In the broad perspective, the “fair value of the asset is the amount for which the asset could be exchanged, or liability settled between knowledgeable, willing parties, in an arm’s length transaction”. Under the accounting standard, Pringle Limited needs to revalue their non-current assets while changing the method of the “straight line method” to “Sum of year’s digital method”. On the other hand, costs which are significantly related to the items of “Property, Plant and Equipments” of the company needs to be depreciated separately in the statements of financial of the company (Del Giudice, Manganelli and De Paola 2016). Thus the discontinued depreciation method shall need to be disclosed by the Marion. Under the measurement after recognition as per the paragraphs 29-66 of the AASB116, Pringle Limited would select the measurement model between “cost model” and “revaluation model”. Though the company has suddenly changed the method of the depreciation of the “non-current assets” of the company, the accountant should have measured their assets based on the revaluation figure at the end of the financial period.
Peter approached Marion to reduce their profit by applying the sum-of-year’s digits method which generally used for accelerating the recognition of depreciation. Since this accelerated depreciation can reduce the taxable profit, therefore, the “deferring income tax payments” must profit reduce the taxable income of the Pringle limited, the accountant must be measured the “non-current asset” value appropriately. While reducing the taxable income, “deferring income tax payments” must be treated properly with maintenance of the requirements of the “Australian Accounting Standards of 116”. This figure must be recorded in the “statement of profit of loss”. On the other hand, “deferred assets” figure must be incorporated in the asset side of the balance sheet. As per the given case study, Marion did not disclose the change of depreciation method in the financial note while preparing the statements of financial at the end of the fiscal year (Stunguriene and Christauskas 2014). This indicates two circumstances. Firstly, it can be anticipated that the accountant does not carried out the revaluation under the “revaluation model” as per the requirement of the “AASB 116/IAS 16”. In other words, it can be said that the accountant does not display the revalued figure in the asset side of the statement of the performance after considering the effects of the changed depreciation method.
Lastly, the most vital consideration was missing in the Marion’s accounting treatment of depreciation. She does not mention such changes in the financial notes to the statements of financial as she would not carry a negative impression in front of the company’s shareholders (Patelli and Pedrini 2014). However, all the allocated depreciable amount of an asset must be disclosed at the end of the “balance sheet” of Pringle Limited. In this disclosure, the pattern of expected benefit consumption related to the depreciation method should have been disclosed, but she does not comply with the requirements of “IAS 16/AASB116” (Vladu and Cuzdriorean 2013).
Del Giudice, V., Manganelli, B. and De Paola, P., 2016, July. Depreciation Methods for Firm’s Assets. In International Conference on Computational Science and Its Applications (pp. 214-227). Springer International Publishing.
Patelli, L. and Pedrini, M., 2014. Is the optimism in CEO’s letters to shareholders sincere? Impression management versus communicative action during the economic crisis. Journal of Business Ethics, 124(1), pp.19-34.
Stunguriene, S. and Christauskas, C., 2014. Benefits of Applying Different Depreciation Methods of Long-term Tangible Assets in a Company. Social Sciences, 82(4), pp.38-47.
Vladu, A.B. and Cuzdriorean, D.D., 2013. Creative accounting, measurement and behavior. Annales Universitatis Apulensis: Series Oeconomica, 15(1), p.107.
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