ACCT20073

Question 1  X Ltd recognises that the concept of ‘market participants’ is an important part of the measurement of fair value. It has determined that market participants are buyers and sellers in the principal (or most advantageous) market for the asset or liability that have the following characteristics: · They are independent of each other. · They are knowledgeable, having a reasonable understanding about the asset or liability and the transaction. · They are able to enter into a transaction for the asset or liability. · They are willing to enter into a transaction for the asset or liability. Required The group accountant for X Ltd has asked for your advice on the following matters. Provide a response to the group accountant of X Ltd, referring to relevant paragraphs of AASB 13/IFRS 13. a) Does an entity have to specifically identify market participants? If not, what the entity should consider and why?  b) How should an entity determine what assumptions a market participant would make in measuring fair value?  c) If an entity is unwilling to transact at a price provided by a market participant, can that price be disregarded? Explain your answer. Question 2   Word Limit: 200 words. Many organisations measure their property, plant and equipment at cost, less accumulated depreciation and accumulated impairment losses (while other organisations might measure their property, plant and equipment at fair value). You are required to discuss some of the problems associated with basing depreciation expense on historical cost (rather than some other value, such as replacement cost). You are also required to explain why managers might prefer to measure property, plant and equipment using the cost model rather than measuring the assets on the basis of fair value.  (6 marks) Question 3          The Scenic City Council contracts out the bus routes in Scenic City to various subcontractors based on a tender arrangement. Some routes, such as the Express to City routes, are profitable, while others, such as those collecting schoolchildren from remote areas, are unprofitable. As a result, the council requires tenderers to take a package of routes, some profitable, some less so. The Saferide Bus Company has won the contract to operate its buses with a package of five separate routes, one of which operates at a significant loss. Specific buses are allocated by the Saferide Bus Company to each route, and cash flows can be isolated to each route because drivers and takings are specific to each route. Required Write a report to the accountant of Saferide Bus Company which includes the following information.