charged on historically costed assets is only an arbitrary amount based on out-of-date values and estimated useful economic lives. • Depreciation charges do not take into account actual replacement cost of assets at current prices. • Profit will not reflect the actual ‘costs’ of trading, which include the replacement of assets at some point in time. • By not accounting for inflation, there is no assurance that the entity is maintaining its capital base. • Overstating profits by undercharging depreciation based on historical cost, and charging cost of sales at historical cost of inventories (and not current cost) can lead to the depletion of an entity’s capital through high tas charges and distributions. • While historical cost accounting provides a consistent basis for entities to prepare accounts, inflation affects different products and markets, and hence entities, to different degree. • Historical cost accounting makes it difficult for shareholders and analysis...
Words: 323 - Pages: 2
...National and International Approaches in Social Reporting Author(s): Franz Rothenbacher Reviewed work(s): Source: Social Indicators Research, Vol. 29, No. 1 (May, 1993), pp. 1-62 Published by: Springer Stable URL: http://www.jstor.org/stable/27522680 . Accessed: 25/11/2011 03:27 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Springer is collaborating with JSTOR to digitize, preserve and extend access to Social Indicators Research. http://www.jstor.org FRANZ ROTHENBACHER NATIONAL AND INTERNATIONAL APPROACHES IN SOCIAL REPORTING* (Accepted 27 October, 1992) ABSTRACT. National and international in social in western approaches reporting are described. starts with The the outline of current in activities paper Europe are discussed. international The national Further organizations. competing approaches and products of social reporting; the plurality of actors in social topics are the sources and different The only diffusion of ways of its institutionalization. reporting, incomplete inWestern social are offered...
Words: 7633 - Pages: 31
...Advantages and disadvantages of Historical Cost accounting Historical cost accounting has been a controversial method that experienced many criticisms over a period of time, especially since it considers the acquisition cost of an asset and does not recognize the current market value. Merits and demerits of this method are as follows. The most obvious advantage of HC accounting is objectivity. It is a predominantly objective system, which records the original cost of an item when it was purchased. Under historical cost accounting there is no room for manipulation and “the data is supported by independent documentary evidence, such as invoice, statement, cheque counterfoil, receipt or voucher.” （Elliott and Elliott:43） Any other method for recording transactions would be less objectives since the amount being recorded would depend on individual point of view and is various from different people. Secondly, being compared with most other methods, historical cost is an easier and cheaper way of valuation. In respect that the original cost is one that already existed and could not be amended, which is easy to determine and can be verified. Therefore, it requires less estimation for accountants to record the data and easier for auditor to inspect them subsequently. In addition,” as a basis of fact, it is verifiable and to that extent is beyond dispute”. (Alexander and Nobes :180) Another significant advantage of it is reliability, which is one of the key characteristics of...
Words: 313 - Pages: 2
...Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol 3, No 8, 2012 www.iiste.org COMPARATIVE ANALYSIS OF FAIR VALUE AND HISTORICAL COST ACCOUNTING ON REPORTED PROFIT: A STUDY OF SELECTED MANUFACTURING COMPANIES IN NIGERIA BESSONG, PETER KEKUNG and CHARLES, EFFIONG DEPARTMENT OF ACCOUNTING FACULTY OF MANAGEMENT SCIENCES UNIVERSITY OF CALABAR, P.M.B.1115, CALABAR, CROSS RIVER STATE, NIGERIA Tel: +234 8037079607 ABSTRACT This study aimed to critically examine the effects of fair value accounting and historical cost accounting on the reported profits. However, since the major objective of any business organization is to make profit and continue in business, what they face in the course of doing their business and the method of accounting they use in reporting their profit may make this noble objective to be unrealistic particularly during inflationary period. Data were collected from both primary and secondary sources and presented and analyzed using ordinary least square. The study revealed that both historical cost and fair-value accounting have significant effect on reported profit. Conclusively, Based on the findings of the study, it is concluded that the amount calculated as depreciation, charged as taxes and paid as dividends greatly influence the operating profit of the company. This simply means that the method of profit measurement will greatly influence the amount charged as taxes, depreciation and dividend on the profit of...
Words: 12475 - Pages: 50
...value should be used in the accounting system. She states that fair value takes over for the old, worn out system of keeping books at historical value. She talks about how using fair value makes account more reliable. Also, it was believed fair value accounting was part of the reason the stock market crashed in 1929. Another point that Karthik had was why people actually support fair value. Fair value replaced the old, worn out system of keep books at historical value. With historical value, you never really need to record anything if the price becomes cheaper. It is a way for your assets to look larger than they actually are. If you record an item at fair value, you are normally reducing that value, so you are also reducing your assets. Sometimes you must actually increase the value because you paid less for the item than it is now worth. Fair value also helps with an insurance policy. If you have something that is stolen, and you do not get a settlement from your insurance company, you record the loss at the adjusted fair value. Fair value is a more reliable form of accounting, at least according to some people. It is believed that if someone is using the real cost on the books, it’ll mean that they are more accurately reporting what they have. Others believe that historic costing is more reliable because you are accurately showing what the product WAS worth. I believe that you should always use the fair value of a product, because historical costing can be overstated. If...
Words: 662 - Pages: 3
...In accounting, historical cost is the original monetary value of an economic item.[1] Historical cost is based on the stable measuring unit assumption. In some circumstances, assets and liabilities may be shown at their historical cost, as if there had been no change in value since the date of acquisition. The balance sheet value of the item may therefore differ from the "true" value. While historical cost is criticised for its inaccuracy (deviation from "true" value), it remains in use in most accounting systems. Various corrections to historical cost are used, many of which require the use of management judgment and may be difficult to implement or verify. The trend in most accounting standards is a move to more accurate reflection of the fair or market value, although the historical cost principle remains in use, particularly for assets of little importance. Depreciation affects the carrying value of an asset on the balance sheet. The historical cost will equal the carrying value if there has been no change recorded in the value of the asset since acquisition. Improvements may be added to the cost basis of an asset. Historical cost does not generally reflect current market valuation. Alternative measurement bases to the historical cost measurement basis, which may be applied for some types of assets for which market values are readily available, require that the carrying value of an asset (or liability) be updated to the market price (mark-to-market valuation) or some other...
Words: 1987 - Pages: 8
...1 historical cost accounting (hca) is the situation in which accountants record revenue, expenditure and asset acquisition and disposal at historical cost: that is, the actual amounts of money, or money's worth, received or paid to complete the transaction. 2 nature of historical cost accounting this is one of those idiosyncratic headings that teachers dream up (me too, probably!) that meant nothing to me without further explanation 3 the big advantage of hca is that it leads to absolute certainty and it fits in perfectly with the cash flow statement. Hca tells us exactly what has been paid and what has been received and therefore there is no doubt about balance sheet amounts. The alternatives, where accountants attempt to take inflation into account, can lead to many problems. There have been several forms of current cost accounting, purchasing power accounting and so on since the mid 1970s that have been proposed as alternatives to hca. The reason the alternatives have not survived, and IAS 15 on inflation accounting is about to be replaced, if it hasn't been already, is that no one can agree on the best way to represent accounting values. Hca provides definite values, other methods don't! 4 the disadvantages of hca include the fact that hca values can relate to transactions that could be a year old, 10 years old and as much as 100 years old. It's true that some businesses have old equipment and old stocks (inventories) that are still working well but that were bought a...
Words: 2561 - Pages: 11
...of $4,000. The parent sold the land to an outside party in 2018 for $30,000. At what amount should the land be shown on the December 31, 2014 consolidated balance sheet? How much gain/loss on the sale of the land should be reported on the 2018 consolidated income statement? Prepare the working paper entry (in journal entry format) for the intercompany sale for the parent and its subsidiary for the years ended December 31, 2014, 2015, and 2018. 2014 Land $4,000 Intercompany loss on sale $4,000 2018 Loss on sale of land $4,000 Retained earnings $4,000 2. Sally Corporation (a 75%-owned subsidiary) owned a truck with an original cost of $12,000. It had been depreciated for $7,500 in the last 5 years on the straight-line method with 8 years of life and no salvage value. On January 1, 2014, Sally sold the truck to its parent, Paulson Company for $5,280. Prepare the working paper entry (in journal entry format) for the intercompany sale for Paulson Company and subsidiary for the years ended December 31, 2014 and 2015. 2014 Intercompany gain on sale of truck $780 Truck $780 Accumulated Depreciation $260 Depreciation expense $260 Truck $7500 ...
Words: 414 - Pages: 2
...The Effect of ERP System Implementations on the Usefulness of Accounting Information Joseph F. Brazel Department of Accounting College of Management North Carolina State University Campus Box 8113 Raleigh, North Carolina 27695 Telephone: 919-513-1772 Fax: 919-515-4446 e-mail: joe_brazel@ncsu.edu Li Dang Department of Accounting College of Business Oregon State University Corvallis, Oregon 97331 Telephone: 541-737-6049 e-mail: li.dang@bus.oregonstate.edu October 2005 The authors thank the international ERP system supplier for providing them with the ERP system implementation data and Marianne Bradford and Jeff Wong for helpful comments. Funding for this research was partially provided by an NCSU Edwin Gill Research Grant. The Effect of ERP System Implementations on the Usefulness of Accounting Information ABSTRACT: ERP systems have become the system of choice for the majority of publicly traded companies and have radically changed the way accounting information is processed, analyzed, audited, and disseminated. In this study, we examine whether ERP system implementations have impacted the decision usefulness of accounting information. We find that ERP adoptions lead to a trade-off between increased information relevancy and decreased information reliability for external users of financial statements. After implementing the system, firms concurrently experience both a decrease in reporting lag and an increase in the level of discretionary accruals. Contrary to expectations...
Words: 9697 - Pages: 39
...test. 2. What qualitative factors should a company consider in determining whether the two-step test should be conducted? List each of these factors for Dynamic and ZD. Explain in your own words and provide citation from the codification. Based upon the case information, do you believe that goodwill is impaired for Dynamic and ZD separately company? Dynamic Qualitative Factors | Citation | Simple manufacturing process technology in this industry increased competitors by 35%. The increase in overall market supply may cost Dynamic depressed product prices. Therefore, their profitability would decline. | ASC 350-20-35-3C(b) | Both regulators and union representatives claimed that pollution can cause health hazards to a Dynamic’s workforce. Dynamic faces negative impact of carbon pollution on the environment and the workplace. Suggested solution is to hire professional managers to solve this situation. Accordingly, the company's operating costs would increase. | ASC 350-20-35-3C(b) | Dynamic employees are supported by industry's largest union to obtain a successfully...
Words: 1152 - Pages: 5
...000 tax basis $30,000 tax rate = 30% Presented and discussed in class on Feb. 12, 2013: http://10.101.116.223/F435/W13/F435All4Feb12.html Problem #2: (Winter 2013) Salvage value = $28,000 tax basis = $19,000 tax rate = 30%. Presented and discussed in class on Feb. 12, 2013: http://10.101.116.223/F435/W13/F435All4Feb12.html Problem 3: (Winter 2013) Salvage Value = $84,000 tax basis $92,000 tax rate = 30% Presented and discussed in class on Feb. 12, 2013: http://10.101.116.223/F435/W13/F435All4Feb12.html Problem #4: (Spring 2014) Machine costs $50,000 now Depreciation over a 5-year MACRS life Three years from now, we will sell this machine for $11,000. What will be the ATSV of the machine in three years? 34% Presented and discussed in May 7, 2014, class: http://10.101.116.223/F435/S14/F435All4May7.html Problem #5: (From Quiz #3-B, Fall 2014) initial cost = $10,417,000.00 expected salvage value in 10 years= $3,260,000 marginal tax rate = 34% 15-year MACRS depreciation Problem #6: (From class on Nov. 4, 2014, when preparing for HW#5) Old Machine: marginal tax rate = 34% if sold now, salvage value = $4,000 net book value or tax basis = $2,100 if sold in 4 years, salvage value = $2,500 If kept, then depreciation will be: time depr(old) 1 $300 2 $200 3 $150 4 $100 Presented and discussed in Nov. 4, 2014, class:...
Words: 264 - Pages: 2
...3. Trade off between fair value accounting and historical cost accounting a) Relevance: Financial information is relevant when it influences the economic decisions of users, Fair value reporting is more relevant as it will allow users of financial statements to obtain a truer and fairer view of the company's real financial situation since it reflects the prevailing economic conditions and the changes in them. In contrast, historical cost accounting shows the conditions that existed when the transaction took place and any possible changes in the price do not appear until the asset is realized. b) Reliability: This relates to the degree of assurance capable of being obtained through verification that information faithfully represents what it purports to represent. Historical cost is considered more reliable as fair value requires estimations. FASB has expand the disclosures and framework for all companies to enhance the reliability of fair value accounting. However the drawbacks of the FV accounting is still holds as many of the valuations incorporates many subjective input data and assumptions. c) Decision usefulness: In general, financial information is considered to be useful if it enhances one's ability to make investment and credit decisions. (i) For investors: Investors will need to broaden their knowledge of fair value measurement methodologies to effectively analyze a company's financial statements and make a sound comparison. Given that institutions may use different...
Words: 449 - Pages: 2
...Organization Overview or Profile of the Organization Beximco Pharmaceutical Ltd. is a leading edge pharmaceutical company based in Dhaka, Bangladesh and is a member of the Beximco Group. The history of pharmaceutical business of the company dates back to the early 70s, when it started to import market and distribute medicines from world renowned companies like Upjohn Inc. of USA and Bayer AG of Germany. Since the very beginning, the company was highly successful in generating increased demand for its products which eventually justified local production. It completed its registration in 1976 and started its operation in 1980 by manufacturing and marketing licensee products of Bayer AG of Germany and Upjohn Inc. of USA. After its initial years of struggle it broke ground with the launching of its own products in 1983. In 1985 BPL was listed in Dhaka Stock Exchange (DSE) as a Public Limited Company. The journey continued and barrier after barrier were crossed, challenges were faced and overcome to transform BPL into what it is at present. Now it has grown to become nation's one of the leading pharmaceutical companies, supplying more than 10% of the country's total medicine need. In the process, it was enlisted in Chittagong and London Stock Exchange. Today Beximco manufactures and markets its own `branded generics' for almost all diseases from AIDS to cancer, from infection to asthma, from hypertension to diabetes for both national and international markets ( Beximco Pharmaceutical...
Words: 4414 - Pages: 18
