Smartkids Ltd is one of Australia’s largest providers of before school, after school and vacation care services. It rents facilities provided by schools and currently provides services in 650 venues located at schools in Australia. Smartkids Ltd is a listed company and its shares are actively traded on the Australian Securities Exchange. Smartkids Ltd uses a 30 June year-end balance date and adopts the AASB Conceptual Framework AASB 13 Fair Value Measurement, AASB 116 Property, Plant and Equipment and AASB 138 Intangible Assets.

On 1 April 2023, Smartkids Ltd expanded its operations into the music education sector by establishing a music school that provides to children of all ages music lessons in a wide range of music instruments. During the financial year ended 30 June 2023, Smartkids Ltd purchased the following assets for the music school:

Commercial building for $6,000,000: This building will be used to provide private music lessons to children and is included with other buildings recognised in the buildings class of assets in Smartkids Ltd’s financial statements. The AASB 116 revaluation model had been adopted for this class of assets.

‘Music Grammar’ brand name for $500,000: Music Grammar is a well-known brand. Smartkids Ltd expects the Music Grammar brand name will indefinitely attract students to their business. The Music Grammar brand name will be a new class of intangible assets.

While Smartkids Ltd has adopted the revaluation model for the building class of assets, it is uncertain about measurement of the Music Grammar brand name after recognition. The Chief Finance Officer (CFO) would like to use the revaluation model for both the building and brand name classes of assets. You are an experienced member of Smartkids Ltd’s Corporate Reporting Team and have been approached by the CFO in regards to the following questions.

Part A (14 marks in total, 12 marks for final submission, 2 marks for Practitioner Review Part A submission)

(a) From a financial statement user perspective, explain why the CFO would prefer to use the revaluation model as an after recognition measurement basis for the building and brand name classes of assets.

(b) From a financial reporting perspective, explain:

(i) why Smartkids Ltd could adopt the AASB 116 revaluation model for the building class of

assets: and

(ii) whether Smartkids Ltd could adopt the AASB 138 revaluation model for the brand name class

of assets.

Include technical references and any other necessary information that would assist with your explanations.

(c) Explain:

(i) the AASB 13 fair value hierarchy approach and how it could assist with the determination of

possible fair value amounts for the commercial building and Music Grammar brand name

assets; and

(ii) how the use of the AASB 13 fair value hierarchy approach could impact or change fair value

disclosures presented in Smartkids Ltd’s financial statements. Include one (1) detailed fair value disclosure example for either the commercial building or Music Grammar brand name to support this explanation.