Financial Accounting and Reporting Overvaluation

Question: Discuss about the Financial Accounting and Reporting Overvaluation. Answer: Introduction: The overall issue mainly deals with overvaluation of an assets conducted by the company. In addition, the overall purchase value of Karens Coffee was around $950,000, which mainly contradicts its book value of $620,000. The additional amount paid is mainly valued as goodwill of the business. However, the suggestions that is been made by the directors are not ethically and legal correct. In addition, AASB 138 paragraph 48 the internally generated goodwill is not to be treated in the financial books of the company (Aasb.gov.au 2016). Moreover, with the help of AASB 116 paragraph 39 the revaluation of the assets could be conducted with the help of revaluation model and depict the exact valuation of the asset (Aasb.gov.au 2016). Moreover, the suggestion of the directors regarding the good will valuation could not be conducted due to the impact of AASB 138 paragraph 48 (Aasb.gov.au 2016). In addition, the suggestion of using the excess cash payment as impairment could not be exercised. Th e loss in assets could be stated in the equity section under revaluation of assets as a loss of $330,000. This adjustment in the balance sheet could effectively reduce the overall valuation of the assets as per its book value (Aasb.gov.au 2016). The overall revaluation of two blocks of assets might mainly help in depicting the exact financial position of the company. In addition, current valuation of the assets of the company could be valued as per the depicted revaluation or cost model mentioned in AASB 116 paragraph 15 of property valuation techniques (Aasb.gov.au 2016). Moreover, the revaluation techniques might be mainly helpful in depicting the exact value of the property and portray its exact financial position. As suggested by Leo et al. (2014), AASB mainly helps in reducing the unethical measures in asset valuation, which are conducted by companies to inflate their financial position. On the other hand, other researchers mentioned that auditors mainly help in depicting the overall loopholes, which are used companies to inflate their balance sheet and lure in potential investors. The revaluation process as depicted in AASB 116 paragraph 29, mainly comprise of activities of incremental reversing, which could effectively help in increasing the decreased asset valuation of the company (Aasb.gov.au 2016). In addition, after the overall revaluation of the assets the gain in revaluation could be effectively entered in the equity section of the balance sheet. Moreover, under the asset revaluation surplus the gain could be effectively depicted, which in turn might help in providing the accurate financial position of the company. In this context, Leo et al. (2014) mentioned that adequate revaluation mainly help in improving the overall return on assets of the company, which in turn could attract potential investors. Dr Revaluation gain XXX Cr Asset revaluation surplus XXX In addition, forceful manipulation of profit to match the forecasting profits is mainly punishable by law. In addition, the revaluation of the assets could not help in increasing profits of the company. Moreover, the overall income generated from revaluation will only be depicted in the equity section of the balance sheet and there is no entry in the P and L statement. Thus, the directors suggestion for revaluating the assets and depicting the increase in value in the boosting profits of the company is ethically wrong. Moreover, the budgeted target could only be archived if the company increases their sales or decreases their expenditure. In this context, Leo et al. (2014) argued that budgeted figure might lose its friction during an economic crisis, which in turn might affect the overall net profitability of the company. The overall accounting error mainly incurred due to the wrong depiction of deprecation percentage, which in turn boosted the financial positional and profitability of the company. In addition, the wrong depiction of depreciation value could be reduced by implementing the revaluation model, which is depicted in the AASB 116 paragraph 73-79 (Aasb.gov.au 2016). This revaluation model could effectively help in devaluating or incrementing the overall value of the depreciation, which has been wrongly charged by the company. As stated by Leo et al. (2014), deprecation valuations mainly help companies to increase their cash reserves, which in turn might help in their future purchases. In addition, the increased deprecation is mainly valued in the equity section under revaluation surplus. This increased deprecation value could be effectively deducted from the revaluation surplus in equity section of the balance sheet. This deduction might mainly help in depicting the adequate financial positi on of the company. In addition, the reduced deprecation that has been incurred by the coma pony could be increased by the incremental valuation method (Aasb.gov.au 2016). Moreover, the company is able to effectively adjust the overall change deprecation be adjusting the deferred tax liability and asset revelation surplus. This increased deprecation might mainly help in reducing the overall tax payout of the company, which in turn might increase the overall deferred tax asset. Leo et al. (2014) stated that companies with the help of revaluation techniques are able typo adjust their changes in their balance sheet. The additional gain from accumulated depreciation might mainly be decreased from the asset revaluation surplus, which in turn might help in depicting the correct financial report. With the help of above depicted method, the overall wrong valuation of the depreciation could be effectively adjusted according the method portrayed in AASB (Aasb.gov.au 2016). Moreover, wrong valuation of deprecation might mainly increase the overall profits, which in turn could raise the tax payment of the company. In addition, wrong miss calculation of useful life span might eventually hamper the overall net profit of the company. The use of revaluation model depicted in the AASB 116 paragraph 29 mainly helps in changing the asset valuation of the plant and machinery (Aasb.gov.au 2016). This asset revaluation might mainly help in depicting the exact value of the plant and machinery. On the contrary, Leo et al. (2014) argued that companies are able to reduce their overall profitability by manipulating the deprecation system allowed b AASB. Reference: Aasb.gov.au. (2016).Australian Accounting Standards Board (AASB) - Home. [online] Available at: https://www.aasb.gov.au/ [Accessed 15 Sep. 2016]. Leo, K., Knapp, J., McGowan, S. and Sweeting, J. (2014).Company accounting. Wiley