1.

The measurement of assets can be done using these methods:

• Historical cost;

• Value to the business (also known as deprival value or current cost);

• Fair value;

• Realisable value; and

• Value in use

All these bases are forms of accrual accounting – that is, they are intended to measure income as it is
earned and costs as they are incurred, as opposed to simply recording cash flows. The last four are all
forms of current value measurement.

Bases of measurement in financial reporting are not carved in stone. Different people have different
views on how each basis should work, and meanings evolve as practice changes. Some readers may
therefore find that the way a particular basis is described does not match how they understand it. This
does not mean either that their understanding is wrong or that the description in the report is wrong.
Although it is conventional to consider questions of recognition (i.e., what items should be recognised in
accounts) and measurement (i.e., how recognised items should be measured) as entirely separate, in
practice different measurement bases lead to the recognition of different assets and liabilities. Broad
generalisations about reliability are also open to the objection that reliability is often a question of
shades of grey rather than black and white. A measurement may be accurate within a certain range or
with a certain degree of probability. To describe it merely as reliable or unreliable is a simplification.

Historical cost:

The historical cost of an asset is the amount paid for it and the historical cost of a liability is the amount
received in respect of it or the amount expected to be paid to satisfy it. Historical cost accounting is
usually interpreted nowadays to require that the amount at which an asset is stated in the accounts
should not exceed the amount expected to be recovered from either its use or its sale (its recoverable
amount). Historical cost as it is currently understood is therefore recoverable historical cost.
Recoverable amount is usually considered to be the higher of an asset’s realisable value and its value in
use.

Under historical cost accounting, where an asset increases in value above its historical cost amount, the
gain is not recognised until it is realised. Unrealised gains are excluded from income and from the
balance sheet. Many intangible assets are not recognised under historical cost accounting because their
capacity to generate future revenue is too uncertain at the time their costs are incurred for them to
qualify as assets. In terms of income measurement, the objective of historical cost is to match costs as
they are incurred with income as it is realised.

Value to the business:

For any given asset, the value to the business basis of measurement tries to answer the question: how
much worse off would the business be if it were deprived of it? The answer, as a rule, is given by the
asset’s replacement cost. Value to the business implies recognition of gains as they arise rather than as
they are realised, but it excludes from operating profit gains that arise purely from holding assets. Value
to the business also implies the recognition of assets and liabilities that are unrecognised under
historical cost. For example, the historical cost of an intangible asset might be written off as it is incurred
because it is uncertain at the time whether an asset is being created. Once the asset definitely exists, its
value to the business should be recognised and measured in the same way as for any other asset. Value
to the business also implies the recognition of assets and liabilities that are unrecognised under
historical cost. For example, the historical cost of an intangible asset might be written off as it is incurred
because it is uncertain at the time whether an asset is being created. Once the asset definitely exists, its
value to the business should be recognised and measured in the same way as for any other asset. Value
to the business has been advocated as a way of measuring a business’s profit so as to maintain its
operating capability (or service potential).

Fair Value:

‘The amount at which that asset (or liability) could be bought (or incurred) or sold (or settled) in a
current transaction between willing parties, that is, other than in a forced or liquidation sale.’ A notable
feature of this definition is that it treats an asset’s sale and purchase prices as the same. This approach
to fair value as an exchange value (rather than a buying or selling price) is reflected in the definition
used in current IFRS: ‘Fair value is the amount for which an asset could be exchanged, or a liability
settled, between knowledgeable, willing parties in an arm’s length transaction. Fair value implies the
recognition of assets and liabilities that are unrecognised under historical cost. If an asset or a liability
has a fair value, this in itself is an argument for its recognition. Fair value also implies recognition of
gains as they arise rather than as they are realised.

Realisable value:

An asset’s realisable value is the amount for which it could be sold. Realisable value measurements are
often made on a net basis, and in this report realisable value will be considered in the sense of net
realisable value; that is, net of selling costs (for assets). As the actual use of realisable value is limited, it
is difficult to say exactly how it would be calculated in practice if it were applied to assets and liabilities
generally. Realisable value is clearly limited to assets that would be disposed of in the ordinary course of
business – such as inventories. It could not be applied sensibly to all of a business’s assets.

Value in use:

The value in use of an asset or liability is the discounted value of the future cash flows attributable to it.
Value in use implies recognition of gains as they arise rather than as they are realised, but they are gains
in the value of the business unit, rather than gains on transactions or in the values of separable net
assets.

Key point of different basis:

• Historical cost provides a prudent measure of past performance and measures net assets based on
actual costs incurred.

• Value to the business shows the costs of entry (or replacement) and income after maintaining
operating capability.

• Fair value shows the value of net assets if sold separately and income based on that.

• Realisable value shows the value of net assets if sold separately (net of costs) and income based on
that.

• Value in use shows the present value of future cash flows and an economist’s measure of income.

Australian Accounting Standard Board:

The Australian Accounting Standards Board (the Board) is responsible for developing and issuing Accounting
Standards applicable to Australian entities and the “care and maintenance” of the body of Standards. The
Board's functions and powers are set out in the Australian Securities and Investments Commission Act 2001.

AASB 13 accounting standard:

AASB 13 outlines how to measure fair value when fair value measurement is permitted or required by
other Australian accounting standards. The term ‘fair value’ is defined in AASB 13 as being the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.

Market and market participants:

Fair value measurement assumes that the transactions are taking place in either the principal market or,
in the absence of a principal market, the most advantageous market for the asset. The agency must have
access to the relevant (i.e. either the principal or the most advantageous) market at the measurement
date. The concepts of principal market and most advantageous market are defined and explained in
AASB 13.

Highest and best use:

The fair value of a non-financial asset must be determined by reference to its “highest and best use”.
AASB 13 states that an entity’s current use of an asset is presumed to be the highest and best use,
unless market or other factors suggest that a different use would maximise the value of the asset. The
current agency use of an asset may be considered to reflect its highest and best use if the asset’s
present physical characteristics (without modification) would prevent its use for another purpose. This is
a reasonable assumption for specialised assets, as well as some non-specialised assets (like general
office buildings) where a market participant is likely to use the asset in the same way as the agency.
However, some non-specialised assets (like land) may be highly adaptable for alternative purposes (in
the absence of any applicable restrictions), so current agency use may not reflect highest and best use.
Agency judgement is required on this matter, based on individual assets’ circumstances.

Fair value hierarchy:

To increase consistency and comparability in fair value measurements and related disclosures, this
Standard establishes a fair value hierarchy that categorises into three level and the inputs to valuation
techniques used to measure fair value. In some cases, the inputs used to measure the fair value of an
asset or a liability might be categorised within different levels of the fair value hierarchy. In those cases,
the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as
the lowest level input that is significant to the entire measurement. Assessing the significance of a
particular input to the entire measurement requires judgement, taking into account factors specific to
the asset or liability. Adjustments to arrive at measurements based on fair value, such as costs to sell
when measuring fair value less costs to sell, shall not be taken into account when determining the level
of the fair value hierarchy within which a fair value measurement is categorised.

AASB 136 Impairment of assets:

AASB 136 Impairment of Assets is equivalent to IAS 36 of the same name as issued by the International
Accounting Standards Board. The objective of AASB 136 is to prescribe the procedures an entity applies
to ensure that its assets are not carried more than its recoverable amount.
AASB 136 definitions include cash-generating unit, fair value less costs to sell, impairment loss,
recoverable amount and value in use.
Recoverable amount of impaired assets
Consequential amendments to AASB 136 Impairment of Assets, as a result of the issue of
AASB 13 Fair Value Measurement by the IASB and AASB, inadvertently required that the
recoverable amount would be disclosed for each cash-generating unit (CGU) for which the
carrying amount of goodwill or intangible assets with indefinite useful lives allocated to that
CGU, was significant in comparison to the entity’s total carrying amount of goodwill or
intangible assets with indefinite useful lives.
The intention of the amendment was that the recoverable amount of impaired assets
only would be disclosed. Amendments have been made to AASB 136, paragraph 130(e) to
reflect this change.
Additional disclosures about fair value measurement
Consistent with the disclosure requirements for impaired assets in US GAAP, these changes
also introduce additional disclosures about fair value measurement when recoverable amount
is based on fair value less costs of disposal as follows:

 The level in the fair value hierarchy (i.e. levels one, two or three) within which the
fair value measurement of the asset or CGU is categorised in its entirety (without
taking into account whether the ‘costs of disposal’ are observable)
 For level two or three fair value measurements:
o A description of the valuation technique used, and if there has been a change
in valuation technique, the fact that there has been a change and the reason(s)
for making it
 o Each key assumption on which management has based its determination of fair
value less costs of disposal
o Discount rate(s) used in the current measurement and previous measurement if
fair value less costs of disposal is measured using a present value technique.

We have taken annual report of VIRGIN AUSTRALIA HOLDINGS LIMITED. Assets of the company:

Assets

Total assets increased by $132.2 million to $4,679.3 million during the financial year ended 30 June
2014. This increase is mainly due to the following:

• Cash and cash equivalents increased by $203.3 million to $783.8 million from $580.5 million in the
prior corresponding period despite negative operating cash flows of $7.7 million, primarily due to the
use of cash as follows:

– Net cash used in operating activities was $7.7 million, after funding business and capital restructure
activities of $108.6 million, predominately consisting of Skywest integration and the costs associated
with other Game Change Program initiatives

. – Net cash used in investing activities was $174.7 million largely funding capital expenditure of fixed
assets as noted below, acquisition of interest in joint venture and net advances of loans to joint ventures

. – Net cash from financing activities was $380.3 million following debt raising by the Group generated
by net proceeds from borrowings (including bank lending and related party loans) of $1,014.9 million
and share issues of $348.5 million offset by repayment of borrowings of $983.1 million.

• Deferred tax assets of $146.9 million were recognised in the 2014 financial year. In the prior
corresponding period, the Group recognised a net deferred tax liability of $7.0 million. The primary
driver of this result was the increase in tax losses carried forward which increased from $258.0 million to
$396.6 million. Refer to note 4(j) to the consolidated financial statements. The deferred tax asset
balance is offset by the deferred tax liability which increased from $327.0 million to $349.2 million.

• Trade and other receivables increased by $67.3 million to $326.5 million from $259.2 million in the
prior corresponding period mainly due to extension of loan facilities to Tiger. At 30 June 2014, the
carrying value on these loan facilities including interest receivable is $38.5 million. The timing of receipts
of trade and other receivables also contributed to the overall increase in this balance at 30 June 2014 in
comparison to 30 June 2013.

• Other financial assets increased by $51.4 million largely due to an increase in deposits relating to
major maintenance obligations of leased aircraft.
• Property, plant and equipment, intangible assets and assets classified as held for sale decreased by
$258.2 million, an 8% decrease to $3,125.8 million.

– Property, plant and equipment decreased by $363.0 million largely due to depreciation on assets of
$238.2 million. In addition, aircraft with a carrying value of $66.8 million were transferred to assets
classified as held for sale, as detailed below. An impairment loss of $51.2 million was also allocated to
the carrying value of property, plant and equipment assets attributable to the International CGU. Refer
to note 19 and note 22(b) to the consolidated financial statements.

– Intangible assets increased by $43.7 million due to expenditure predominantly comprising phase 2 of
SabreSonic implementation costs and an increase in contract intangible assets, offset by amortisation
charges for the period.

– Assets classified as held for sale of $61.1 million were recognised as at 30 June 2014 representing
aircraft with a carrying value of $66.8 million committed for sale in January 2014 and for which an active
program of sale is in place with an expectation for completion prior to 31 December 2014.
An impairment loss of $5.7 million on the remeasurement of the aircraft to the lower of its carrying
amount and its fair value less costs to sell has been included in “impairment loss” in the statement of
profit or loss.

• Derivative financial assets decreased by $94.3 million due to realisation of hedged positions during the
2014 financial year.

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