Submit a report to the GWA's finance director, Mrs Goela, explaining how GWA should account for the expenditure of $12 million, as planned, on new software systems for enhanced group-wide information management. Mrs Goela has asked for your advice on whether it is acceptable accounting practice for the company to carry for¬ward the expenditure of $12 million to a future accounting period rather than expensing it in the current year. Mrs Goela also wants to know if the AASB Framework can override any specific Accounting Standard.
The finance director of GWA, Mrs Goela, has requested a report on the expenditure of $12 million on new software system for enhanced group-wide information management for all of GWA’s business units. Covered in this report will be (1) is this new software product a capitalisation or an expense for the company (2) can this expenditure be carried forward to a future accounting period or should it be expensed in the first year (3) can the AASB framework override any Accounting Standard.
The new software system that GWA international Ltd is installing would be listed under capitalised asset and not expense; the AASB defines expense as ...decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Under the AASB Framework, an asset is defined as:
A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. •
The key features are that:
• The benefits must be controlled by the entity;
• The benefits must have arisen from a past event; and
• Future economic benefits must be expected to flow to the entity.
In accordance with the AASB Framework, assets are recognised in the Statement of Financial Position when and only when:
• It is probable that the...
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