advanced financial accounting

In December 2012 the IASB issued an exposure draft on proposed amendments to IAS 16 Property Plant and Equipment and IAS 38 Intangible Assets.
The exposure draft seeks to clarify what are and are not acceptable methods of depreciation and amortisation. The amendments would prohibit methods of depreciation or amortisation which use revenue generated from an activity that includes use of the asset as the basis for charging depreciation.
Consider the following scenario:
A medical imaging clinic runs a service to scan patients. The clinic charges fees which have been calculated for different procedures based on use of the scanner and the doctors’ time in reporting the scan. The charge for scanner time is based on the machine hours for particular types of scan (a full body scan takes much longer than a scan of a knee for instance).
In the clinic’s financial statements the depreciation for scanners is based on machine hours, which is calculated by reference to the scans which have been billed. This is because the machines wear out more quickly if they are used intensively and after 20,000 hours the maintenance costs start to become prohibitive and a new scanner is usually required.
Requirement:
Prepare a comment for submission to the IASB on the proposed amendments.
Your comment should include
i) A discussion of justifications for charging depreciation/amortisation and an analysis of the extent to which depreciation/amortisation charges are consistent with the IASB Conceptual Framework. [50 marks]
ii) An analysis of whether the new proposal would or would not allow machine hours to be used as the basis for depreciation and answers to the questions for respondents contained on page 5 of the exposure draft. [30 marks]
20 marks are available for structure, presentation and referencing.
The exposure draft is available on the IASB website at http://www.ifrs.org/Current-Projects/IASB-Projects/Depreciation-and-Amortisation/Exposure-Draft-and-comment-letters-%5bDec-2012%5d/Pages/ED-December-2012.aspx
The word limit is 1800 words, excluding references and appendices. You should include the word count on your cover page.

 
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