International Financial Reporting Essay Example | Topics and Well Written Essays - 3250 words

International Financial Reporting - Essay Example Moreover, in order to explain the concept, certain examples have been discussed for a hypothetical organisation - Noka. IAS 16 deals with recognition of property, plant and equipment; and their depreciation charge calculation. It also provides guidance on how to determine the carrying value of these assets and the treatment during disposal of these fixed assets. In order to facilitate the users in reading financial statements, IAS 16 standardises the recognition, measurement, revaluation, depreciation and de-recognition of property, plant and equipment; and provides guidance on accounting treatments. The standard provides flexibility to organisations in terms of subsequent measurement of value of the fixed asset. So, it can either be stated at original cost (less impairment and depreciation), or can be revalued to state its fair value (the current market value). The organisation must state the method used to measure the asset in the disclosure section of the financial statements. This would assist users in determining whether the original cost is used to value the asset or if the market value is used to provide a fair value closer to the current market value. ... The organisation must state the method used to measure the asset in the disclosure section of the financial statements. This would assist users in determining whether the original cost is used to value the asset or if the market value is used to provide a fair value closer to the current market value. But, in order to assure the users that revaluation was done properly, addition disclosures are required including date of revaluation, method used to revalue, if independent valuer was involved, etc. The implication of carrying value is significant. This is because in most circumstances, organisations would opt to incur additional expenses of revaluing the asset only if they are confident that revaluation will assist in increasing the carrying value of the asset. This directly impacts the balance sheet. Depreciation The depreciation is the charge on usage of the asset; and is treated as a non-cash expense. At the end of the year, depreciation is charged to the income statement of the organization. IAS 16 requires that organisations use a depreciation method consistent to the useful life of the asset (the period in which economic benefits can be obtained from the asset). The method used to calculate depreciation may vary. In addition, organisations are allowed to change the depreciation method but it has to be documented under disclosure section along with reasons for the change. The implications may be significant. If reducing balance method of depreciation is used, the company will be able to depreciate the asset faster in the beginning as opposed to straight line depreciation that requires same depreciation charge for the entire useful life of the asset. De-recognition or