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Smith Case Study

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Smith Case Study Assessment Answer

 

Discussion

The paper would strive to explore the difference between the cost value, book value and market value for the fixed assets. In this scenario the relevance of AASB116 would be used to differentiate between the aforesaid value by means of its Cost and Revaluation Model.
In the given scenario Smith purchased a property for 5 million in 2017. This particular value stands for the cost price of the property which is being incurred by Smith to possess the same. The cost value derived is different to the book value of the property. The initial book value of the property would be worth 5 million as its purchase price but with the passage of time it differs as it takes into consideration the element of accumulated depreciation (DeFond and Zhang 2014). This is in line with AASB116 Para 30 showcasing the Cost Method revealing that as the assets need to be recognised in the balance sheet, then the value are to be carried forth at its initial cost subtracting the accumulated depreciations and accumulated impairment losses (Carson et al. 2016).

So depreciation on the property worth 5 million needs to be charged and the derived amount would be considered as the book value of the particular asset. In this way the cost or initial value of the asset differ with its book value. The book value needs to be recorded in the balance sheet and are considered important for determination of taxation owing to reduction in taxes due to depreciation of the assets (Arsen et al. 2013). In this regard AASB116 Para 31 for the Revaluation Model need to be quoted as it states for a fair value of the assets taking consideration of the deprecation in the subsequent periods. Again the book value differs with the market value as the later strives for the value on which the particular amount could be sold as the market demands.

Bibliography

BIBLIOGRAPHY Arens, A., Elder, R. amp Beasley, M., 2013. Auditing and assurance services. Boston Pearson Higher Ed.
Carson, E., Fargher, N. amp Zhang, Y., 2016. Trends in auditor reporting in Australia a synthesis and opportunities for research. Australian Accounting Review, 26(3), pp. 226-242.
DeFond, M. amp Zhang, J., 2014. A review of archival auditing research. Journal of Accounting and Economics, 58(2-3), pp. 275-326.

 
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