Introduction

For analyzing a public company’s accounting profile Volkswagen is selected which is a German based automotive corporation, Volkswagen uses operating lease and have bonds aswell, latest financial declaration available of the company is of December 2016 which is prepared considering different accounting policies.

Volkswagen holds diverse nature of accounts, for which different accounting policies and treatments are selected. Some of the treatments selected contains choice which will influence in a different way to the financial.

Analysis of Companies accounting choices

Property, plant and equipment

Volkswagen carry its assets on cost less depreciation, in addition incorporation of impairment if required, Volkswagen deduct government grant directly from the cost. The asset falling under property, plant and equipment are depreciated using straight line method over its useful estimated lifespan. However, useful life is reviewed on timely basis.

Volkswagen has appropriately meet the criteria of cost model under IAS 16 property, plant and equipment. However,there is also another model permitted in the accounting standards known as revaluation model. Under the revaluation model assets should be upheld on fair value, being on fair value incorporate depreciation and impairment robotically.

If Volkswagen applies IAS 16 under revaluation model, there will be exclusion of systematic reduction of asset from profit and loss, whereas comprising gain or loss in value of asset in replacement if Volkswagen have any asset appreciation in real it will more positively affect  other comprehensiveincome or revaluation surplus.

Companies often avoid this method as fall in value will affect the expense accounts and higher fluctuation will impact profitability.If Volkswagen dispose of the asset in revaluation model any surplus found in the account of asset will be transferred to retained earnings.

In cost model asset can also depreciate asset through reducing balance method, but the condition is suitability of the asset for the method, if the management of Volkswagen finds reducing balance method as a more appropriate treatment to incorporate depreciation through categorically consideration on pertaining norms of automotive industry and nature of fixed assets, it will effect statement of comprehensive income and statement of financial position, through reduction in depreciation expense and fall in asset value respectively year after year.

Intangible asset

The financial position of Volkswagen comprises of intangible asset, Volkswagen recognize purchased intangible asset mainly software, on cost and amortized it over useful lifespanthrough straight line method.

Research costs are recognized directly as expense whenever incurred, thiscapitalized progresschargescomprise of all cost i.e. direct and indirect which are directly relatewith the process. Volkswagen used straight line method for amortization that startswith the manufacturing cycle to the lifecycle of the capitalized asset. These amortizations are included in income statement by Volkswagen.

In addition, intangible asset of Volkswagen also comprise of goodwill,intangible asset with indefinite lifetime and intangible asset not yet available to use which is tested at least once in a year.

The entire treatment currently adopted by Volkswagen is permissible as per IAS38. However. Volkswagen has an option available to transfer intangible asset on the revaluation model under IAS38, the intangible asset can be carried at fair value, provided that its revalued amount is derived from the active market...........

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