Valuation of physical and tangible asset is very crucial for a company to conduct in order to fairly report this value to the stakeholder showing the financial position of the firm. Property, Plant and Equipment is also tangibles asset valuation of which is very necessary in order to report fair values of the following the financial reports of the firm. In the current Assessment there will be discussion over the complexities which are there in the fair valuation of PPE. Annual Report of Woolworths Group Limited that is ASX listed company will be evaluated and analyzed to ensure the disclosure made by the following company in respect to PPE in order to know what approach in disclosing values relating to PPE are made.
Property Plant and Equipment are major part of financial asset which is acquired by a company in the operational procedure. It can be asset are subject to value on realization. It can be said that accounting for Property Plant and Equipment are very complex in nature when its comes to accounting for there tangibles. It can be said that valuations as well as accounting for Property Plant and Equipment comes under the AASB 116 (wow2017ar.qreports.com.au, 2018). It can be said that valuation for plant, property and equipment is complex because of the involvement of Impairment, depreciation and carrying values of the assets. It can be said that very asset is termed for depreciation which is charged on the following from the date of acquisition. It can be said that depreciation is charged on two methods that is straight line and diminishing method (Xu et al. 2017). Thus the fair value measurement of the asset comes into play. There is two method some companies in Australia value there asset in the date of acquisition and some organization use the fair value measurement. It can be said that fair value measurement is termed as one of the most efficient method when its company valuation of physical asset as it help in up to date valuation of the firm. Other than depreciation impairment of asset is also a problem that is faced by a company while conducting the valuation of PPE in the firm (wow2017ar.qreports.com.au, 2018). It can be said while in the operational activities of the firm a descending years result in asset becoming impaired decrease or impairing the actual value of asset that is of the asset in the current time. This leads to a very complex process resulting in error valuation of PPE that are present in the company. It can be said that future value of or current value of PPE can be impaired also due to their carrying values after depreciation. Obsolescence of machineries also decrease the values considerably. Some companies after the PPE’s obsolescence do not value the PPE at their rated price which overhauls the current price creating complexities within the current system of PPE valuation making it difficult to properly disclose the Current value of PPE (Xu et al. 2017). It can be said that all three factors tend to affect and deviate the valuation of PPE that is acquired by a company at the accounting disclosure period. It can be said that continuous evaluation of PPE valuation is not possible for a company to conduct hence over or under valuation if the PPE occurs.
In the disclosure made by the Woolworths it can be seen that the annual report discussed on the valuation of PPE in a very significant and descriptive manner taking into consideration the information provided by the company in there annual report. In the annual report of the company it can be seen that the carrying value of the PPE is determined through measuring cost less accumulated depreciation or amortization and accumulated Impairment Loss if any. It can be said that the costs of self made or self constructed PPE is determined through adding value of cost of material, proportions of overhead allocated and direct labor. The developmental PPE are valued on the basis of borrowing, holding and development cost until the development is fully completed (Perera and Chand, 2015). The depreciation valuation of the company is based on the Straight line method which carries on through the PPE useful life. Leasehold properties acquired by the company are amortized in accordance to the training period of leasehold agreements. The useful life of PPE are also categorized in the annual report which means that the lives are dependent on their type. Building has been estimated to have useful life of 10 to 25 years whereas plant and equipment will tend to have a useful life of 2.5 to 10 years. It can be said that the useful life of Leasehold improvements in the company are of at 25 years. The sales of asset are recognized in the consolidated profit and loss statement of the firm. The annual report of the company also disclosed that impairment testing of these assets are performed in accordance to the impairment testing done for Non financial assets (Perera and Chand, 2015).
Figure 1: Property, Plant and Equipment
(Source: wow2017ar.qreports.com.au, 2018)
The image above shows that valuation procedures and disclosures made by the firm in financial reports of the firm. Cost of development properties, Freehold land, warehouses, leasehold improvements, plant equipment are provided for both beginning and the end of the years. The expenses such as disposals, depreciation expenses, impairment expenses, amortization expenses and transfer on sale has been disclosed which shows that the company has tried to provide in depth knowledge on the valuation process of PPE. It can be said that valuation of PPE within the company’s annual report shows that the company were focused on properly valuing there PPE in order to disclose fair value of PPE (Tan?Kantor et al. 2017).
As per the annual report of the company it can be said that the company tend to following the accounting standard prescribed under the Australian Accounting Standard Boards. Hence it is legitimate to say that the disclosures made by the company were in accordance of the said accounting framework. Under AASB 116 the valuation of PPE should be done under the fair value measurement system which means cost minus depreciation and other expense chargeable on the assets (Abbott and Tan?Kantor, 2018). It can be said that the financial disclosure made by Woolworths are in compliance to the AASB 116 this because the company has also followed the guidelines and has valued there PPE following the Cost – Depreciation and other expenses method. This shows that the company has complied to AASB 116 while valuing the PPE. Under the AASB framework leasehold properties are to be valued after the deduction of amortization expenses. In this respect it can be said that the company has followed the framework in valuing the leasehold properties by deducting the mentioned expenses from the value of there leasehold properties (Abbott and Tan?Kantor, 2018).
The disclosures made by the company in regards of the valuation related to PPE are very significant. It can be said that the company complied to the objectives set under General purpose Financial reporting. The objectives of general; purpose financial reporting is to make a financial report giving in depth analysis over the financial valuation procedures undertaken by the company in order to fairly value their assets (Yao et al. 2015). It can be said that in accordance to the company disclosures regarding the valuation of PPE it can be said that the company has disclosed an in depth analysis over the validation procedure undertaken by the company to value there PPE fairly (wow2017ar.qreports.com.au, 2018). It can be further stated that the disclosures made were under the IFRS standards which means there was a initial focus if the company to disclosure a fair understanding of the procedure undertaken by the company to value their asset significantly. This shows that the company was able to meet the standards of IFRS as well the objective of general purpose financial reporting by giving a lucent and depth knowledge of procedures undertaken by the company (Yao et al. 2015).
Conclusion and Recommendation
Concluding in the light of above context it can be said that the approach taken by Woolworths in valuation of PPE was correct and this helped the company to properly value there PPE. It can be said that the valuation procedure compiled to AASB 116 as well as the IFRS framework helping the company to provide information to meet objective of General purpose financial reporting. It is to be recommended that the company continue to comply with the stated standard and perform the same procedure to proper value there PPE giving out a fair valuation of their assets in the financial reports.
References
Abbott, M. and Tan?Kantor, A., 2018. Fair Value Measurement and Mandated Accounting Changes: The Case of the Victorian Rail Track Corporation. Australian Accounting Review, 28(2), pp.266-278.
Perera, D. and Chand, P., 2015. Issues in the adoption of international financial reporting standards (IFRS) for small and medium-sized enterprises (SMES). Advances in accounting, 31(1), pp.165-178.
Tan?Kantor, A., Abbott, M. and Jubb, C., 2017. Accounting Choice and Theory in Crisis: The Case of the Victorian Desalination Plant. Australian Accounting Review, 27(3), pp.273-284.
wow2017ar.qreports.com.au, (2018) WOOLSWORTHS Available from https://wow2017ar.qreports.com.au/home/performance-highlights/2017-at-a-glance.html Accessed on 15 September
wow2017ar.qreports.com.au, (2018) WOOLSWORTHS Available from https://wow2017ar.qreports.com.au/xresources/pdf/wow17ar-financial-report.pdf Accessed on 16 September
Xu, W., Davidson, R.A. and Cheong, C.S., 2017. Converting financial statements: operating to capitalised leases. Pacific Accounting Review, 29(1), pp.34-54.
Yao, D.F.T., Percy, M. and Hu, F., 2015. Fair value accounting for non-current assets and audit fees: Evidence from Australian companies. Journal of Contemporary Accounting & Economics, 11(1), pp.31-45.
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