Accounting Standard 10: Accounting for Fixed Assets

A capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Usually the cost is recorded in an account classified as Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset.

Fixed assets are assets that will be held or used over a period longer than one year. Companies typically have land, equipment, and buildings as their fixed assets. The account is usually called property, plant, and equipment or PP&E.

eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount

‘Cash and cash equivalents’ include certain short-term investments and, in some cases, bank overdrafts. Like IFRS, ‘cash and cash equivalents’ include certain shortterm investments, although not necessarily the same short-term investments as under IFRS. Unlike IFRS, bank overdrafts are considered a form of short-term financing, with changes therein classified as financing activities. The statement of cash flows presents cash flows during the period, classified by operating, investing and financing activities. Like IFRS, the statement of cash flows presents cash flows during the period, classified by operating, investing and financing activities. The separate components of a single transaction are classified as operating, investing or financing. Unlike IFRS, cash receipts and payments with attributes of more than one class of cash flows are classified based on the predominant source of the cash flows unless the underlying transaction is accounted for as having different components. Cash flows from operating activities may be presented using either the direct method or the indirect method. If the direct method is used, then an entity presents a reconciliation of profit or loss to net cash flows from operating activities; however, in our experience practice varies regarding the measure of profit or loss used. Like IFRS, cash flows from operating activities may be presented using either the direct method or the indirect method. Like IFRS, if

Exchange rate gains or losses are brought to account in determining the net profit or loss in the period in which they arise, as are exchange gains or losses relating to cross currency swap transactions on monetary items. Exchange differences relating to hedges of specific transactions in respect of the cost of inventories or other assets, to the extent that they occur before the date of receipt, are deferred and included in the measurement of the transaction. Exchange differences relating to other hedge transactions are brought to account in determining the net profit or loss in the period in which they arise. Foreign controlled entities are considered self-sustaining. Assets and liabilities are translated by applying the rate ruling at balance date and revenue and expense items are translated at the average rate calculated for the period. Exchange rate differences are taken to the foreign currency translation reserve.

Fixed assets might have been acquired at a time when prices were high and now the prices have corrected substantially. But in the balance sheet the assets are yet shown at their book value less depreciation written off.

7. Whether the cash flows of foreign operation directly affect the cash flows of the reporting entity.

a. Empire Company Limited used different function to classify their expenses as they presented their expenses separately from other functions such as cost of sales, selling and administrative expenses and finance costs (Empire Company Limited ).

The cash flow statement consists of three parts: cash flows provided by operating activities of $13,831, cash flows provided by investing activities, and cash flows provided by financing activities effect of exchange rate changes on cash and cash equivalents of ($204)

The current assets are those which are readily convertible into cash and cash equivalents due to their highly liquid nature and also form part of working capital of the company’s operations. However, the long term assets in contrast are not liquid because since they have a useful life of more than a year and hence their full value cannot be easily realized within

10. Fixed asset turnover = Total Revenues in Statement of Operations / Net Property and

One similarity between the U.S. GAAP and IFRS is that fixed assets are estimated at cost originally under both accounting standards; however, after initial recognition, differences occur between the two accounting standards. Under IFRS, after initial recognition, fixed assets are allowed to be altered to fair value. The revolution method is used to do this. This method uses the fair value on the time of assessment, less any accrued devaluation and impairment losses. This method is not used often though due to the high costs of appraisal that is involved. The U.S. GAAP values fixed assets using the cost model. This values fixed assets at historical cost, less any accrued devaluation. Fixed assets include property, plants, and equipment.

* To reassess the identification and measurement of the acquiree’s identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the business combination if the acquirer’s interest in the net fair value of the items recognised exceeds the cost of the combination. Any excess remaining after that reassessment must be recognised by the acquirer immediately in profit or loss.

It is also important to zero out the non-fund based adjustments in order to capture only the changes that are accompanies by flow of funds. However, income accrued but received and expenses incurred but not received reckoned in the profit and loss statement should not be excluded from the profit figure for the fund flow statement.

Based on your answer to question 2, how would Mesa’s cash flows be affected by the expected exchange rate movements? Explain.