Measurement Issues in the Financial Statements of Coca- Cola Amital

Questions: 1. Evaluate the issues of measurement in your selected annual report in the context of AASB/ IASB standards and framework.2.Comment on the relationship between the measurements employed in your selected annual report and the provision of decision useful information, provide examples from your selected annual report. Answers: 1. In this part of the essay presented here, the annual report of Coca- Cola Amital has been evaluated to find out the critical issues with respect to the measurement of the assets and liabilities. As has already been stated that in case of certain assets and liabilities the accounting framework of Australia permits different measurement bases, thus, it is possible that two companies may measure certain assets and liabilities differently (Canadian Accounting Standards Board, 2006). The adoption of different measurement bases for the assets and liabilities reduces the comparability of the financial statements. Further, there arise various issues in the valuation of the business from the investors perspective due to adoption of different measurement base in the preparation of the financial statements. In the context of this, there are few issues identified from the analysis of the annual report of Coca- Cola Amital, which have been discussed in the following paragraphs. In respect of the measurement of property, plant, and equipment, the company measures value based on the historical cost reduced by the depreciation and impairment loss. The issue in measurement of property, plant, and equipment arises in measuring the charge for depreciation. The Australian Accounting Standard 116 provides that the depreciation can be charged by straight line method or diminishing balance method (AASB 116, 2009). Thus, there is a choice available to the entities to compute deprecation charge either by applying straight line method or diminishing value method. In the current case, the company applies straight line method to compute the charge of depreciation on the property, plant, and equipment. Further, the issues also arise in the estimation of the useful life of the property, plant, and equipment because it depends upon the management experience (CCA, 2015). Further, it has been observed that issues also arise in the measurement of inventory. The AASB framework provides guidance for computation of the net realizable value, but there are no standard provisions that could be applied unanimously (AASB 102, 2009). In the current case, Coca- Cola Amital faces issues in arriving at the accurate figure for net realizable value of the investor. This is because the net realizable value is computed with reference to the market value and in the retail business, the market prices are found to be highly fluctuating. Thus, the company finds it difficult to arrive at the accurate price to compute the net realizable value correctly (CCA, 2015). Apart from this, the issues in the measurement of the receivables are faced by Coca- Cola Amital. The estimation of the bad debts or uncollectible receivables is highly subjective matter and poses difficulties before the management to arrive at the accurate figures. Further, the company also holds derivatives. In respect of derivatives, the management is required to compute the fair values on regulator basis, which adds difficulties in measurement of derivative financial instruments (CCA, 2015). 2.One of the most prominent purposes of preparation of the financial statements of a business is to provide relevant information to the investors about the financial wealth of the business (Beest, Braam, Boelens, 2009). The information provided through the financial statements should be such that meets the needs of the shareholders and other stakeholders. Further, the information should be represented in the financial statements in a decent manner that assists the investors in making decisions related to their investments with ease. The role of measurement of the assets and liabilities is crucial from the investors perspective. The figure that the assets and liabilities would appear at in the balance sheet entirely depends upon the measurement base adopted by the company (Beest, Braam, Boelens, 2009). Since, in certain areas the accounting framework gives choice to the entities to measure the assets and liabilities; therefore, it is possible that the entities manipulate the financial statements by miss-utilizing the choice. The companies may use the alternative methods of measurement to over state the assets and understate the liabilities and miss-guide the investors. Thus, the measurement of assets and liabilities, which results in overstatement of the assets and understatement of the liabilities vitiates the provision of decision useful information (Dandago Hassan, 2013). In the current case of Coca- Cola Amital, it has been observed that the company is following measurement that meets the criteria of decision useful information. The measurement of the assets and liabilities has been made by the company in accordance with the provisions and guidelines of the accounting framework. Further, in the instances where the alternative choices are available for measurement of the assets and liabilities, the company follows the concept of produce and ensures that the assets are not overstated and the liabilities are not understated (CCA, 2015). From the analysis of the annual report of Coca- Cola Amital, it can be observed that the company recognizes the revenues only when all the risks and rewards in respect of the goods sold have been transferred to the buyer. This policy of the company results in accurate recognition of the profits and the receivables (CCA, 2015). Further, the company recognizes rental income on the equipment given on lease in the proportion of the depreciation. This shows that the company does not overstate the liabilities and the measurement base adopted promotes the provisions of decision useful information. In addition to this, it has been observed that the company books liabilities as soon as the goods are received or the services are consumed (CCA, 2015). Therefore, it shows that the company assumes the obligation as soon as it becomes liable to pay. From this analysis, it could be articulated that the measurement of the assets and liabilities employed by the company affects the usefulness of the i nformation positively and it is in the interest of the investors. References AASB 102. (2009). Inventory. Retrieved September 22, 2016, from https://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-04_COMPjun09_01-09.pdf AASB 116. (2009). Property, Plant, and Equipment. Retrieved September 22, 2016, from https://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun09_01-09.pdf Beest, F.V., Braam, G., Boelens, S. (2009). Quality of Financial Reporting: measuring qualitative characteristics. Retrieved September 22, 2016, from file:///C:/Users/Abasus%20Solution/Downloads/nice_09108.pdf Canadian Accounting Standards Board. (2006). Measurement Bases for Financial Accounting Measurement on Initial Recognition. Retrieved September 22, 2016, from https://www.aasb.gov.au/admin/file/content105/c9/IASB_Canadian_MM_paper.pdf CCA. (2015). Annual report of CCA. Retrieved September 22, 2016, from https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2015/CCA166-CCA-Annual-Report-2015-WEB_final.ashx Dandago, K.I. Hassan, N.I.B. (2013). Decision usefulness approach to financial reporting: a case for Malaysian inland revenue board. Asian Economic and Financial Review, 3(6), 772-784.