References 6 Essay Example
Table of Contents
Main changes to the recognition and measurement of bearer plants 2
Advantage & Disadvantage of Fair Value Measurement 3
Impact of Changes on Australian Vintage Ltd 4
This report looks to analyze the changes which have been proposed by The International Accounting Standards Board with regard to bearer plants of IAS 41 and the impact it will have on the financials. The report will analyze the impact for the same for Australian Vintage Ltd and will highlight the different advantages and disadvantages which will be witnessed. This will thereby help to understand the impact it will have on future performance.
Main changes to the recognition and measurement of bearer plants
The amendments which have been made to IAS 16 & IAS 41 based on bearer plants are as follows
IAS 41 states that biological assets which are related to different agricultural activities need to be measured as fair value less cost so that the true and correct picture of the financials is reflected (Bearer Plant. 2013)
The biological assets which have been classified are bearer plants which have achieved the maturity phase and will no longer undergo significant transformation but instead will be used to produce different goods. For example grapevine which is matured will be considered as bearer plant and will be used to produce grapes and wine (IAS 41).
The process will look at ensuring that bearer plants are considered as plant and equipment and will be thereby guided by the principles of IAS 16 instead of IAS 41 (Bearer Plant. 2013). This will thereby help to represent the value of the assets correctly at fair value which will justify the returns that the bearer plant will be able to provide.
The proposal is also for bearer plants which are expected to provide agricultural produce for more than one period and the incidental scrap sales doesn’t form part of it (Bearer Plant. 2013).
The amendment also require that proper disclosure should be provided regarding the valuation techniques which has been used so that the valuation techniques provide the user the manner in which the technique has been applied to the bearer plant (Bearer Plant. 2013)
Advantage & Disadvantage of Fair Value Measurement
The fair value measurement helps to provide the following advantages
Fair value measurement helps to present the economic reality of the business as the assets are correctly valued and the books doesn’t represent the under value or over value of the assets ensuring proper representation of the assets (Freedman, 2013)
The fair value measurement ensures that the gains and losses are recognized immediately as changes in the value of assets are recognized when it takes place thereby ensuring that correct representation of the assets (Freedman, 2013)
It helps to deal with volatility as changes in the assets are recorded in the balance sheet date which thereby ensures that the valuation of the company is proper. This thereby ensures that the valuation is correct and reflects the correct value of the financial assets (Freedman, 2013)
It helps to improve subjectivity for the assets as fair value measurement ensures that assets which are not traded on the public exchange are represented at the correct value highlighting efficiency in the manner assets are highlighted (Freedman, 2013)
The disadvantages of the fair value measurement are as
The fair value measurement principle will impact the valuation as the value of different assets and liabilities might change which will make it difficult for the business as changes in the value might impact the future potential of the organization (Way, 2013).
The valuation techniques which is used for valuing the different assets and liabilities might not be correct and thereby result in incorrect valuation of the different assets and liabilities (Way, J. 2013)
Impact of Changes on Australian Vintage Ltd
The impact of the proposed changes for Australian Vintage Ltd is as follows
Firstly, Australian Vintage Ltd produces grape vines which are biological assets which need to be measured at fair value less cost so that they are represented at correct value which the market will fetch (AV. 2014). This will thereby make Australian Vintage Ltd to make changes and adjustments so that the valuation method needs to be accounted for the previous year which will require making changes for all the years considering the retrospective affect that the situation will result in.
Secondly, the management proposes to use the discounted cash flow mechanism to find out the correct value which will make the entire process to be tedious and will require major ramifications in different areas (AV. 2014). This will also lead to a situation where correct valuation becomes difficult
Thirdly, proper disclosure has to be provided so that the user of the financial statement are able to understand the changes which have been made and the entire process should be such that it represent the correct value of the assets and liabilities (Agricultural Assets. 2009).
AV. 2014. Australian Vintage Ltd. Annual Report 2013
Agricultural Assets. 2009. A Practical Guide to Accounting for Agricultural Assets. Retrieved on May 18, 2014 from http://www.pwc.com/en_GX/gx/ifrs-reporting/pdf/A_practical_guide_to_accounting_for_agricultural_assets.pdf
Bearer Plant. 2013. Agriculture Bearer Plant. Exposure Draft. ED/2013/8
Freedman, J. 2013. What Are the Benefits & Disadvantages of Fair-Value Accounting? Retrieved on May 18, 2014 from http://www.ehow.com/info_8610950_benefits-disadvantages-fairvalue-accounting.html
IAS 41. 2014. IAS 41-Agriculture. Retrieved on May 18, 2014 from http://www.iasplus.com/en/standards/ias/ias41
Way, J. 2013. Advantages or Disadvantages of Fair Value Accounting. Retrieved on May 18, 2014 from http://smallbusiness.chron.com/advantages-disadvantages-fair-value-accounting-20577.html
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