6BUS 1003 ADVANCED CORPORATE REPORTING

UNIVERSITY OF HERTFORDSHIRE

MEASUREMENT OF TANGIBLE NON-CURRENT ASSETS AND QUALITATIVE CHARACTERISTICS

World count ..

PREPARED BY: MADDUMA BANDARA SANATH ABEYKOON SID: 09281403

TABLE OF CONTENT Introduction. Main Body.

INTRODUCTION
The key objective of financial statements is to provide information about the firms financial position, financial performance and changes in equity to users to make economic decisions. Since several possible measurement bases such as historic cost, fair value, recoverable amount, realisable value and value in use, have been introduced by the IASB conceptual framework in order to measure the elements of the financial statements, companies will have a choice to use any of those bases. As a result of this, different outcomes of the financial statements will come out from different companies and thereby users of the information are likely to be struck. Therefore, the elements of financial statements have to be measured by using a common measurement base which helps the users to have better understanding. Equally, the financial information to be useful, they must meet the qualitative characteristics which have been set out in the IASB conceptual framework such as relevance, faithful representation, understandability and comparability. Mcconnel (2011) explained that the qualitative characteristics are the qualities that believe financial information must have to meet the objectives. If not, unsuccessful decisions will be made. For an instance, investors may reject perfectly good investment opportunities and may accept some unprofitable projects which can damage their wealth. This essay is based on the measurement of tangible non-current assets and critically evaluate whether the useful information provided by IFRS should be used when preparing financial statements and examples will be used from the annual reports of Tesco, Sainsbury, Morrison and M&M in order to discuss.

MAIN BODY
Elliot & Elliot (2009) pointed out that the assets which are expected to be used for more than one year accounting period for use in the production or supply of goods and services or for

administration purposes are identified as non-current assets. Property, plant and equipment can be mentioned as examples for them. They are vital parts of a company as the company generates revenue and makes profits by using them. Because of this, shareholders are very interested in the firms non-current assets as they can see how much profit is generating and how much revenue is bringing by using them. Therefore, the measurement of them becomes very important. As mentioned before, IASB conceptual frame work (2010) identified several measurement bases which can be used to measure the non-current assets of a firm.

Firstly, historic cost method which is the actual amount that the company paid to acquire the particular assets will be reported in the statement of financial position after deducting any accumulated depreciation taken and recognised impairment loss. The information based on the historic cost approach is reliable as the measurement is based on the original amount which was paid by the firm to acquire the assets. Shareholders can see the original value of the assets by looking at the original invoices. In addition, net book value of the assets will be stated as a result of deducting any deprecation taken and consequently, it becomes more reliable because the shareholders can see how long the assets can be used more. Therefore, it is useful to shareholders to make decision. However, this measurement base ignores the amount that the asset could be sold in the open market. In another words, it does not reflect to the current market price. For an example, a land which was purchased 20 years ago could be worth much more than the SOFP shows. Therefore, the information is not relevant to the shareholders as they consider the forward looking. When consider about the comparability, the information comes out from this measurement base can be compared with the previous years information of the same company. Therefore, it is useful to shareholders to make decision. The qualitative characteristic of understandability seems to be met with historic cost method.

According to the annual report of M&S, it is said that their property, plant and equipment have been stated in the SOFP at cost less accumulated depreciation and any recognised

impairment loss. Since the actual amount the company paid to acquire those assets have been reported, the information is reliable. However, the information is not relevant to decision making as M&S is not keeping the PPE records up to date with the current market price. Their assets could be worth much more than their SOFP shows. What is more, the provided information can be compared with previous the year information since the same measurement base have been used. Therefore, it is useful to shareholders as they can compare them. Moreover, the information is completeness and not complex. Consequently, it is readily understandable and thereby, it is useful to the shareholders to make decisions.

Secondly, fair value method which is the current market value of the assets will be reported in the SOFP after deducting any depreciation taken and recognised impairment loss.