Many organisations elect not to measure their property, plant and equipment at fair value, but rather, prefer to use the ‘cost model’
Assessment Task Part C
Many organisations elect not to measure their property, plant and equipment at fair value, but rather, prefer to use the ‘cost model’. This will provide lower total assets and lower measures, such as net asset backing per share.
Required
You are required to answer the following questions:
(a)What might motivate directors not to revalue the property, plant and equipment?
(b)What are some of the effects the decision not to revalue might have on the firm’s financial statements?
(c)Would the decision not to revalue adversely affect the wealth of the shareholders?
Hint
"Under the Fair value model, the investment property, plant or equipment is re-measured at fair value. This is the price, which would be received to sell the asset in an orderly transaction between market participants at the measurement date. In the cost model, the assets are carried at their cost less accumulated depreciation and impartment. "...
"Under the Fair value model, the investment property, plant or equipment is re-measured at fair value. This is the price, which would be received to sell the asset in an orderly transaction between market participants at the measurement date.
In the cost model, the assets are carried at their cost less accumulated depreciation and impartment. "
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