1.Impact of AASB 116: Property, Plant and Equipment – An insight
This standard is applicable to reporting periods on an annual basis which are starting on or after 1st of July 2009 and it is with an initial application of RDR i.e. Reduced Disclosure Requirements. Relevant amendments have been incorporated which are made till and it even includes till the date of 30 June 2010. These amendments are not applicable to the periods which are before 1st of July 2009. (Board, Property, Plant and Equipment, 2010)
We should comply with the requirements of the standard before going away with the change in method, and when we actually undertake the same, we should check the effective date from which is applicable, whether there was any valuation done by an independent value, what are the procedures, manners and the various assumptions made, when the assumptions for these assets are being undertaken at the fair values of these acquired assets as on date and we need to mention the extent to which these line items have an influence and valuation whether directly or indirectly. (Board, Impairment of Assets, 2010)
The Australian Accounting Board also pressurizes on how the valuation will be done for these line items and how the same shall be a part of the notes to accounts.
The nature of the assets shall confirm and agree to that meet the recognition criteria and are eligible for revaluation based upon the change in method of accounting.
As per the standard, we have come across that whenever there is an allowance to change the method of depreciation, it cannot be done more than once and that too it should comply with the requirements mentioned therein as well. (BDO, 2016)
As per the disclosure in the financial statements of Wesfarmers, below given are the observations regarding the equipment, plants and the property as well:
Overall value of plant and equipment has a value of $ 7216M in 2016 as compared to 2015 wherein the value was $ 7730M. (Don Herrmann, 2006)
Payments for property, plant and equipment shows a cumulative payment of $ 1899M in 2016 and $ 2239M in 2015. Sale of plant and equipment in 2016 and 2015 was $ 563M and $ 687M respectively.
Depreciation and allowances stand at $ 1296M and impairment and written down of assets stand at $ 2172 M for the year 2016.
Capital spends for 2016 for property, plant and equipment are $ 372 M and $ 1422 M respectively. (Deloitte, 2016)
Company follows a SLM method of depreciation and assets are depreciated across the useful life post considering the scrap values.
Company has made recent investments in the plant and machinery and is under no view to change the method of depreciation. However, the analysis of the statements specifies that the overall bucket of assets shall be considered and revalued on a regular basis say once in a year so that the profits mentioned are not over or under stated. (Board, Property, Plant and Equipment, 2010)
Building has a useful life estimated to be in the range of 20-40 years and whereas it is 3 to 40 years for equipment and plant. We have not applied it on Land.
2.Trade names, non-contractual relationships, contractual ones, software and gaming and liquor licenses are the constituents of intangible assets apart from Goodwill. While making an assessment of these items we have taken those which are having an indefinite life taken on the basis of strength, ongoing expected profitability and continuing response. Same way, in case of brand name, we have taken those complementary assets like product offerings, store formats, and networks. (Board, AASB 1013, 1996). Gaming, licenses for liquor are taken up for having infinite life and an assumption that it is expected to be resigned on a parallel note to business continuity requirements. On the impairment of the intangible assets, there are few line of assumptions being made at an organization level and the same is being applied at a flat rate on these assets. (Guthrie, 2013). These assets have been valued in line with the standard guidance as per AASB 138 and are being considered at par with the standards recommendations based upon the broad categories for each of the line item of intangible assets. (Gate, 2008)
The standard is applicable as per the Tier status of the company and covers the overall aspects in the same line. Goodwill, which is taken up as a part of business acquisition and is valued at its acquired cost. Wherein Cost is equal to business cost reduced by the net fair value of the acquired assets, liabilities including the contingent liabilities. Goodwill is therefore valued at cost less any accumulated impairment losses and depreciation till the date of settlement. (Directors, 2017)
While making valuation of the intangible assets, we have taken cost as it is separately identifiable and its overall cost is their fair value on the date of purchase. Assets which are Intangible and have a definite life are depreciated on a SLM basis over their expected life and impairment valuation is done whenever there is an indication that they may be impaired. And this method is then reviewed at each financial year end.
On the same front, assets which are intangible and which have indefinite lives are tested for amortization just like goodwill and same rules of recognition are then applied on it.
3.Provisions appear under the heading of Liabilities in the balance sheet of the company. The overall value of provisions stands at $ 1861M as per 2016. The key estimates for long service leaves are done taking into consideration the discounted rates which are derived from the HQCB market i.e. corporate bond of great quality in Australia provided by Millikan Australia. (Board, Provisions, Contingent Liabilities and Contingent Assets, 2010). This provision represents long service leaves, annual leaves, and all other incentives accrued by the employees.
Overall valuation of the long service leave is done by using the project unit credit method. (Times, 2017)
Ultimate judgement is made by the management wherein the set of assumptions are baselined which are used for calculation the same as given below i.e.
Page no. 104 and note to financials accounts 9 explains that “the accumulated liability of long service leave is $586 million (2015: $540 million). Taking into mind the significance of the liability and key areas of the same, any sort of change in one or a combination of the estimates is unlikely to have a material impact on the overall assumption of the same”.
Whenever there are any dividends which are not recognized as on the date of balance sheet then they are considered as a provision in the books of accounts because these dividends to be paid are recognized but not accrued and due and hence are taken as provisions.
Page no. 104 and note to financials accounts 9 explains the same. (Board, 2010)
4.When there is a probable liability which is a result of past events, and come up or confirmed only when there are incidents which will happen or which does not happen and which are not certain to happen in the coming future and are not in the control of the entities as well. Examples of conditions giving rise to this type of contingent liabilities are as follows:
Whenever the tax audit is ongoing for the company and as per the authority, it has to deny the allowance of specific tax deductions which were deducted or claimed during the past financial periods. With this, there is a probability that there will be incremental taxes, whereas the company has its own sole advice these reductions were correctly availed and are worthy of any sort of dispute and if there are any sort of deductions; then the company has availed the same on a correct note and it is not against any other entity for expected acts of an employee of the other entity. At the time of filing the returns, it is ambiguous that the company did it on a correct note or this was under disputed or agreed to receive compensation from the other entity. (Board, AASB 1044, 2001). The annual report did not contain the contingent balance sheet liabilities as on effective date as mentioned in the page number 126 under note 21. It only carried a value of trading guarantees as at 2016 at a value of $ 963M and $960 M. We do not have any clarity on the contingent liabilities of this organization as it does not comply with the disclosure in the notes to accounts. As on date, there are no contingent assets for the company for the year and hence there is no disclosure of the same in the annual report. (Board, Reduced Disclosure Requirements, 2010)
5.The ratios as asked for are as under:
Current Ratio- The company’s current ratio is not good enough. The current assets should be at least twice of the current liabilities which is an ideal situation to be in for any company. The ratio of less than 1 shows that there is some liquidity issues of the company and hence the working capital is not strong enough manage tough situations that might come in future.
Return On Total Assets- The company’s profitability is not good as compared to the amount invested in the assets of the company. These shows that the assets are not leveraged to the fullest levels. The return on the assets are too low at 3% for the company
Times Interest Earned- The company is having good financial leverage as it is able to cover its position through earnings before interest and give company the leverage to finance its costs. It is 8.9 times of the interest costs
Debt- Equity Ratio- The company’s debt equity ratio is 0.25 times that means debt is 1/4th of the equity. It shows that the ratio is viable and the company is able to fund the working through its capitals. Although it is a fact that capital being used is available at an opportunity cost higher than debt, the company will be able to give positive hopes to the stakeholders due to its promising returns on capital.
P/E Ratio– P/E Ratio shows that the company is growing a certain no of times it’s earning. Based on the P/E Ratio of 1.1 it seems that the profits are not multiplying at the rates they should be and there is a scope to leverage the same throughout the cycle of the performance. It should improve with the better utilization of the funds
BDO. (2016, May 30). Accounting News. BLIND FREDDY – COMMON Errorts in Accounting for Impairment Part 1, pp. 2-5.
Board, A. A. (1996, June 30). AASB 1013. Accounting for Goodwill. Australian Accounting Standards Board.
Board, A. A. (2001, October 31). AASB 1044. Provisions, Contingent Liabilities and Contingent Assets. Australian Accounting Standards Board.
Board, A. A. (2010, August 3). Impairment of Assets. Australian Accounting Standards Board. Australian Accounting Standards Board.
Board, A. A. (2010, August 2). Property, Plant and Equipment. AASB 116 Property, Plant and Equipment. Australian Accounting Standards Board.
Board, A. A. (2010, November 26). Provisions, Contingent Liabilities and Contingent Assets. AASB Standard 137. Australian Accounting Standards Board.
Board, A. A. (2010, June 13). Reduced Disclosure Requirements. Reduced Disclosure Requirements. Australian Accounting Standards Board.
Deloitte. (2016). Audit Readiness (4) – Property, Plant and Equipment. Audit Readiness (4) – Property, Plant and Equipment, pp. 1-1.
Directors, A. I. (2017). Testing the boundaries of goodwill Accounting for goodwill. Testing the boundaries of goodwill Accounting for goodwill, pp. 1-1.
Don Herrmann, S. M. (2006). The quality of fair value measures for property, Plant and equipment. The quality of fair value measures for property, Plant and equipment, pp. 43-59.
Gate, R. (2008, March). Did the goodwill accounting standard impose material economic consequences on Australian acquirers? Did the goodwill accounting standard impose material economic consequences on Australian acquirers?, pp. 1-1.
Guthrie, J. (2013, September 19). Disclosure of Goodwill Impairment under AASB 136 from 2005–2010. Disclosure of Goodwill Impairment under AASB 136 from 2005–2010, pp. 1-1.
Times, T. E. (2017). Goodwill. GOODWILL, 1-1.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download