The according to IFRS – Business Combinations a

The Financial Statement for PARIS S
Plc required additional amendments related to a lease and a fair value of

According to ISA 17 there are two
types of lease finance, a finance lease and an operating lease.  A financial lease is a lease that transfers
substantially all the risks and rewards incidental to ownership of an asset to
the lessee.  PARISS Plc has entered into
lease agreement to lease a piece of plant and equipment for 7 years. The risk
and rewards lie with lessee – PARISS Plc. Hence, the lease should be classified
as a finance lease as the estimated life of the asset is 7 years and PARISS
retains the right to use this asset for this period of time in accordance with
the lease agreement, hence enjoying the rewards of the machinery. Therefore, a
finance lease should be recorded in the financial statement as an
asset and liability at the lower of the fair value of the asset and the present
value of the minimum lease payments. In regards to finance lease, payments
should be apportioned between the finance charge and the reduction of the
outstanding liability. The depreciation policy for finance lease should be
consistent with that for owned assets (Anon., 2017). Therefore, have been made necessary
adjustments to the PARISS Plc Financial Statement in regards to lease, which
are included in Appendix 1 – Working A and Appendix 6 – Working 10

Additionally, according to
International Financial Reporting Standard 3 (IFRS) contingent consideration
should be measured at fair value at the time of business combination and should
be taken into account in the determination of goodwill. In the PARISS’S
Statement of Financial Position have been recorded an amount of deferred cash
times a discount rate of 5%  and
contingent cash times a discount rate of 5% (Anon., 2018). Therefore, have
been made amendments in respect to consideration, which are included in Appendix
2 – Working B and in Appendix 6 – Working 9

Moreover, according to IFRS –
Business Combinations a cost of investment in PARISS’s Financial Statement
should be measure at fair value and calculate as the acquisition and should be
charge to profit and loss accounts.

A due to diligence exercise carried
out on the acquisition of SwP, the report has revealed that SwP has land at
fair value of £100,000 and its cost value of £400,000. A subsidiary company has
undertaken research into the development of a new production process in order
to improve efficiency and reduce costs. A valuation of the R&D has been
undertaken by a reputable firm and remains at fair value of £150,000. The
Financial Statement of SwP include disclosure of a contingent liability which
remains at £400,000 on 31 December 2016.

Therefore, the acquirer should
recognise any contingent consideration as part of the consideration for
acquire. However, the requirements of IAS 37 – Provisions, Contingent Liabilities
and Contingent Assets do not apply to the recognition of contingent liabilities
arising in a business combination (Anon., 2018).

Under IFRS the accounting for R&D
is dealt with under IAS 38, Intangible Assets. ISA 38 states that an intangible
asset is to be recognised if it is probable that future economic benefits from
the asset will flow to a business and the cost of the asset can be measure
reliably. IFRS 3 requires that identifiable intangible assets acquired through
the business combination are separated in the consolidated accounts (Anon., 2018).

IAS 16 – Property, Plant and
Equipment (PPE) outlines the accounting treatment for PPE. At first PPE is
measured at its cost, then either using cost or revaluation model or
depreciated so that its depreciable amount is allocated on a systematic basis
over its useful life. Any items of PPE should be recognised as assets when it
is probable that the future economic benefits associated with the asset will
flow to a business and the cost of the asset can be measured reliably (Anon., 2018).

Additionally, as SwP and PARISS have
been trading between each other, according to IFRS 10 Consolidated Financial
Statement, all intra – group balance (unrealised profit), transactions, incomes
and any expenses should be eliminated totally. Hence, trade receivables and
payables in PARISS and SwP have been cancelled effectively each other out in
the consolidated statement of financial position. These amounts must not be
consolidated because group can end up with receivable to itself and payable to
itself (Anon., 2018). Moreover, according
to IAS 18 revenue should be stated before deduction of cost of sales and is recognised
on the provision of goods and services that relate to the ordinary activities



the entity. Revenue should be measure
at the fair value of the consideration received or receivable. In determining
fair value is necessary to take in to account any trade discounts or volume
rebates granted by the seller (Anon., 2018). 

Therefore, further amendments has
been made to Consolidated Schedule in respect to PPE, R & D, contingent
liability and intra – group, which are included in Appendix 2 – Working C,
Appendix 6 – Working 7 -, 8 and Appendix 3 – Working 1 – Net assets.

According to IFRS 3 the goodwill
should be measured at the date of the acquisition of the subsidiary. Goodwill is
measured as a difference between the aggregate of the value of the
consideration transferred at fair value, the amount of any – controlling
interest and in a business combination. Goodwill can be measured also as a
difference of the acquisition date fair value of the acquirer’s previously held
equity interest in the acquire and the net of the acquisition date amounts of
the identifiable assets acquired and the liabilities assumed. Additionally,
purchased goodwill is an intangible asset, so should appeared in the
consolidated statement of financial position. Moreover, as the acquisition has
been completed, the purchased goodwill – impairment has been identified as an
intangible non – current asset in the statement of financial position (Anon., 2018). Consequently additional
amendments has been made, which are included in Appendix 3 – Working 2 and Appendix
4 – Working 3.

Furthermore, IFRS 3 allows accounting
policy to measure Non – controlling interest (NCI) either at fair value or
NCI’s proportionate share of net assets. NCI has to be measured at acquisition
date fair value. Non – controlling interest represents an ownership stake in
the equity of a subsidiary company, which is not controlled by the parent
company (Anon., 2018). Hence, additional
adjustments in respect to NCI have been made, which are included in Appendix 5
– Working 4.

According to IAS 28 an associate is
an entity over which an investor has significant influence. Associates are
brought into the group accounts using the equity method. Additionally, the
accounts of the associate are not added line by line to the group accounts. The
equity accounting method results in the recognition of the associate in the
group accounts as Investment in associate. Goodwill is not recognise separately
for associate. Any goodwill purchased is include in the group’s account –
“Investment in associate” (Anon., 2018). An Appendix 5 –
Working 5 includes all necessary amendments relating to Investment in
associate. Appendix 5 – Working 6 includes calculation related to consolidated
retained earnings.






























Human Resources


“Human capital is described as a
capitalised value of the increased flux of earnings that will move to an
individual who has been the receiver of an investment in skills or knowledge.


In other words, human capital is an
asset owned by an individual. Therefore, individual wealth is increased through
the process of investment. An investment is a process by which part of
potential output of community is shifted from current consumption to a
productive use that will increase the output of society in the future. An
investment normally take place in a formal educational or work environment (Parkman,


“The process of identifying,
measuring data about human resources and communicating this information to
concerned parties is called Human Resources Accounting (HRA). Moreover, HRA is
described as a qualification of human organisational contribution such as
training, experience or ability to communicate effectively.  It is the application of creative skill to
value, record and present the human resources capital in reports of a
business.  The objective of HRA is to identify
the value of human resources, calculation of the cost and value of people to business
organisation and exploration of the cognitive and behavioural impact of this


Management of human resources is
essential in respect to accounting professionals. Valuation, recording of human
resources in accounts as well as honest disclosure of this information in
financial statements, are demanded by shareholders. To improve managerial
performance and employee’s efficiency. Investment in developing human resources
is cost effective revenue expenditure. Its impact on increasing the abilities
of employees delivers benefit for the long term.


Theoretically, human capital cost is
more important than the expensing method. Data relating to human assets is more
valuable for internal as well external users when making different decision.


Many businesses, which require
notable creativity or they are science based, demonstrate a considerable
difference between market value and net book value. This difference is for
intangible assets, including human skills.


Nevertheless, the human resources are
not recognised in Balance Sheet report. The human capital is not properly
accounted for businesses book of accounts. 
Auditors are concerned about the fact that the balance sheet report is
showing the true position of the business however, do not recognise the value
of Human Resources. Therefore, the main problem of HRA is recognition time and
procedure of recognising human capital.


However, some of researches have
proposed a model, which is an extension to Lev and Schwartz Model (L&S),
which was developed in 1971 for valuing human resources. The model uses a
valuation principles of L&S ( e.g.: the total earnings are discounted at
the rate of cost of capital; therefore, the value will be the value of human
resources) but in the same time removes major weakness of L&S model such as
it is able to account for Human Resources in the balance sheet report. The
capital cost, which is related to employees has been written over expected
service life of employees, which incidentally is one of the concept of accounting.
In this model total wage paid to the worker has been charged in profit and loss
account and some part of it has been charged as depreciation or amortisation of
human asset. This model has some restrictions such as method for calculation can
be difficult for each employee. It is essential, while valuing human capital does
not forget about the fact that human beings are highly sensitive to outside
forces, human skills in a business and do not remain unchanged. Therefore, the
model suggest if skills of employees are directly reflected in revenue of a
business, so Human Resources should be capitalised on the same bases.


Recently Human Resources Accounting
has been highlighted as very important for two main reasons. First and foremost
there is a need for relevant and complete information, which can be used to
improve and evaluate the management on Human Resources. Secondly, existence as
well as a success of a business largely depends on the quality of human asset.


Human Resources Accounting should
help with decision making process and aid an idea of display of a complete
picture of financial position of a business organisation by measuring the value
of human capital and disclosing this information in external financial reports.
The Generally Accepted Accounting Principles (GAAP) as well as the
International Accounting Standards Board (IASB) should be linked to HRA.


 A human asset cannot be valued, measured and
analysed in monetary term in the same way as financial and physical assets.  Irrespective of the amount of financial
resources spent on training, development, transfer or acquisition it will be
treated as revenue expense. A human asset is a crucial factor for any business
organisation accomplishment.  Therefore,
any cost incurred on human capital should be recognised and capitalised as it
gives benefits measurable in monetary term.


The advantages of HRA are as fallow:


to allocate resources more efficiently. Increases
productivity of human assets – improves morale, cooperation, job satisfaction,
creativity and influence the individual behaviour, attitude and thinking of
desire direction.Develops
effective decision making by management group.Enhance
the quality and helps to develop principles of managemen.tIncreases
shareholders long term investments.Simplifies
performance measurement by assessing strength of a business.The disadvantages of HRA are as
is no specific guideline for measuring the cost and value of human capital.Uncertainty
of human resources creates uncertainty in its valuation in realistic approach.International
Accounting Standards (IAS) and International Financial Reporting Standard
(IFRS) do not provide any guidelines for the treatment of HRA approach. Tax law does not recognise human assets.   In conclusion, human capital are
skills and knowledge, which are used to produce goods and provide services.
There is a need to prescribe the specific provisions for valuating HR and
disclosing the details of investment in human capital in the form of training
and development expenses and wages through annual report. Therefore, the need
to measure data about human resources and communicating this information with
shareholders, directors and managers is crucial for increasing the value of a
business” (Md. Amirul Islam, Md.Kamruzzaman,
Md. Redwanuzzaman, 2013).   

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