FINANCE - FINANCIAL ANALYSIS

Financial Accounting Assignment

Financial Accounting Assignment

IAS 40 - Investment Property

The international standards of financial reporting IAS40 got to related to the investment property. The principal purpose of this Standard is to prescribe the treatment of accounting for the investment property and related requirements of disclosure (Accounting Standards Board 2007).

Investment property is the property (building or a land or a piece of land or building) held (by the lessee or the owner under the lease of finance) for the purpose of earning rentals / appreciation of capital or both (Accounting Standards Board 2007).

IAS 16 - Property, Plant and Equipment

The international standards of financial reporting IAS16 got to relate to the property, plant and equipment. The purpose of this Standard is to prescribe the treatment of accounting for the plant, property and equipment so that financial statements' users can distinguish the information about the investment of an entity in its plant, property and equipment. This principal got to issue in the accounting for the plant, property and equipment that are assets' acceptance, the determination of the depreciation charges, and their carrying charges as well as impairment losses that have to be recognize in association to them (Ministry of Defence 2012).

Fair Value Model under IAS 40 & IAS 16

On the principles of the fair value, the less costs to sell and value is used, as well as accounting for impairment of certain assets and cash-generating unit. For example, the cost of acquisition and operation were higher income from the asset were lower than originally budgeted. Submitting a list of features is not exhaustive (Accounting Standards Board 2007). Its role is to continue to own list of proposed standards. Its purpose is also to identify situations in which the carrying value of assets that may be greater than its recoverable amount. It makes sense to refer to the economic substance of impairment.

The consequences of the above requirements are to reduce the future cash flows from the assets than originally anticipated. Thus, the decline in the economy of the country (region), as a rule, characterized by falling purchasing power, which may result in substantially reduced sales volumes and prices of goods (works, services), which the company manufactures using its assets (Ministry of Defence 2012). Damage to property does not allow people to get those revenues from the production and sale of property that would be obtained in the operation undamaged property or create additional costs for the company to restore normal operating parameters of the asset. Selling price of damaged property will also be less than the sale price of similar intact. Thus, any situation that leads to a decrease in future cash flows from the asset is an indication of potential impairment and requires testing for impairment in accordance with IAS16 (Accounting Standards Board 2007).

Discussion

Part (a) Decision of Renting the Building to a 3rd Party under IAS 40

For the year ending 31 December 2013, and subsequent years, the office buildings should be dealt under the ...