ACCT211 TERM TEST PREP 1.

NZ FINANCIAL REPORTING FRAMEWORK Objectives of Financial Reporting Info that is useful to a wide range of users in making economic decisions specific info about the financial position, financial performance and cash flows shows the stewardship, accountability of management Qualitative characteristics: relevance, reliability, understandability, consistency Faithful representation: complete, neutral, free from error True and fair: following all standards, but more is required (director add notes and explanation)

1987 market crash inadequate accounting practice/regulation. In response, Companies Act 1993, FA 1993 Companies Act 1993 requires companies to keep proper acct records and annual report sets out directors obligations, audit requirements, disclosure requirements

Financial Reporting Act 1993 reporting entities need to comply with GAAP and give true and fair view established ASRB GAAP compliance: applicable financial reporting standards, if no relevant standard or law, appropriate to the circumstances, have authoritative support within the acct profession

2002 NZ adopted IFRS, implemented 2007 2007 Response to Global Financial Crisis IASB and IFRS objective: to develop a single set of high quality and globally accepted IFRS through its standard setting body IASB ASRB: crown entity, approved proposed standards, give legal backing FRSB: improve the quality of general purpose financial statements, provide users with sound information to make economic decisions.

2010 ASRB concluded that user needs could not be adequately met by a single set of standards multi standards approach use tiers to match costs and benefits (and sectors) XRB established in 2011 Hence, a new Accounting Standards Framework was developed Enactment of FRA 2011 disestablished ASRB and established XRB

XRB independent crown entity objectives: establish financial reporting strategy prepare and approve accounting standards prepare and approve audit and assurance standards oversee operating boards take over standard setting responsibility of FRSB and PSB liaises with IASB in the development of standards

New Accounting Standards Framework 2 sector multi-tier/multi standards approach tier structure for PBE and for-profit entities s34 FRA established a system of tiers of financial reporting different financial reporting requirements for different classes of entities. sector neutrality no longer viable, standards are now specific to each sector. more relevant to user needs, different types of entities have different objectives full requirements for financial reporting are not justified for small and medium enterprises Companies Act 1993 increases accounting regulation two categories for companies: exempt companies and reporting entities criteria: exempt companies must be small assets, turnover and number of employees In effect, it is not compulsory for exempt companies to follow reporting standards unless required by specific regulations such as those set out by the IRD. For Profit entity: o Tier 1 (publicly accountable, large): full GAAP, IFRS o Tied 2(non-publicly accountable): RDR PBE: o Tier 1: full GAAP o Tier 2: RDR o Tier 3: accrual accounting o Tier 4: cash accounting PBE: reporting entity whose primary objective is to provide goods or services for community or social benefit rather than for financial return to equity holders. PBE can be classified into non-for-profit (eg charity) or government (eg Treasury, Ministries) SOE are not PBE they have an objective of financial return to government as shareholder.

NZIAS1

purpose of financial statements info required in financial statements, notes, disclosure requirements for accounting policies

requirements for structure and content

NZIAS8 key issues users judgments about the activities of an entity are based on evidence presented in the financial statements presentation can be manipulated creative accounting/material errors made comparisons between different companies or accounting periods is difficult when the policies used have changed can affect the position and profitability of the company potential for fraud when profits or balance sheets are manipulated full disclosure is required sets out: criteria for selecting and changing policies, accounting treatments and disclosure for changes/errors

Standards NZIAS 16: PPE safety and environmental expenditures para 11 NZIAS 17: Leases NZIAS 36: Impairment of assets o recognizing impairment loss (recoverable amount less than carrying amount, para 59) o previous impairment loss not to be reversed, para 114 NZIAS 37: Provisions, contingent liabilities, and contingent assets NZIAS 38: Intangible assets

2. LIABILITIES and LEASES Liability NZIAS 37: provisions, contingent liabilities and contingent assets present obligation: o duty or responsibility to act in a certain way o might be legally enforceable (eg binding contracts or statutory requirements) o arise from normal business practice (eg repairing faulty goods outside warranty periods) arising from past events or transaction result in outflow of economic benefits Recognition: probably that a sacrifice of economic benefits will be required, and the measured reliably if entity retains discretion to avoid making future sacrifice, then liability does not exist eg dividends Classification: current/non-current, order of liquidity. Method chosen must provide relevant and reliable info. current liabilities: settled within normal operating cycle, primarily for trading purposes Implications: can affect ongoing survival as ongoing availability of external funds dependant on prespecified levels of performance, or agreed maximum level of debt organizations close to breaching debt covenenants will prefer methods that increase income, and thereby assets and equity, or decrease debt

Debt to equity debate firms prefer to disclose low levels of debt issue debt-like securities labeled as equity. eg redeemable preference shares distribution of profits, not expenses. as opposed to debt associated payments are treated as interest, ie reduction in profits NZIAS32 Financial instruments: disclosure and presentation o substance rather than the legal form of a financial instrument o some preference shares are financial liabilities o can have significant implications for debt to equity ratio

Debentures a written promise to a pay a principal amount at a specified time in the future, as well as interest calculated at a specified rate market rate>coupon rate: discount. cash flows to the investor represents the rate of return required by the market. market rate<coupon rate: premium. interest calculated using markets required rate of return. will pay par if the interest rate offered accurately reflects what they believe the interest rate should be. refer to additional notes for journal entries

Provisions a liability of uncertain timing or amount present obligation as a result of past event: can arise from legal and constructive obligationsestablished pattern of past practice, or published policies. probable that outflow of resources will be required to settle: more likely than not present obligation exists- provision, if less likely than not, then contingent, if remote, then no disclosure necessary. reliable estimate of amount of obligation can be made provision to be recognized at present value eg penalties for unlawful environmental damage, provisions for annual leave, warranty repairs, provisions for maintenance

Contingent Liabilities possible obligation arising from past events existence confirmed only by occurrence of one or more uncertain future events not wholly within control of entity OR present obligation arising from past events, BUT outflow of economic benefits not probable or cannot be measured with sufficient reliability eg guarantees to cover another orgs debts or potential obligations from legal actions disclosed in notes to financial reports class, brief description, estimate of financial effect

Contingent Assets disclosed in the notes NZIAS37 disclose brief description of nature of contingent assets avoid providing misleading info on the likelihood of income arising

Hybrid securities exhibit characteristics of both debt and equity convertible notes: debt that allows conversion at debt holders option into shares if conversion is probable, then equity component liability component payment obligations prior to conversion

3. LEASES Agreement where lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. Firm may recognize an asset it does not own, as long as it has control over the asset. Two types of leases, finance lease and operating lease. Fair value: amount for which an asset could be exchanged or a liability settled between willing parties. Used to determine the amount to be included for the leased asset in the balance sheet. Non-cancellability: cancellable only if: occurrence of remote contingency, permission of lessor, payment by lessee any additional amount Contingent rent: portion of the lease payments that is not fixed in amount. Important because if rent is contingent upon future sales, future use etc, there is effectively a shift of some of the risks and rewards of ownership back to the lessor. Increases likelihood of being an operating lease. Transfer of ownership: if there is transfer of ownership at end of lease term, then finance lease Bargain purchase option: provision that allows a lessee to purchase a leased property for price expected to be far lower than the expected fair value. Included in calculation of minimum lease payments because the exercise of a bargain purchase option is reasonably assured and therefore probable that the amount will ultimately be paid by the lessee. Economic life: the period over which an asset is expected to be economically usable. Important, if lease term is major part of economic life of the asset. Then likely to be finance lease. >75% of economic life. Guaranteed residual: the maximum amount that could become payable.

Finance Lease Lease which transfers substantially all the risks and rewards of ownership Must be disclosed in the financial position: lease asset, lease liability Lessees risk exposure is basically what it would be if the lessee acquired the asset by way of purchase Risks and rewards transferred in substance NZIAS17: whether finance or operating lease depends on substance of the transaction Likely to be finance lease if: o Lease transfers ownership of the asset to the lessee at the end of the lease term o Lessee has option to purchase the asset at a price expected to be sufficiently lower than the fair value o Lease term is for major part of economic life of asset o If cancellable, lessors losses are borne by lessee o Economic life. >75% of economic life o Contingent rent less likely to be finance lease o Present value of minimum lease payments substantially all 90%

Minimum lease payments The payments over the lease term what the lessee is or can be required to make If at inception PV of minimum lease payments amounts to at least substantially all of the fair value, then likely to be finance lease. Excludes contingent rent, costs for services and taxes paid by and reimbursed to the lessor (executory costs, follows capitalization principle used for assets, period repairs and insurance would not typically be recognized as part of the cost of an asset). Excludes unguaranteed residuals, not sufficient certainty the amount will be paid. Includes: guaranteed residual, bargain purchase option, initial direct costs The discount rate used to compute the PV of minimum lease payments is the interest rate implicit in the lease - discount rate that, when applied to the minimum lease payments and the unguaranteed residual value accruing to the lessor (if any), causes the aggregate present value to be equal to the fair value of the leased asset and any initial direct costs to the lessor. OR the lessees incremental borrowing rate. Note, the unguaranteed residual is included in the aggregate PV together with minimum lease payments for calculating implicit interest.

Accounting for lessee leases record leased asset and liability at fair value rental payments include payment of principal and interest interest expense calculated by applying the interest rate implicit in the lease to outstanding lease liability at beginning of each lease period leased assets should be depreciated Initial direct costs: costs directly associated with negotiating and executing a lease agreement o includes commissions, legal fees, costs of preparing and processing documentation o must be capitalized as part of the lease asset

Operating Lease do not substantially transfer all risks and rewards of ownership to the lessee lease payments representative of the patter of benefits derived from the leased asset

Sales and Leaseback transactions occurs when the owner of a property sells property to another and simultaneously leases it back from the lessor Benefits: o often considered a useful way of obtaining funds while maintaining control of the asset o frees up funds, might generate higher returns o diversify into other activities o lock in capital gains that have occurred often sold at price equal or greater than current market value lesse typically pays all executor costs as if title remained with lessee finance lease if substantially all risks and rewards incidental to ownership remain with lessee any profit or loss deferred to the balance sheet and amortiesd to the profit and loss over the term of the lease inappropriate to recognize profit or loss operating lease where substantially all risks and rewards of ownership are passed to lessor at fair value profit or loss recognized immediately below fair value recognized immediately, unless loss is compensated by future lease payments, then deferred and amortised in proportion to the lease payments above fair value deferred and amortised over the period for which the asset is expected to be used if fair value less than carrying amount, loss is recognized immediately

For lessors Direct financing lease: derives income through periodic interest revenue, recognize assets in balance sheets, and present them as a receivable at an amount equal to the net investment in the lease Recovery of executory costs eg costs related to operation and maintenance, treated as revenue by lessor in financial years in which related costs are incurred

Leases involving land and buildings Risks and benefits of land cannot be transferred to lessee unless the lease will at completion, transfer ownership or has a bargain purchase option Treated as operating lease unless reasonably assured of transferring ownership Minimum lease payments must be allocated between land and buildings in proportion to their relative fair values at lease inception If fair value of the land is greater than 25 percent of the fair value of the total land and buildings, treated as operating lease. If land component is treated as operating lease, then only use the PV MLP of the building as the amount of lease liability for depreciation: use economic life if likely to retain asset at end of lease term (eg there is a bargain purchase option), use lease life if unlikely to retain

4. EQUITY COMPANY START UP a company must have: o a reserved name o minimum of one share o minimum of one shareholder o one director o registered office o an address for service incorporation steps: name reservation o online reservation o reserved by the register of companies o name must include limited o valid for 20 working days o must not contravene an enactment, cannot be identical, offensive application for registration o attached: directors consent and cert o shareholders consent for share issue o agent authorities o name reservation o constitution: optional, standard constitution available from companies office, can be altered o prescribed fee certificate of incorporation o issued by the register of companies o incorporated under the Companies Act 1993 shareholder liability (s97): o unpaid amounts of a share o liability allowed by constitution o director liability (s131-137) o recoverable distributions (s56) once a company goes under, eg trading on unsolvents. The traders will look at what actions were taken that caused the company to go bust o called liability (s100) o can include former shareholders (s98) Directors responsibilities o maintenance of accounting records Annual report o in writing, dated, describe company affairs o not harmful to the business o name of persons holding office as directors

Statutory obligation o share register (s87) includes names and addresses of shareholders for last 10 years, issue/transfer/repurchase records o company records (s189) constitution minutes of shareholder and director meetings (7 years) directors interest issues certs under Companies Act names and addresses of current directors all written comm. to shareholders all accounting records for last 7 years (s197) o accounting records (s194) explain and record transactions describe financial position at any time allow directors to see the records comply with the FRA enable audit procedures o register of charges: record of funds raised by means of outside security o registered office and address for service cannot be postal or delivery address o changes to directors: made within 20 days of occurring o annual meeting: at least once per year, within 6 months of balance date o auditor appointment: annually check for true and fair view, not necessarily accuracy. o issue of shares: initial applicants must have share issued to them, can make additional share issues, notice must be given within 10 working days o distributions to shareholders: authorised by BOD must satisfy the solvency test immediately includes balance sheet solvency, net assets must be positive. and trading solvency, org must be able to pay debts when they fall due (eg look at working capital ratio, OPCF, interest to OPCF) must comply with constitution and Companies Act o annual return: submitted in designated month, include prescribed fee, records changes, auditors etc

EQUITY residual interest in the assets of the entity after deducting all liabilities made up of: share capital, reserves (eg revaluation reserve, general reserve, forfeited share reserve), retained earnings Ordinary shares: o can be issued at different times at different prices o have voting rights o are entitled to distributions, but not assured o usually rank last in distributions from winding up of company Preference shares: o receive preferential treatment over ordinary shares over: distributions equity distributions/wind up both o forms: non-redeemable participating may participate with ordinary shares in any further profits, above the fixed rate of preference dividends convertible redeemable redeem shares for cash at option of company or shareholder if no voting rights, redeemable at fixed date at option of shareholder, fixed rate of return, non participating then more debt-like likely to be disclosed as debt NZIAS 32 p18 substance over legal form Partially paid shares: o paid portion is recorded as fully paid shares o deferred amount is shown as a receivable o shares with deferred settlement: interest component may be implicit in the deferred settlement Shares issued for other than cash: o promissory notes o contracts for future service o real or personal property o other securities of the company, eg convertible debentures o for NCA, transaction recorded at fair value share issue oversubscribed o discrimination: satisfy full demand of certain number of subscribers and refund the other funds, usually local investors preferred, or discriminate against small investors due to extra paperwork o pro rata basis: excess moneys on application can either be refunded or used to reduce further moneys owing on allotment o method chosen depends on fiduciary duty: act using knowledge and ability to the advantage of investors, eg whether investors can invest the funds at the rate the company could o undersubscribed: use an underwriter to get all the share issue it wants

share issue costs: o direct costs: eg legal promotional, accounting, underwriting deducted directly from the share issue o indirect costs: eg management time, research, negotiating sources of finance, feasibility studies not deducted from the share issue (expensed in P&L) distributions: o dividends, share redemption or repurchase, cancellation o forms: cash other assets incurrence of a debt for the benefit of shareholders equity conversion to a liability o dividend proposed after the end of the reporting period should not be recorded as a liability there is no unavoidable obligation at the end of the reporting period to pay dividend (NZIAS 10, p12) o should be disclosed on the face of the financial statement: as a separate component of equity, or in the notes of the financial statement o dividends declared prior to balance date should be recorded as a liability redemption of shares o solvency test must be passed o unless done at the option of the shareholder o if involves non-cash items, the fair value of the consideration must be determined o benefit: capital gain on the shares not taxable share repurchases: o repurchased shares cancelled immediately, or held as treasury stock to be reissued at a later time o why: share appears to be underpriced, increase EPS by reducing no. of shares outstanding, buy out specific shareholders/prevent takeover attempts, reduce dividend payments, reduce average cost of capital o gain or loss can arguably be charged directly to income, reserve or some combination of both o but inappropriate to be recognised in income (meet definition of equity transaction), inappropriate for reserves (reserves relate to specific assets) o therefore, can recognise gain or loss in retained earnings, or create a new equity reserve called cancelled share reserve o current best practice is cancelled share reserve for difference when shares are repurchased o where shares are not cancelled, entity effectively acquires its own shares NZIAS 32, p33: treasury shares deducted from equity, no gain/loss on acquisition recognised

Solvency test: o requirement for protection of the rights of creditors o balance sheet solvency value of companys assets greater than value of liabilities (including contingent) depends on: validity of assets/liabilities, likelihood of contingencies occurring o trading solvency able to pay its debts as they become due in normal course of business. depends on: accuracy of cash forecasts, validity of assumptions underlying forecasts. Forfeited shares o forfeit if shares issued as partly paid and shareholders do not subsequently pay the amounts due on allotment or on calls or shareholder ceases to be member of the company o If listed on NZX, refund is paid to investor less costs incurred in reissuing o recorded in forfeited shares account (liability) until refunded o If constitution doesnt provide refunds, then company can retain the amounts paid forfeited shares reserve (part of shareholders funds) Share splits and bonus issues o subdivision of companys shares into shares of smaller value o result in no change to OE o no journal entries, company amend share register o why: lower priced shares more marketable, share price can go up, earning expectations increase, extra news coverage, people notice company, demand increases o Bonus shares: o existing shareholders receive additional shares at no cost, in proportion to their shareholding at the date of the bonus issue o no accounting effect on value of the company o stake in company does not change because shareholding is exactly the same o why: substitute for paying dividends, shareholders think they get return on investment, company not doing well enough to give out dividend shareholder liability includes: o liabilities allowed by the constitution o proposed final dividends o distributions after an org doesnt pass solvency test o repaid loans to shareholders o uncalled capital

5. ASSETS NZ conceptual framework, definition p4.4: resource controlled by the entity as a result of past events from which future economic benefits are expected to flow to the entity 3 essential characteristics o expected to provide future economic benefits that are probable o future economic benefits must be controlled by the entity o control result from past event or transaction control: the capacity of the entity to enjoy the benefits in and deny or regulate the access of others to the benefits NZIAS16 PPE p6: PPE are tangible items that are held for use in the production/supply of goods or services for rental to others, or for admin purposes; and are expected to be used during more than one period

Asset recognition Framework: A4.8: economic benefit can contribute directly or indirectly to cash flow and equivalents. eg potential may be a productive one that is part of the operating activities, has capability to reduce cash outflows, eg alternative manu process lowers cost of production A4.9: used to produce goods or services for customers, contribute cash flow. cash itself renders a service to the entity A4.10: economic benefit flow by: used in production, exchanged for other assets, used to settle liability, distributions A4.11: physical form not essential to existence. eg patents and copyrights A4.12: Right of ownership is not essential, eg finance leases even if no legal control, as long as the entity controls the benefits, eg intellectual capital, intangibles may meet definition of an asset A4.13: assets result from past events, eg government grant in program to encourage economic growth A4.14: when entity incurs expenditure, may provide evident that future economic benefits were sought, but not conclusive proof, and vice versa, eg donated items satisfy definition of asset Underlying assumptions and qualitative characteristics: o going concern, accrual basis o neutrality, substance over form o prudence o comparability o balance between benefit and cost o relevance v reliability o completeness o timeliness o overall aim: true and fair view/fair representation

Recognition criteria: o probable that any future econ benefit will flow to or from the entity considered to mean that the chance of econ benefit arising is more likely rather than less likely probability of benefits arising >50% if improbably, then asset needs to be expensed in the income statement (NZ Framework, para 90) what was initially considered an asset might need to be expensed in a later period, eg impairment if at a given time, expenditure not deemed likely to generate future econ benefit, then asset should be expensed in the period it becomes apparent that insufficient benefits will be realised. o asset possesses a cost or value that can be measured reliably initial recognition at cost capitalize all PPE at the time they are acquired. includes all cost incurred to make PPE ready for intended use. eg import duties, site prep, employee benefits, costs of testing consider: costs of introducing a new product or service, including costs of advertising and promotional activities? Expensed also do not include costs of opening new facility, cost of conducting business in a new location, staff training costs, admin and other general overhead costs subsequent costs: capitalize costs incurred subsequently to add to, replace part of, or restore useful life expense the costs of day-to-day servicing of the item, recognised in P&L. eg motor vehicle licenses/insurance are capitalised because they are annual recurring expenses,

Impairment a sudden significant decline in an econ benefit impair when there is possibility that the recoverable amount of an asset is less than the carrying amount, eg due to damage to asset or obsolescence recoverable amount o = higher of the fair value disposal costs and value in use o to be estimated for the individual asset o or the cash generating unit to which the asset belongs o cash generating unit = the smallest identifiable asset group the asset is a member of that generates cash inflows largely independent of other groups o if based on CGU, then impairment loss to be apportioned among assets fair value: o best estimate of the amount the org would receive if it disposed of the asset on balance date o NZIAS16, p6: the amount for which an asset could be exchanged between knowledgable willing parties

value in use: o best estimate of the discounted future cash flows the company expects to derive from using the asset, ie NPV calculations o NZIAS36, p6: the present value of future cash flows expected to be derived from an asset or CGU ** if carrying amount is greater than recoverable amount, then impair reduce carrying amount to recoverable amount Dr impairment loss, Cr asset reinstatement of assets: if in a subsequent period the recoverable amount of an asset increases towards former levels, the asset can be recognised when it so qualifies Dr asset, Cr gain from reinstatement of previous impairment loss Reversal o only can reverse when there has been a change in the estimates used to determine the assets recoverable amount since the last impairment loss was recognised. o specifically exclude the reversal for particular types of assets, once an intangible asset is written off, it cannot be reinstated, even where future econ benefits are deemed probable

Asset measurement various measurement rules, varying across different types of assets: o inventory at lower of cost and net realisable value o non current assets at fair value o marketable securities at market value therefore, sum of total assets will be a mix of cost or net market value can be problematic: o are there future economic benefits probable? eg R&D expenditure on product o museum, art galleries, heritage assets, PBE may have negative cash flows o valuation of biological assets? (eg trees, plantation) based on cost of seedlings? maintenance costs? present value Historical cost v present value v fair value o HC objective and verifiable, easily understood and widely known, but relevance? o fair value more relevant, but allows subjectivity? o Hence, acquisition of PPE usually valued at HC, but entities may choose to revalue many NCA subsequent to recognition NZIAS 16 allows this option, but NZIAS 38 specifically excludes the revaluation of some intangibles, eg goodwill

Classification of assets NZIAS 1 presentation of financial statements o current asset if expected to be realised or intended for sale in the normal operating cycle o held primarily for the purpose of being traded o expected to be realised within 12 months after the reporting date o disclose length of operating cycle

specific disclosures present additional lines (NZIAS 1, p72) taking into account nature and liquidity of assets, function of assets within the entity, the amounts, nature and timing of liabilities two basic approaches (NZIAS, p60) o current/non-current presentation o liquidity presentation o depends on which provides more reliable and more relevant information

o o

Revaluation recognising a reassessment of the carrying amount of NCA to fair value at a particular date excludes recoverable amount write downs NZIAS 16 required each class of PPE to be measured by the cost model of revaluation model cost model: cost less acc.dep and less any accumulated impairment losses revaluation model: Fair value at date of revaluation, less subsequent accumulated depreciation revaluation done at fair value fair value is determined on the assumption that the entity is a going concern revaluation must be made with sufficient regularity so carrying amount of each asset in the class does not differ materially from its FV assets within a class of NCA are to be revalued at substantially the same time to avoid selective revaluation Dr asset, Cr revaluation reserve revaluation reserve is part of shareholders funds (OE) revaluation increments are recognised in the statement of comprehensive income under other comprehensive income, NOT revenue if asset is depreciable, acc. dep is credited to asset account prior to revaluation Dr Acc. dep, Cr Asset the asset accounts must then be increased or decreased by the amount of the revaluation increments or decrements. Dr PPE, Cr Revaluation surplus. total revaluation increment = carrying amount current valuation. subsequent dep is to be based on revalued amount of the asset revaluation decrements are recognised as an expense in current period. where a revaluation decrement reverses a previous increment for the same asset Dr revaluation reserve, loss on revaluation, Cr Asset. But revaluation reserve cannot be in debit balance where are revaluation increment reverses a previous decrement Dr Asset, Cr gain on revaluation, revaluation reserve Derecognition o the point in time when an asset is removed from the balance sheet o happens when an asset is sold or when no future econ benefits are expected o gain or loss from de-recognition = carrying amount net disposal proceeds o resulting balance in revaluation reserve will be transferred directly to retained earnings

Consequences o if contracts in place are tied to reported profits, incentive to not revalue o but if there is revaluation increment then might loosen constraints such as debt-to-asset restrictions o potential for manipulation o consideration: reliance on independent valuations for FV estimations (subjectivity risk) Disclosure requirements: o effective date o whether independent valuer involved,, name of each valuer o methods and assumptions applied o extent to which FV were determined directly by reference to market price o the revaluation reserve

Acquisition costs of assets acquisition may be based on the exchange of assets cost of asset measured as the fair value of the asset given up, adjusted by the amount of any cash or cash equivalents that are transferred where fair value of the asset being given up is difficult to determine, it is permissible to use the fair value of assets being received as its cost if fair value of neither the asset being given up nor that being received can be reliably determined, cost of PPE acquired in exchange for a similar asset is to be measured at the carrying amount of the asset given up in the exchange. donated or subsidised assets: no economic cost, but to the extent a donated item is expected to provide probable and measurable future economic benefits, it should be recognised as an asset o the absence of related expenditure does not preclude an item from being recognised as an asset and reported in the balance sheet (NZ Framework para 59)

Measuring PPE at cost or FV some classes may be measured at cost and others at fair value all assets within a class must use the same method but with a mix of measurement methods, is the total balance of NCA meaningful to users? change in measurement bases may be made with adequate disclosure provided reasons are justifiable (NZIAS16, 8)