Business Combination Disclosure Level

Question: Discuss about the Business Combination Disclosure Level. Answer: Introduction: This study is done to understand the terms of finance and their working method properly. All the data of finance helps the organization and other party to make a better decision towards buying and selling the assets, investment and divestment the money, expanding the market or not etc. A proper study on the topics mentioned below helps me to understand the finance more. This study is describing about the asset, real asset, measurement of asset, different measurement style, IASB working, the international standards for accounting, the categorisation of assets and a connection between decision useful information and measurement of asset. A study on Unilever Australias data has been done to understand the data properly. This study helped me to understand that how international accounting standard help the organization to present and maintain the financial data and how this measurement helps the organization for making decisions. The first part of this study is describing about the asset and its measurement technique. Second part is explaining about the IASB standards and their value. The third part is evaluating the Unilever data and categorising the financial data of Unilever. The last part is of making comments, in which it has been analyzed that how the decision information and asset measurement technique is connected with each other. Asset is an economic value for an organization. It is expected by asset to provide some benefits in future. Assets are basically reported on a balance sheet. Asset is bought and sold for the benefit of the firm and its operations. An asset is something which improves the profitability, generates cash flow, improves the sales and reduces the expenses of an organization (Hillier, Grinblatt Titman, 2011). Assets are basically of two types: real asset and financial asset. Real asset is the one whose value is because of their properties and substance. Real asset includes Commodities, real estate, precious metals, oil, agriculture land etc. Financial asset is liquid assets of tangible nature that derives the value due to contractual claims. Bonds, bank deposits, stocks etc are financial assets. The statement is describing about the real asset as real assets are the assets whose value becomes the same for years and sometimes their value even increases. Real assets have intrinsic value (Henning, Lewis shah 2000). Unlike financial assets, a Real asset derives their value from inherent and intrinsic qualities of themselves. Measurement of Real Assets: Measurement of real assets is quite essential for an organization as it helps the organization to understand the true value of its assets and work accordingly. For measuring the real assets, each organization adopts the different methods (Shalev, 2009). The most common method of measuring the real assets is analyzing the market and identifies the real value of real assets. For analyzing the market, each organization takes different steps. Some organization take the help of outsourcers, some hire the business analyst, some collect the set of data from the market and analyze themselves about the value of assets. Inflation rate makes a direct impact on value of real assets as with the increase in rate of inflation, the rate of real assets also increases. The land value, agriculture land value, precious stones value, unique things value, antique statues value etc always increases with the time (Freeze Kulkarni, 2005). The increase rate of all of this depends upon the market situation, economy and inflation or deflation rate. Investing in real assets is the best investment decision as the value of these assets never decreases. Financial statement of an organization is prepared and issued by the company to provide the additional information to stakeholders about the companys financial standings and performance. Understanding and describing the financial data of an organization is quite complex (Basu Waymire, 2008). The first step a stakeholder must take for understanding the financial data is learn about the profitability, debt levels, total investments etc. Here the real asset value of Unilever in 2014 was $1384 for real estates and in 2015, the value of that real estate become $1689. This rate is analyzed by the Unilever through doing an analyze of market and by identifying the real value of its real assets. Real assets value diminishes only in some exceptional time otherwise the value of these assets become the same for years and it gives a true growth to the organization as organization need not to invest again in again in the same field ad can take a benefit from years. Here the Unilevers land and building value for 2013 was $3847 and the increment of its value is of $155. At the same time, the plant and equipment value of Unilever is $13,382 in 2013 and the value of this gets appreciated by $523. So the value of real assets always gets increased in normal time. Knowing the real value of an organization helps the organization to grow faster. Real value is the item of an organizations balance sheet which makes the balance sheet more attractive (Financial Accounting Standards Board, 2006). Investing in the real assets is a good idea as the value of them never gets depreciated. The real assets identification and measurement is complex as organization has to find out the market and book value of assets and work accordingly. Assets and problem of Additivity: Asset is a resource of an organization controlled by the organization itself as the result of past happenings and future benefits of economic by the flow of entity. The term assets are defined in terms of control instead of ownership. Assets can be putted in the balance sheet and final documents of an organization whether the asset is belonging to someone else. Just like if machinery is purchased by an organization on lease for a longer period, then the value of machinery will be shown in organizations financial document rather it is not the property of organization. The assets can be controlled by the organization for recognizing the financial transactions and statements of a company. Apart from all of this, the framework of IFRS has advised to meet the following criteria before putting the transactions into financial statements: The economic benefit inflow to the entity is probable. The value or cost can be measured reliably. Additivity is a substance added to something in small amounts to improve, strength or alternative the things. Assets Additivity is a substance directly added to assets of an organization. It is something that becomes a part of assets and gives a financial stability to organizations documents. When the value of assets of a whole group exactly equals the same the value of individual assets which make the group of assets? The principle of net present value of a group of independent projects is just the total of individual projects. It is a situation where the market value of a set of assets or portfolio exactly equals the individual assets or securities market value. A main criticism is putted against the financial accounting is figure out the financial data which cannot be worthy and meaningful when added together. The main problem of Additivity is that the assets of the organization cannot do work well in a group. Instead of it the work done by them individually is nice. Asset valuation method assumes that the value of an individual asset is equal to a set of individual asset, for the sake of convenience. The approach adopted by Additivity is a traditional approach. It is not possible every time that an individual assets value is exactly equal to the sum of set of assets. Additivity problem occurs the most at the time of measurement of assets value as the approach of Additivity is not that much good for organization and it dont provide a proper result. For example when an organization buy assets which last for more than 1 year, it becomes complex for the organization to determine with the accuracy that which part is remained unused after completing the year. Just like a company bought machinery worth $10,000 with a life of 5 years. How will it be possible for the company to determine the exact amount of the assets used at the end of first year? The IFRS 5 Non-current Assets Held for Sale describes the real definition of asset as well as the problem faced by an organization while Additivity the assets. This section describes that a non current asset is the one whose life is more than 1 year. Its carrying amount can be recovered only through a transaction of sale rather than using it continue. Categorization and treatment of assets is quite complex as it is not that much easy for an organization to categorize its assets in different heads properly. The main categorisation part of fixed assets are Buildings, Computer equipment, furniture and fixture, Construction in progress, Intangible assets, land, real estate, leasehold improvements, Software, office equipments etc (Taylor, 2007). The main category of an asset is current asset and fixed asset or tangible assets and intangible assets. For treating each asset well, many methods are used by different organization. Each organization adopts different method according to the nature and working method of organization. For the fair treatment of assets, the asset can be divided into 4 parts i.e. Size, accounting conservatism, management change and accounting rate (Ahmed, Kilic Lobo. 2006). Unilevers asset categorization is based upon non-current assets (Goodwill, property, equipment and plant, intangible assets, deferred tax assets, financial assets and other non-current assets) or current assets (Inventories, current tax assets, current receivables, other financial assets etc). The categorisation of Unilever Australia is according to the IFRS. IAS 1 explains the financial statement and provides guideline to present it into a well manner. IAS 1 stands for Presentation of Financial Statements. IFRS 9 explains the classification of financial assets. Here Unilever is following all the rules of IFRS and making its financial documents according to that. The financial documents of Unilever is presenting and categorised very well, it can be easily understand by the stakeholders of company and other people very well. A good categorization and treatment of an organization helps the organization to deliver a good message to its stakeholders, it helps the shareholder to understand the financial condition of organization well, it helps the creditor and debtor of the organization to understand the dues and work accordingly, it helps the auditor to analyze the financial reports well, it helps the other people to understand the organization and its transaction well. IAS 16 explains the definition of property, plant and equipment. These all are the tangible item of a company, it helps by an organization for make a use of production and supply of goods and service or for administration purpose. These assets are expected by the organization to use for more than 1 year. IAS 40 explains the investment property. It is a building even a part of building, land etc held by an organization for capital appreciation of rental or both (International Accounting Standards Board (IASB), 2013). It can never be owner-occupied or not held for sale the equipments in normal course of business. IAS 40 is describing the judgement and estimates. It explains that sometimes it is difficult for the entity to identify the property of investment. For it, entity develops criteria that can exercise the judgement easily and consistently (IASB, 2010). It is evaluated through this study that categorisation and a good treatment of asset are necessary for an organization. It helps every party who have connection with the company to identify, analyze and understand the financial stability of the organization as well as understand the growth of the company and all the transaction made by the company in accounting year (Botosan Huffman, 2013). Asset measurement is a complex process for an organization. As there are so many methods to measure the value of an asset, it becomes difficult for the organization to choose the best method and apply this method so that they can make a better decision regarding finance of organization (Kolev, 2009). The two main mechanism of value realization of an asset are in-exchange and in-use. In-exchange, it is expected from asset to realize the contribution of firm value in exchange of cash and other valuable asset on a standalone basis. It derives no extra value for being used in a group of other assets. It is expected by in-use assets to realize the value of contribution to firm employed with a group of other assets (Zanoni, 2009). It is also referred as cash generating unit. The value of in-use is expected to increase the level of sum of individual assets. Decision useful information: Decision useful information is a key element of decision making as without the information, it is not possible for an organization to make decision (Cairns et al, 2011). For collecting the useful information for decision making, an organization need to ensure that all the mechanism adopted by it is quite well and the data get by this mechanism is helpful and perfect for making decisions (Lusardi, 2012). Relation between decision useful information and asset measurement is positive as if the asset measurement is done properly than the decision making will automatically be good. A good technique of measurement will help the organization to collect the best information and thus organization can make good decisions (Milburn, 2012). Fair value measurement of an asset in-use asset doesnt offer investor with decision useful information. A valuation method concludes that an equity of a firm can also be modelled as value attribution of firm to value generated by in-use assets and in-exchange assets (Christensen Nikolaev, 2013). Importantly, P1 (equity value) is equal to the net in-exchange asset of a firm measured according to the market value and discounted expected value of firms infinite horizon future cash flow (expected) generated from in-use asset (Dechow, Myers Shakespeare, 2012). For example, it is quite possible for an organization to estimate the present value of cash flows generated in future by labour, material and machinery. It produces a product which is sold to produce the net cash inflow of organization (Nekrasov Shroff. 2009). The resulted value of the cash flow is expected to exceed the total of exchange value of material, labour, machinery but the exceeded value of assets cannot be meaningfully attributed to other individual assets, thus it is created by a combination of assets with other (Dichev, Graham, Harvey Rajgopal, 2012). Finally, it can be said that the decision useful information and assets measurement have a strong relationship with each other. Fair accounting value is for reporting the shareholder sufficiently only the time, when organization does not add any value to the input through the business model (Financial Accounting Standards Board, 2012). An organization does not add any extra value to the input through the business model while buying and selling assets. Historical cost accounting is managed for business models for transforms the input to add or exceed the value that is in-use assets. Additionally, a framework is measured and developed by ICAEW(2010). This framework advocates for accounting measurement i.e. historical cost for most relevant measurement basis. It is examined through this study that decision useful information is linked with the measurement of assets. An asset measurement is guided in the way in which value of asset is derived either in-exchange or in-use (Song, Thomas, and H. 2010). This provides the investor and other stakeholders to get the information and assess the firm value. IAS 41 describes the measurement for fair value for biological assets, like animals and living plants. It derives the value both in-use and in-exchange. S multi pronged approach is assessed for decision usefulness (Daske, Leuz Verdi, 2008). The result of this study supports the asset measurement and decision useful information in the manner, which realizes the true value of a firm and it is suggested that before taking the decision, party must go through the asset measurement and valuation process (FASB, 2007). Conclusion: I empirically studied and examined that the financial decision making is quite complex but if a person use the mechanism and techniques to solve the problems, then it can be assessed easily. I have gone through many books, published articles, e-books, journals, research paper etc to do this study. It is found through this study that many things in a group impacts on financial decision. The term asset is quite easier to understand after this study as I got to know that how an asset is differentiated from others and how an asset value can be measured. It is also found that the measurement technique of assets differs organization to organization. Unilever data is taken for consideration to understand it in a better way. IASB is the accounting standard board internationally which set the standards for organization to maintain their accounts. A study on present IASB helped me to understand the financial terms best. The Additivity problem and asset measurement helps the organization to make a better decision. The categorization and treatment of assets of Unilever is examined and found that the financial data of Unilever is totally according to the standard of IASB. The categorisation is of many types and it helps the company and its stakeholder to understand the data easily. Lastly, I would say that the whole study is of making the financial decision properly. For a proper decision making, a firm need to identify and measure all the techniques in a proper manner. Reference: Ahmed, A.S., E. Kilic G.J. Lobo, (2006). Does recognition versus disclosure matter? Evidence from the value-relevance of banks recognized and disclosed derivative financial instruments. The Accounting Review 81(3): 567-588. Barth, M. E., W. H. Beaver, J. R. M. Hand, and W. R. Landsman. 2005. Accruals, accountingbased valuation models, and the prediction of equity values. Journal of Accounting, Auditing Finance 20 (4): 311-345. 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