Ch14 sm rankin

Solutions Manual

to accompany

Contemporary Issues in Accounting

Michaela Rankin, Patricia Stanton, Susan McGowan, Kimberly Ferlauto

& Matt Tilling

PREPARED BY:

Patricia Stanton

John Wiley & Sons Australia, Ltd 2012

Solution manual to accompany: Contemporary Issues in Accounting

CHAPTER 14

SPECIAL REPORTING ISSUES

Contemporary Issue 14.1 The Myth of ‘Conservative Accounting’

1. Define ‘conservative’ as the term is used by the author. (J) J

Underestimate earnings and the value of assets.

2. What is the ‘myth’ that is exposed by the author? (J, AS)

The myth is that the mismeasurement of profitability and assets due to the expensing of investment in intangibles results in conservative accounting.

3. Who would be harmed by the failure to capitalise intangible assets? (J, AS)

All who have an interest in the financial statements.

Contemporary Issue 14.2 How do you value an asset like the Rosetta Stone?

1. How does the author summarise the requirements of the British standard and itsassociated statement of recommended practice (SORP) in relation to heritage assets?

The author summarises the requirements as “if you know the cost of a heritage asset or can value it, do so. If you can’t, provide further explanation in the accounts so people at least understand the nature of the asset.”

This is because the standard requires extra information such as the extent of access permitted to heritage assets, valuation when the donated service is provided by an individual as partof their trade or profession, the contribution of volunteers, and the value to the entity of any gift.

2. Why is valuing a heritage object such as the Rosetta Stone difficult?

The Rosetta Stone is a unique asset, therefore, there is no active market (as defined by the IASB) for it. How do you value its economic benefits such as an understanding of Egyptian hieroglyphs?

3. How does convergence with IFRSs complicate valuing heritage assets? (J, K)

© John Wiley and Sons Australia, Ltd 2012 14.1

Chapter 14: Special reporting issues

The IFRS uses a principle of ‘fair value’. This principle is manageable when applied to freehold property donated but to heritage assets such as the Rosetta Stone?

Contemporary Issue 14.3 The sum of us

1. Why would Te Papa resort to valuing its collections ‘in bulk’?

Because Archives [New Zealand] was faced with the task of valuing 77 km of records. To cost each individual signature would not have been cost effective.

2. How could the price per metre be derived, and defended?

One defence relates to the uniqueness that comes with age – valuing older documents more highly than recent ones, especially where the signees may still be alive. The amount assigned per kilometre of shelving could have been derived by sampling document and ascertaining their individual value and then averaging the value over the kilometre.

3. Do you regard the use of benchmarks of similar items a defensible method of obtaining a value for infrequently traded items? (J)

Obtaining market value for assets is a form of benchmarking as the value of any asset at any point in time cannot be ascertained until it is sold.

I



Review Questions

1. What are the distinctive features of an intangible asset?

largely knowledge assets which cannot be verified merely by visual inspection not separate, saleable, or discrete items well-defined property rights often do not extend to intangibles difficult to measure reliably often difficult to write fully specified contracts.

2. Which of the features of an intangible asset are irrelevant to the Conceptual Framework definition of an asset?

Using the Conceptual Framework definition of an asset, none of the above features precludes an intangible item from being identified as an asset.

3. What are the distinctive features of a heritage asset?

Heritage assets are tangible examples of the cultural or natural environments that a particular community is desirous of preserving with the UK ASB’s approach (FRS 30, para.2) being typical, because it stresses the contribution of the asset to knowledge and culture.

4. Which of the features of a heritage asset are irrelevant to the Conceptual Framework definition of an asset?

Assess each individually: Does the asset possess a reliable measurement attribute and is future realisation of the benefit more likely than less likely?Could the benefit be described as financial or economic, or is it more like service potential?

5. What impact has the accounting standard AASB138/IAS38 Intangible Assets had on the balance sheet?

Because IAS38 defines an intangible asset as “an identifiable non-monetary asset without physical substance” (para 8) it sets up barriers to the recognition of many assets in the financial statements, particularly balance sheets.

6. Justify the recognition (and associated valuation) of heritage assets on their controlling entity’s balance sheet.

Recognition is justified by proponents (chiefly, regulators) through economic rationalism, that is, accountability of asset managers for the assets under their control is best satisfied by financial recognition. This process, in turn, requires valuation in dollar terms. Opponents deny the validity of these arguments.

7. What is your understanding of the term ‘economic’ in the Conceptual Framework definition of an asset?

The answer should include at least the following: the value for which someone is willing to pay; the potential to contribute directly or indirectly to the flow of cash and cash

equivalents to the entity;



in relation to not-for-profit entities, their ability to meet their objectives of providing needed services to beneficiaries.

8. Explain whether the definition of an asset would be less problematic if the definition included the term ‘financial’ instead of ‘economic’?

Answers should indicate that ‘economic’ transactions or benefits do not necessarily involve monetary exchanges whereas ‘financial’ refers to monetary exchanges or benefits.

9 Name the generally accepted intangible assets that are recognised on a balance sheet.

Cash, investments, goodwill

10. How does ‘recognition’ differ from ‘disclosure’?

Recognition refers to the process of incorporating in the financial statements an item that meets the definition of an element and satisfies the criteria for recognition. Disclosure refers to the inclusion of the item elsewhere, often in the Notes to the financial statements.

11. What are the implications of disclosing information about an asset rather than recognising it?

The item does not contribute to assessments of the future earning capacity of the entity

Leads to differences between market value and book value

12. What do you think accounting standard setters should do in relation to

(a) intangible assets?

Perhaps they should remove the inconsistencies in treatment; for example, an internally generated intangible is not recognised but if the same intangible is purchased, then it is recognised. If standard setters are confident that their guiding conceptual framework passes the relevance and reliability tests needed elsewhere, then they should allow the capitalisation of all those assets that pass the definition and recognition tests. Cash has been capitalisation since bookkeeping evolved. Pre harmonisation, Australia capitalised many intangibles and “the sky did not fall in”. Something has to be done as intangibles are the assets of the future.

(b) heritage assets?

Heritage assets are widely variant in their scope. They range from the natural environment and archaeological artefacts that have no legitimate market, to other items, such as artworks, that have a ready market. There is no one approach that covers all these groups. The standard setters could tailor treatments idiosyncratically to the particular class of asset. For example, with national parks, which are essentially held in trust, they could adopt the American federal model and ascribe no dollar value but report on the condition of the asset and expenditure on it.

Justify your position



Justification should be logical using the definition and recognition tests as well as findings from scholarly research.

13. Why do you think there was widespread opposition to the recognition of heritage assets?

Uncertainty as to whether heritage assets satisfied the recognition criteria Costs of valuing heritage assets Was not apparent that recognition was useful for decision making Valuation implied that the assets were for sale

14. Why is the element of ‘control’ problematic for the recognition of heritage assets?

It is extremely problematic whether public sector and/or not-for-profit entities have the requisite degree of control over the heritage assets they manage, or for which they are custodians. For instance, it is arguable whether access to the benefits of many heritage assets is excludable — for example, national parks. Additionally, many environmental assets are technically owned by the States but ‘are subject to varying degrees of control by the [Commonwealth] government’. In some cases, this amounts to joint control, which, in accounting parlance, is not control at all. In other cases, effective control is vested (by deed or grant) in another funded or sponsored instrumentality or local community voluntary organisation.

15. How is the presence or absence of a market vital to the justifications advanced for the treatment of intangible and heritage assets? Evaluate these justifications.

The Conceptual Framework does not define any differences between assets. It does not specify that tangibility, separability, ownership and existence of markets for the asset are relevant in the decision about whether to record and report an asset although reliability is a necessary condition for recognition. IAS38/AASB138 contends that control is difficult to demonstrate in the absence of legal rights enforceable in a court of law as well as allow for the reliable measurement of the item which forms part of the recognition test. By the very nature of heritage assets, in most cases there is not a ready market or, alternatively, management is prevented, in the community interest, from selling them.

With control comes the ability to buy, sell, or withhold from a market, characteristics that are argued to indicate the notion of an asset. IAS38/AASB138 argues that it is ‘uncommon’ for an active market to exist for intangible assets because each asset is unique. It is extremely problematic whether public sector and/or not-for-profit entities have the requisite degree of control over the heritage assets they manage, or for which they are custodians.

16. How would you conceive the problem of what is an asset so that standard setters do not have to release further information to clarify whether an item is, or is not, an asset?

A start would be to examine what a definition is trying to do: a description made up of a generic term identifying the broad category to which the “asset” belongs and a modifying word or phrase which specifies it distinctive or essential components, thus restricting the



definition to include on the appropriate referents and so distinguishing from it similar senses and words.



Application Questions

14.1Obtain a copy of your university’s annual report.(a) What intangibles does it report?(b) Does it capitalise intellectual capital?(c) Does it disclose information about its most valuable intangible, its intellectual

capital?(d) Does it recognise or disclose any information about any heritage assets it may

control? (J, K, AS)

Students should apply the definitions of intangibles and heritage assets to identify whether the university reports any of these assets, and should identify where they were reported (recognition v disclosure). Voluntary disclosures should also be identified. The concept of control should be consulted as well as visual identification of likely heritage assets.

14.2 Read the following passage:

The immediate expensing of practically all internally generated intangible investments in the United States, a questionable procedure given the substantial future benefits of many such investments, is often justified by the conservatism principle. Conservative accounting procedures, goes the argument, counter managers’ prevalent optimism, and are appropriate given the generally high level of uncertainty associated with the outcome of intangible investments. However, no accounting procedure consistently applied can be conservative (or aggressive) forever. Over the lifetime of the enterprise, if reported earnings under a conservative accounting rule are understated (relative to a less conservative rule) during certain periods, they have to be overstatedin other periods, given that conservative/aggressive accounting procedures essentially shift earnings from one period to another.51

(a) What is the ‘conservatism principle’?

Generally the principle refers to the recognition of losses as soon as they are apparent and the recognition of gains only when realised.

(b) How is it applied to intangibles?

By the immediate expensing of practically all internally generated intangible investments

(c) Why do the authors believe that expensing of intangibles is ‘questionable’?

If reported earnings under a conservative accounting rule are understated (relative to a less conservative rule) during certain periods, they have to be overstated in other periods

(d) Why can’t accounting procedures generated by the conservatism principle beconservative forever? (J, K)

Over the lifetime of the enterprise, conservative accounting procedures essentially shift earnings from one period to another.



14.3 The following passage was taken from the article ‘R&D reporting biases and their consequences’.

We find evidence consistent with investor fixation on the reported profitabilitymeasures. Thus, the stocks of conservatively reporting firms appear to be undervalued, while the stocks of aggressively reporting firms appear to be overvalued, and these misvaluations appear to be corrected when the reporting bias reverses from conservative to aggressive, or vice versa. In addition, the misvaluations are significant for both ROE and earnings momentum pro-fitability indicators. The misvaluation evidence we detect is consistent with well-established behavioral finance findings and, in particular, with the heuristic of representativeness that makes investors view patterns in reporteddata as representative about future patterns and thus overreact. The social relevance of systematic mispricing of securities is that it leads to misallocation of resources in both the real and capital markets.52

(a) What do the authors mean by ‘investor fixation’?

That investors rely only on reported profitability measures.

(b) How does investor fixation on profitability lead to misvaluations of stocks?

Reporting of profitability is biased according to whether conservative to aggressive principles are being used, and investors fail to see behind the reported numbers.

(c) Explain the heuristic of ‘representativeness’? (J, K)

The representativeness heuristic judges the probability of a hypothesis by considering how much the hypothesis resembles available data so that investors view patterns in reported data as representative about future patterns and thus overreact.

14.4 Jim Peterson made the following comments about PricewaterhouseCoopers’ announcement that they officially abandoned their ‘perfectly serviceable name in favour of the three-letter vernacular’ (i.e. PwC):

When the accounting profession’s very survival rests on the ability to sell a basic core product — assurance on financial information — the essence of that delivery is the maintenance of confidence among issuers and users in consistent, solid and predictable quality service. That has been more than challenge enough, in difficult times for the profession. But its messages can and should be pretty stolid. A slightly boring orthodoxy is not a bad thing . . . We may of course expect defensive messages from the branding types at PwC, justifying what must be massive expenditure for this effort, along the lines of ‘we wanted to shake things up’ and ‘we have an exciting new set of messages’. Trouble is, they don’t, and the world of assurance users doesn’t want it.53

(a) Would PwC be able to recognise the expenditure on its new ‘three-letter vernacular’ on its balance sheet? Justify your answer.

Its ‘three-letter’ vernacular is a brand, both a brand name and a logo. IAS 38 offers the argument that expenditure on internally generated brands, mastheads, publishing titles,



customer lists and such cannot be recognised because expenditure on them cannot be distinguished from expenditure that develops the business as a whole. The argument for PwC is whether it is “internally generated” or because it was commissioned, whether it was purchased. If it can be argued that it was purchased, then the expenditure can be capitalised.

(b) How could PwC defend the ‘massive expenditure’ on its new brand?

By elaborating on the expected future economic benefits.

(c) What message does the spending send in relation to expected future economic benefits?

That PwC expects the future economic benefits to exceed the cost of developing the logo.

(d) If you were PwC’s auditor, would you allow the expenditure to be capitalised? Why? (J, K)

The logical answer would examine the definition of an asset, and if the expenditure passes the definition, then to see if the expenditure passes the recognition test(s) that any probable future economic benefits will accrue to the entity and that it has a cost or value that can be measured reliably.

14.5 In their article on ‘Intangibles and the OFR’, Vivien Beattie and Sarah Jane Thomson included the following graph:

(a) What does a market-to-book ratio tell you about how complete a company’s financial statements are?

The ratio is a rough guide of how incomplete a company’s financial statements are.

(b) What does a market-to-book ratio of less than 1.0 mean?

That the company’s market value is less than its book value.



(c) The authors report that GlaxoSmithKline, a leading pharmaceutical manufacturing and research company had the highest ratio. Where would you expect media companies to be positioned on the chart? Why? (J, K)

Because media companies are knowledge intensive, thus high in intangibles that cannot be recognised under current accounting standards, their ratios should be high, possibly as high as the research companies.

14.6 Australian government departments were formally encouraged (under AAS29 Financial Reporting by Government Departments) to value their heritage assets by their ‘written-down current cost’ determined by reference to current market prices for the future economic benefits embodied in the asset or an estimate of those market prices.

(a) What difficulties do you envisage in applying this requirement to:

(i) A ruined abbey?

What is the nature of the asset you are valuing and what is the meaning or relevance of the term future economic benefits when applied to it? Is its value related to the innate cultural or historic quality, its restored valuation, its present condition, or the value of the land on which it sits as an alternative use?

(ii) A dinosaur skeleton?

Similar to above with the additional caveat that managers of museums, in particular, are resistant to inclusion of collection assets on balance sheets because it renders them capable of being realised for short term financial gain when that was not the asset’s original or primary purpose.

(iii) A steam locomotive? (J, K)

This is a cross-over type asset, having both potential commercial possibilities and cultural and industrial heritage characteristics. A survey of rail heritage custodians revealed that most believe there is a market for steam locomotives, so ostensibly there would be no problem in establishing a financial valuation. However, this likely does not capture or preserve the innate heritage quality of the asset which would seem defeat the purpose of the exercise.

14.7 The following information was reported in the New Zealand Sunday Star-Timesnewspaper:

For a decade, Treasury has required institutions like Archives New Zealand, Te Papa and the National Library to tot up the value of their treasures. Archives’ holdings are currently estimated to be worth $524m, including the $20m for the 1835 declaration of independence of northern chiefs, and $10m for the women’s suffrage petition that led to New Zealand becoming the first country in the world to give women the vote, Te Papa’s treasures have been valued at $526m, while the rate books and manuscripts at National Library have been valued at



$671m. [Rodney Wilson] has concerns that publishing the value of Auckland Museum’s collections would give strength to museum sceptics. ‘It raises political issues, the sort of stupid comment you sometimes hear in local body politics, well if they’ve got all that money let them sell something’ he says.55

(a) What is the danger envisaged by the valuation of heritage assets?

Less sophisticated users of the financial statements of the entity holding the heritage assets may well argue that the valuation represents funds and so the assets should be sold to cover the expenses of the entity.

(b) Does a sale of a Maori feather cloak in the United States indicate a market for such items along the lines of IAS38/AASB138 Intangible Assets?

An active market (AASB138) is one in which all the following conditions exist: The items traded within the market are homogeneous Willing buyers and sellers can normally be found at any time Prices are available to the public.

(c) Can items from indigenous cultures be considered an ‘active market’ in terms ofthe definition of an active market in AASB 13/IFRS13 Fair Value Measurement? (J, K)

An active market (IFRS13) is a market in which transactions for the asset/liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

14.8 The article cited above goes on to say:

Putting a value on the nation’s treasures has made no difference to funding the three organisations, but it has made the crown look wealthier. The assets make up more than $1.7b of the crown’s $72b of assets in the latest financial year. But you won’t find the Americans rushing to have the Declaration of Independence valued. New Zealand, followed soon after by Australia, is so far alone in requiring its public institutions to view its heritage assets with a gimlet eye . . . New accounting standards from the Institute of Chartered Accountants . . . require beancounters in local governments and trusts to start accounting for heritage assets just like any other item of property, plant and equipment. The edict covers everything from public monuments erected by local authorities to the butterfly specimens in regional museums.56

(a) Who or what is the ‘crown’ to which the article refers?

The New Zealand government

(b) Has valuing heritage assets made the crown actually wealthier? Why?

The crown is not wealthier in terms of disposable income or assets held for sale. The wealth is accounting paper based.

(c) Why do you think New Zealand and Australia were alone in valuing their heritage assets?



Because of the philosophy of the standard setters that standards have the quality of “one-size-fits-all”.

(d) How can their stance on heritage assets be justified in terms of the Conceptual Framework? (J, K)

Balance sheet focus All assets to be recognised

14.9 More from the article in the Sunday Star-Times newspaper:

[T]here is revolt among the country’s big regional museums, who say they don’t need a dollar sign on a balance sheet to recognise an item of immense value. [Three museums] are all refusing to comply with the new accounting standards . . . The country’s biggest regional museum is the Auckland War Memorial Museum . . . It is preparing to publish its annual accounts . . . in a form that makes accountants everywhere blanch — with a caveat attached to the accounts . . . the caveat will be mildly worded, explaining that the museum refuses to comply with the new rules. ‘It’s not a good look, but it’s a bad look that we’re prepared to live with. Somebody has to fly the flag of common sense. It’s dogma. They’ve come up with something which in accounting terms makes a lot of sense to them. But it makes no sense in many places out in the market place’.57

(a) Would you expect an audit qualification for the financial statements in response to the caveat attached to the accounts? Justify your answer.

An audit report in part attests to compliance with accounting standards. If the museum refuses to comply then there must be an audit qualification.

(b) Why do you agree (disagree) with the museum manager that ‘Somebody has to common sense’?

Points to consider could include:

There is an arguable case that financial valuation of collections in entities such as a war museum is a waste of resources and potentially trivialises the human sacrifice embodied in the lifeless artefacts.

Alternatively, the case for commonsense could/should have been argued before the regulations came into effect. If the argument of the museums did not prevail, then they have a responsibility to comply with the law. Citizens, including corporate entities, have no mandate to comply with only the regulations that suit them.

(c) What alternative measure or measures could be taken to ‘recognise’ the value of items in the museums? (J, K)

An alternative is the structured, qualitative disclosure about all classes of heritage assets, including a mission statement, number of physical units, their condition and maintenance, acquisitions and disposals.



14.10 Read the following article from Business Wire on Interbrand’s methodology for valuing brands:

Brands create value, both for consumers who use their preferred brands andfor the companies that own the brands. For more than 25 years, Interbrand . . . has been evaluating exactly how much brands are worth. Now its brand valuation methods have been certified according to International Standards Organization (ISO) 10668:2010, making Interbrand the first brand consultancy in the world to achieve ISO 10668 certification [which] is the international norm that sets minimum standard requirements for the procedures and methods used to determine the monetary value of brands. It defines a coherent and reliable approach for brand valuation that takes into consideration financial, legal and behavioural science aspects.58

(a) Argue whether the ‘reliable’ approach of brand valuation by Interbrand wouldsatisfy the reliability part of the recognition test for assets.

See chapter on the conceptual framework. Estimates of the cost or value does not necessarily mean that a measure is unreliable.

(b) Debate whether the awarding of the ISO Standard will impact the accounting forinternally generated intangible assets. (J, K, AS)

Auditors must sign off the accounts. In deciding whether an intangible will be recognised in the accounts requires the intangible to pass the definition test and then the recognition test. The Standard would most likely impact auditor’s decision as to whether the future economic benefits have been measured reliably. However, the nature of the intangible must be taken into account as the accounting standard does not allow certain intangibles to be recognised.



Case Study Questions

Case study 14.1 Fund managers, intangibles and private disclosure

Questions1. What is meant by ‘intellectual capital’? (K)

Outside scholarly literature, intellectual capital often refers to intangibles, as the associated meaning is the difference between the physical and financial assets and the market value of an entity. In the scholarly literature, intellectual capital is divided into three categories:

i) human capital, and in particular, the knowledge that a worker takes home with him;

ii) structural capital – the infrastructure that enables human capital to function; andiii) relational capital – customers and networks and such.

2. Why do you think, intellectual capital has been the only named intangible by the author? (J, K)

Because it is being used in the non-scholarly manner. K3. The fund managers are being informed in a private way. Argue whether this

advantage should be treated as insider information. (J, K)

Insider trading is commonly defined as trading on information obtained by individuals with potential access to non-public information about a company. Arguably, informing fund managers of information not publicly available constitutes insider information if the fund manager trades on that information. J K4. Who benefits from this inside information? (K)

The fund managers and indirectly, their clients.

5. Argue the case whether the market benefits that fund managers gain in this way should be regulated. (J, K)

Arguments should revolve around the issue of what constitutes insider trading – trading on information that is not publicly available. K6. Identify any ways this private disclosure process could be used to improve the public

disclosure process via financial reporting. (K, AS)

Markets rely on information. More information should increase the efficiency of the market. Information is being made available when the fund managers release this information to their clients thus benefiting the market. However, private information is usually only private because financial reporting does not include this information. Full disclosure would reduce private information.

K AS



7. Undertake research to ascertain the governance of fund managers; who or what governs fund managers. (J, K, AS)

Fund managers are subject to the Government’s Corporate Law Economic Reform Program, The regulations mean that comparable financial products are subject to the same rules; that providers of financial services must be licensed; and that financial markets are each subject to a single licensing regime. ASIC is the governing body.

8. Who governs those who govern the fund managers? (K)

The Commonwealth Government.

Case study 14.2 Kakadu: mining versus intangible values

1. In one sentence summarise the debate that is the focus of this article. (K)

Whether mining would jeopardise the integrity of the key values for which Kakadu was listed on the World Heritage List.

2. Prepare a list of:

(a) the tangible assets of Kakadu; sandstone plateau and escarpment savanna woodlands and open forests rivers and billabongs flood plains, mangroves and mudflats mammals, reptiles and birds rock carvings and paintings minerals

(b) the intangible assets of Kakadu; and Mirrar dreaming Natural beauty Cultural values

(c) the heritage assets of Kakadu. (J)

rock carvings and paintings unspoiled landscape cultural values

3. Which of the assets identified would pass the Conceptual Framework definition of an asset? Justify your answer. (J, K)

Consider the main groups of asset at Kakadu arising from the lists and assess them by reference to the Framework definition attributes:



Natural environmental (including flora) - future economic benefit embodied? controlled by managing entity? Additionally, pass the recognition test(s) of reliable measurement and probable realisation of the benefit?

Fauna – as above Aboriginal artefacts – as above Minerals – would seem to have normal potential commercial value and therefore an

asset under the Framework Abstract Values – no place in financial accounting

4. Of those assets identified in (3), which would pass the Conceptual Frameworkrecognition test? Give reasons for your answer. (J, K)

Natural environmental (including flora) – Do they pass the recognition test(s) of reliable measurement and probable realisation of the benefit?

Fauna – as above Aboriginal artefacts – as above Minerals –because of their potential commercial value minerals would probably pass

the reliable measurement and probable realisation of the benefit Abstract Values – no place in financial accounting

5. On what grounds did you identify some of Kakadu’s assets as heritage assets? (J, K, AS)

Heritage assets typically embody the following characteristics:

• ASB (UK) FRS 30: “A tangible asset with historical, artistic, scientific, technological, geophysical or environmental qualities that is held and maintained principally for its contribution to knowledge and culture”

• ASB (South Africa) GRAP 103: “assets that have a cultural, environmental, historical, natural, scientific, technological or artistic significance and are held indefinitely for the benefit of present and future generations”

AS6. When decisions have to be made, for example as in the use of Kakadu, how has the

inability to value intangible and heritage assets reliably disadvantaged the case for their preservation? (J, K, CT)

Decision making has evolved to a cost-benefit analysis. Assessing cost of something is relatively easy compared to the assessment of benefits especially intangibles and heritage assets. Benefits are commonly understated. The adage says, “you never know what you have got until its gone”.

7. Which of the unique geological formations, plants, animals and minerals of Kakadu would (J, K, AS)



(a) pass the active market test of IFRS13 Fair Value Measurement?

AASB 13 Appendix A defines an “active market”:

A market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

(b) satisfy the capitalisation provisions of FRS30 Heritage Assets?

Relevant FRS 30 Provisions:

“Recognition and Measurement

18 An entity should report heritage assets as tangible fixed assets and recognise and measure these assets in accordance with FRS 15 ‘Tangible fixed assets’**, …

21 Valuations may be made by any method that is appropriate and relevant.

22 There is no requirement for valuations to be carried out or verified by external valuers, nor is there any prescribed minimum period between valuations. However, where heritage assets are reported at valuation, the carrying amount should be reviewed with sufficient frequency to ensure the valuations remain current.”

** equivalent to AASB 116 Property, Plant and Equipment

8. How do you weigh up the benefits of mining against more intangible values? (J, K, CT)

Heritage assets are preserved when one or all of the following conditions are met:

value to the community exceeds the opportunity cost in alternative commercial use

they are irreplaceable and held in perpetuity

they are used for community rather than commercial purposes

Therefore, if the tangible economic value of mining to the community at large is greater than the intrinsic value of a national park, then mining will prevail. However, the assessment should also consider other potentially negative impacts of mining activities, for example, to the supply of fresh drinking water.


Ch14 sm rankin

Economy & Finance