Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Fair ValueAccounting You are the Accountant for a construction company that is preparing their 30 June 2020 year end accounts. On 1 July 2019 the

Fair ValueAccounting

You are the Accountant for a construction company that is preparing their 30 June 2020 year end accounts. On 1 July 2019 the company acquired a private jet for $200M, to assist the travel requirements of its executives. However due to Covid-19, the market for private jets has deteriorated. You're concerned how to value the jet for 30 June 2020. Research into the private jet market has indicated the following;

-There have been minimal private jet sales since 1 January 2020.

-The bid-offer spread between market participants is considered large at present.

-You have obtained multiple independent valuations for the private jet, and have found that they vary considerably.

-Because of the customisation of the private jet market, there is little to no publicly available information.

Other information regarding the private jet is as follows;

-When the jet is not being used by the executives, it is hired out publically. Revenue associated with this was $8M for FY 2020.

-The market demand for hiring of the jet is expected to increase 5% per year.

-The applicable market discount rate is the government bond rate, which is 2% per year.

-The repair costs for the jet are estimated at $2M year.

Required:

a.With reference to AASB 13/ IFRS 13, Fair Value, identify and describe whether an active or an inactive market exists for the private jet. (5 marks)

b.Applying AASB 13/ IFRS 13, Fair Value, explain the two (2) broad categories of inputs used to measure assets and liabilities at fair value. Provide examples using the background information in your response. (5 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Essentials Of Accounting

Authors: Leslie Breitner, Robert Anthony

11th Edition

0132744376, 978-0132744379

More Books

Students also viewed these Accounting questions

Question

1. What will happen in the future

Answered: 1 week ago

Question

3. Avoid making mistakes when reaching our goals

Answered: 1 week ago