In: Accounting
Question 1
a) Differentiate between the 'definition of assets' and the criteria for recognition of assets' provided in the conceptual framework.
b) If an asset is expensed in one financial year because future economic benefits were not deemed to be 'probable', can the same asset be reinstated in future periods if the benefits are subsequently assessed as probable? In this respect, does the ability to reinstate assets apply to all assets? Briefly explain.
c) AASB 101 stipulates a number of disclosures that many reporting entities are required to make. What specific disclosures are required by AASB 101 in relation to assets?
d) Is depreciation an allocation process or a valuation process? Provide reasons for your answer
e) In an article that appeared in The Australian Financial Review on 26 August 2011 ('Apple could easily flounder without its founder' by Mark Ritson), it was reported: The news that Steve Jobs has resigned from Apple and will be replaced as CEO by Tim Cook made global headlines yesterday What has followed since has been a frenzied discussion of what the loss of Jobs will mean for new product development timelines, share price issues and corporate culture. Apple's share price fell 5 per cent on the news of the resignation as questions were raised about Apple's prospects without its creative guru at the helm. But the real question for Apple as it enters its post-Jobs period is how well the brand will survive without the founder. Required The fact that the share prices fell following the departure of Steve Jobs is consistent with the view that Jobs was an 'asset' to the company. How do you think this 'asset' would have been disclosed in the financial statements of Apple?
f) What is a contingent asset? When should a contingent asset be disclosed within the notes to the financial statements? If something is initially disclosed as a contingent asset, when can it subsequently be recognised as an asset within the financial statements? Briefly explain.
Please don't copy other CHEGG ANSWERS because they are not answered according to the question. please answer according to question and marks
Answers: A)Definition of Assets: Asset is what the company owns. An asset is a resource that a company owns with the expectation that it will generate future benefits for the entity.
Criteria for recognition of assets: An asset is recognized in the financial statements when it is probable that it will create future economic benefits for the organization which holds the asset and it has a reliable cost or value. The economic benefits may be in the form of cash or cash equivalents.
B) If an entity feels a depreciated asset will bring future economic benefits, it can reinstate the asset using the following steps:
1. Revalue the asset and consider this as deemed cost of the said asset on the date of reinstatement and show this value in the financial statements and then depreciate the value over the remaining life of the asset.
2. If it is not possible to revalue the asset, then the firm should estimate the remaining useful life of the assets and reinstate its cost and accumulated depreciation as the amount of asset at the time of reinstatement. If they measured depreciation from the purchase date till the life of the asset(including estimated remaining life), then adjust the difference equity.
C) As per the requirement of AASB 101, an entity should present current and non-current assets separately in its financial statements and the management should disclose the judgments, assumptions and notes they have made in the process of applying accounting policies.
D) Depreciation accounting distributes the cost of all tangible capital assets (deducting the salvage value if any) over the useful life of the asset in a systematic and organized manner. So depreciation is treated as a process of allocation of cost based on the following assumptions:
It is that part of the cost of an asset that cannot be recovered if the asset is finally put of use.
It does not provide the funds for the replacement of the asset directly. And provision for depreciation cannot be identified with cash or other specific assets.
Charging depreciation is not an attempt to mesure the value of an asset at any given date. The depreciable value of the asset shown in the balance sheet is that portion of the cost which has not been allocated as a periodic expense in the calculation of profit/loss.
Depreciation related to the measurable benefits from the assets.
E)It is mentioned as an intangible asset in the balance sheet. Intangible assets are those which have no physical presence. Trade secrets, Goodwill, Brand recognition, intellectual property, copyrights, patents are examples of the intangible assets.
F) Contingent asset is a potential economic benefit that may arise in the future on the happening or non-happening of any event which is beyond the control of the company.
It is included in the notes of financial statements if the probability of inflow is more than 50%, but it is not recognized in the statements which explain financial position of the company)
The asset mentioned as a contingent asset becomes realized asset when its value is realized(cash flow happens) on the happening of a certain event.