Financial Accounting Education Australia Essay

Question:

Discuss About The Financial Accounting Education Australia?

Answer:

Introducation

The costs, incurred during acquisition of assets, can be classified into two categories – capital expenditure and revenue expenditure. In general, the capital expenditures are included in the book value of the acquired assets, whereas, the revenue expenditures are treated as annual expenses and considered for determining the annual profit or loss. This classification is conducted in accordance to the nature and objective of the specific cost. If any cost is incurred for acquiring the asset or marketing the asset ready for operation, then such cost is included in the book value of the asset. On the other hand, costs, incurred for other purposes during the acquisition, are considered as revenue expenditures and not included in the book value of the assets (Deegan 2016).

In this case, the costs, which are included in the book value of assets, are listed below with justifications:

Legal Fees: Legal fees are often borne for acquiring any capital assets, especially, property. Without incurring such expenses, it is not possible to transfer the ownership of any assets. Hence, legal fees for the land purchase is included in the book value bof the land.

Installation Cost: The machine, acquired, cannot be utilized for operation purpose until it is installed properly. Therefore. The installation cost of machinery is considered as a part of the book value of machinery.

Renovation Cost: The building can be used fully only after renovating it properly. Hence, the renovation cost is included in the book value.

Shipping Cost: Shipping cost is borne for moving the machine to the production area and is incorporated in the book value, therefore (Schroeder et al.2016).

Though the training cost is incurred for using the machine properly, the training is given to the employees, who may not work in the same organization for the full estimated life of the machine. Even, some of the trained employee might be assigned to work in other fields of operation later. Hence, as it is not sure that the training cost can be consumed fully for operating the machine, it is not considered as a capital expenditure.

Depreciation Schedule of Machinery:

As per AASB, the companies can change the depreciation method, if required. Change in depreciation method can be done for various purposes. Due to the following reasons, the company has decided to change the depreciation:

Under declining method, the depreciation expense uses to decreases every year and help to increase the net profit. Therefore, the companies have to pay higher tax in comparison to the previous periods. Change of depreciation method can help the company to increase the depreciation management in the later part of the estimated life of the assets. Thus, it can reduce the income tax expenses also (Williams 2014).

Sometime, the productive life, estimated while acquiring the asset, may not match with the actual life of the asset. The asset can become obsolete before the estimated life or it may provide good service even after the end of the estimated life. Hence, change in depreciation method can be effective to adjust the change in the useful life of the asset (Henderson et al. 2015).

Reference

Deegan, C., 2016. Financial accounting. McGraw-Hill Education Australia

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU

Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2016. Financial Accounting Theory and Analysis: Text and Cases: taxation-law. Wiley Global Education

Williams, J., 2014. Financial accounting. McGraw-Hill Higher Educati

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