192 Accounting: Business Reporting for Decision Making
Because measurement choices exist, an entity should identify its measurement basis for
various asset and liability classes in the accounting policy note. The measurement method
will affect the carrying amount of assets. It is important for users of financial statements to be
aware of the measurements employed, especially when making comparisons intra-entity and
inter-entity. To facilitate the provision of useful information, an entity can also provide disclosures
reconciling the carrying amount of the non-current asset classes at the start of the reporting period
to the carrying amount of the classes at the end of the reporting period. This is also illustrated in
figure 5.14.
The preceding discussion should make you appreciate that a balance sheet does not portray
the worth of the entity or the entity’s value. Illustrative example 5.4 provides an extract from the
non-current asset section of the balance sheet of a fictitious company, Additive Pty Ltd. The total
assets as per this balance sheet are $143 350. This figure does not represent the amount of money that
would be received if the assets were sold. Nor does it represent the aggregate historical cost of the
assets acquired, as different measurement models are applied to different asset classes. The $143 350
is a combination of cash at bank, trade debtors at their estimated cash equivalent value, the price paid
for the motor vehicle at the start of 2013 less two years of depreciation charges, the fair value of
property, and the cost price less accumulated depreciation for machinery A and B acquired in 2010
and 2014 respectively.
To illustrate that the statement is not a statement of value, consider the motor vehicle. The
balance sheet is not proposing that the motor vehicle’s resale value as at 31 December 2015
is $20 000. This figure simply reflects the vehicle’s cost price less the future benefits deemed to
have been used up (as represented by the accumulated depreciation). In reality, the vehicle’s resale
price two years after purchase will be considerably different to the carrying amount on the balance
sheet.
ILLUSTRATIVE EXAMPLE 5.4Additive Pty Ltd — assets as at 31 December 2015
Additive Pty Ltd
Extract from balance sheet as at 31 December 2015Current assets
Cash at bank
Trade receivables
Less: Allowance for doubtful debts$ 10 000
(150)$ 12 5009 850
Total current assets 22 350
Non-current assets
Motor vehiclea at cost
Less: Accumulated depreciation32 000
(12 000) 20 000
Property, at fair value
Machineryb at cost
Less: Accumulated depreciation19 000
(2 000)84 00017 000
Total non-current assets 121 000
Total assets 143 350aAcquired in 2013.
bMachinery A was acquired in 2010 and machinery B was acquired in 2014.