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Introduction
The aim of IAS 16 is to recommend an accounting action for property, plant, and equipment (PP&E) to assist clients with an informed knowledge of its operations (Elliott & Elliott 2017). The PP&E challenges in accounting include assets realization, the assurance of their conveying sums, and the related deterioration charges or impairment losses connected to them. PP&E, to which the costing procedure is applied, is valued at the cost of the purchase minus its amortization deducted because of depreciable resources.
This standard does not give the basis for evaluations; however, it shows the price of items based on the accounting model (Elliott & Elliott 2017). This paper seeks to clarify why IAS 16 property, plant, and equipment allows both historical cost and valuation methods in accounting for tangible non-current assets.
Using Historical Costs and Valuation Models
The IAS 16 standard incorporates a guide with instances of what can be considered separate categories of assets (Palea 2014). Based on this context, the ISA 16 allows both historical cost and valuation methods in accounting for tangible non-current assets. The historical cost rule demands that accounting records are kept at a single exchange rate and that these values are held throughout the accounting procedure in the balance sheet. Historical cost accounting depends on the recognition guideline, which requires the realization of income when recognized.
The IFRS 13 defines fair value accounting as the value that would be gotten from an asset in an organized exchange between market members at a specific date (Elliott & Elliott 2017). This meaning of fair value reveals the asset price based on the seller’s perspective. As a result, the realization rule influences the financial statement. The historical cost principle demands that asset cost must be valued only when sold irrespective of the depreciation.
Organizations may prepare their financial summaries utilizing historical cost or fair value accounting for their non-current assets. The choice ought to be made considering the advantages and expenses of the organization. One of the principal issues of using the fair value model for non-current assets is that fair valuation does not exist. Assessing fair value utilizing other strategies is costly and creates less dependable appraisals, which could diminish the gains regarding cost reductions. The IAS 16 allows both historical cost and valuation methods in accounting for tangible non-current assets based on asset recognition and measurement.
Thus, the symbolic importance of historical cost and fair value principle is based on relevance, a faithful representation, comparability, verifiability, timeliness, and understandability (Palea 2014). The ISA 16 factors these properties allow both accounting measures for tangible non-current assets (Barth 2018). For budgetary data or financial information to be helpful, it must be accurate and represent cost events. Faithful representation is the one that depicts cost events. As a result, the financial data must be complete, nonpartisan, and free from mistakes.
The date of procurement cost and fair value must be equal. Whenever cost valuation is utilized, it shows the previous occurrence and hides the present price. Historical cost valuation does not represent the impact of inflation. Under historical cost accounting, every asset has been valued at a historic time. Therefore, it is conceivable that two similar assets present varying contrasts in cost. The cost principle demands that an old fiscal unit is likened to the current group. The procurement cost of equipment is a valid cost, and the asset cost does not reflect the current value. However, the fair valuation models take cognizance of these differences.
Comparability is the quantitative trademark that empowers investors to distinguish and comprehend similitudes and contrasts among investment assets. Compared to different quantitative properties, asset comparability does not identify with one investment. Verifiability guarantees clients that the data describes the financial statement it represents. Confirmation can be immediate, for example, the perception of a price tag, or using information and equations (Barth 2018).
Timeliness implies having data accessible to chiefs to be equipped in the decision-making process. Therefore, reporting a change in the cost of PP&E gives timely information to speculators, lenders, and other clients of a financial statement. Understandability deals with grouping, describing, and showing data succinctly. The utilization of various valuation strategies can make data lose this feature of understandability. A few examinations that study the connection between stock costs and revaluation of assets infer that the utilization of the fair value model enhances the prospects for future profit (Barth 2018).
Conclusion
The IAS 16 allows both historical cost and valuation methods in accounting for tangible non-current assets based on asset recognition and measurement. Money-related information is relevant if it influences the choices of clients. Likewise, stock information can affect investors if it has prescient value, corroborative value, or both. Financial information has perceptive value when utilized as a contribution to forms used by clients to forecast future results. A financial statement has corroborative value when it gives input about past assessments. Thus, investors use historical cost and fair value models for tangible non-current assets.
Reference List
Barth, M 2018, ‘The future of financial reporting: insights from research’, A Journal of Accounting, Finance and Business Studies, vol. 54, no. 1, pp. 66-78.
Elliott, B & Elliott, J 2017, Financial accounting and reporting, 18th edn, Pearson, Harlow.
Palea, V 2014, ‘Fair value accounting and its usefulness to financial statement users’, Journal of Financial Reporting and Accounting, vol. 12, no. 2, pp. 102-116.
Do you need this or any other assignment done for you from scratch?
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