Problem
To demonstrate how IFRS might affect Cambel's investment decisions, let us firstly consider the accounting treatment of property, plant and equipment (PPE) under IFRS and compare it to US GAAP. Under IFRS, IAS 16 companies can choose between cost model and revaluation model for PPE. The cost model involves carrying assets at cost less accumulated depreciation and impairment losses, while the revaluation model involves carrying assets at a fair value on the date of revaluation, less any subsequent accumulated depreciation and impairment losses (AASB, 2023).
US GAAP, on the other hand, only allows for the cost model. Consequently, Cambel's Australian operations may have the option to revalue PPE to fair value, which could impact the carrying value of these assets and potentially influence investment decisions (FASB, 2023). For example, if the fair value of PPE is higher than its carrying value under the cost model, revaluation could result in increased asset values, higher equity, and a potentially more attractive financial position for investors.
Furthermore an IFRS application that might affect Cambel's investment decisions is the requirement to assess fair value of biological assets, such as crops and livestock. Under IFRS, companies are required to measure biological assets at their fair value less estimated point of sale costs, which can be significantly different from their historical cost (AASB,2023). This means that if Cambel established a large-scale growing operation in South Australia, they would need to regularly assess the fair value of their crops and livestock, which could impact their financial statements and ultimately their investment decisions. For example, if the fair value of their crops is significantly lower than their historical costs, this could indicate that their operations are not as profitable as they had initially anticipated, and they may need to adjust their investment strategy accordingly.
Provide quantitative examples of the above information.