Delivery in day(s): 4
ACCT5030 Financial Accounting Oz Assignment
Myer holding is an Australian departmental chain which is mainly focused for the mid-segment to top class market segment. The company stores a major range of various products from mens clothing, kids wear, footwear and other accessories, the stores also sell cosmetics, housewares, furniture etc. and the company’s main rival in the market is David Jones. Myer holdings was incorporated in 1900 and is currently located in more than 65 different places in Australia and employs more than 13,500 individuals in its stores. It is identified that the company revenue is more than AUD 3 billion and has a operating income of more than AUD 110 million. (Myer, 2014)
Goodwill and other intangible assets possess higher useful life and are not amortised, however they need to be tested for impairment on an annual basis or more frequently in case the events or other aspects tend to state that such assets need to be impaired. However, other non-current assets need be reviewed for impairment when the events or the current aspect may indicate that the amount could not be recovered. An impairment loss occur when the carrying amount of the asset exceed than the recoverable value. The recoverable value is computed based on the higher of the fair value of assets and its overall value in use. (Ray, 2011). Oranisations in order to assess the impairment will group the assets to the lowest level based on which they are identified separate cash inflows which are largely based on the cash inflows from the other assets or the group of assets. In case of Myer holding, the appropriate cash unit is the individual shops, the non financial assets which have suffered from the impairment need to be reviewed for major reversal of the impairment on a time to time basis. (Berman, 2013)
In the year 2014, the company has made a key acquisition of the fashion brand called Charlie Brown, which has helped the business to stabilise in the markets. Due to these acquisitions there were many additions in the balance sheet of the company. The company has decided to apply the policies on impairment of goodwill and other intangible assets for revaluation.
Goodwill and Intangible assets
In the chosen organisation the goodwill on the acquisitions of the various subsidaries are being included under the head intangible assets. However, the management does not amortise the value of the goodwill rather they tend to test them for impairment on an annual basis. The various intangible assets which is being stated in the annual report of the company are: Goodwill, brand names and trade marks, computer software being used by the company for their process and functions and lease rights. (Brooks, 2012)
From the above table it is identified that the value of the goodwill is the same this shows that there is no impairment loss on the asset. However, the value of other intangible asset like brand names has increased due to the additions made in 2013 and 2014, this shows that the total value of book value increased over the years. The management has considered the life of the brand of various products as per the acquisitions. The brands which are not attributed to have a maturity dates are being assessed since they do not have any useful lives as there is always a assesment that there is not limit to the period because the key brands tend to generate more cash flows for the business enterprise. So, the management has decided not to amortise them for accouting purpose, rather they are being tested for impairment on an annual basis. In the above table, the total values of the brand tends to be at the value of around 426,000 million in 2012, however the value of the brand has increased in 2013 and 2014 this is mainly due to additions in the brand value through acquisitions. Also the company has decided that the brands which posess a very less life are being amortised for the period of 5 years through the straight line method and financial accounted in cost less the accuulated value of the amortisation cost and the impairment loss.
The acquisition of charlie brown was made at a valuation of around 3 million, the cash paid and other details are stated as follows
Due to the acquisition of the company, Myer holdings have recognised the assets and the liabilities of Charlie Brown in its books and therefore they needs to be considered for impairment as per the books.
The company has made the following additions of Charlie Brown into the group holdings
The table assets of nearly 1.4 million is now to be impaired as per the accounting standards.
The next assets which the management considers to adopt impairment is the computr sodtware, it is noted that the cost which is incurrent in the overall purchase of the software and the updgrades and enhancements are considered for the inclusion in the assets. It is noted that these cost can be measured reliably and it is not integeral to other assets, therefore the computer software is categorised as intangible assets. The direct cost attributed to the internal payroll and the cost for employees which is attributed to the project is considered in the annual report. The cost incurred towards the maintenance of the software and the maintenance which is occurred during the initiation phase are also included in the cost of the software. The maagement has decided to amortise the software within 5 to 10 years. (Myer, 2014)
In the above table it is noted that the computer software are amortised on a considerable basis, however in the year 2014 the value of the software has increased due to the additions and acquisitions of the new business, however the company has amortised the computer software in a clear and concise manner so that it tends to reflect the actual value.
The last intangible assets which is included in the company books for impairment is the lease right. The lease right is considered as the value which is paid by the management up-front for taking over the store leases from the lessee, these payments are paid in addition to the ongoing pament which the company pays. The company amortises the lease payments over the period of 13 years to maximum of 17 years on the lease value which is computed as lease payments and other renewal options which has to be utilised at the time of acquiring the leases. From the above table the leases are amortised on a consistent basis with the higher value in the year 2012, however the values has started to reduce over a period of time.
The lease of the propery and equipment possess a significant aspect of the risk on the type of ownership as it is retained by the lesser, this is classified under the category operating leases. The lease incentives which is generating by entering into a lease agreements are mainly categorised as the deferred income and the amortisation is performed over a peiod of time. (Kaplan, 2011). The paymets which are made under the operating leases are mainly attributed in the income statement based on the straight line basis over the lease terms. The management tries to classify the leases which possess significant risk of ownership as financial leases and accounts them in the financial statement. (Titman, 2010)
The overall amortisationexpenses of the company are stated as follows
From the above table it is noted that the amortisation expenses of the company is attributed with the depreciation charges. The value of total expenses of amortisation and depreciation accounted to 86 million in 2014 whereas the expenses was only 83.5 million in 2013. This is mainly due to the additions and amortisation of the business which the company acquired during the period of time.
In the given annual report of the company it is identified that the goodwill which is arised due to the acquisition of the Myer business is totalling nearly 350 million and this cannot be allocated to the overall group;s business unit and therefore the management has decided to allocate them for the business as the whole rather than allocating on individual stores. (Bragg, 2007). Similarly the management has decided to allocate the brand names of the acquired business on the whole rather than on an individual basis, the total value of such assets is amounting to 402 million. The goodwill which has been arised due to the overall acqusition of the new business called Sass and Bide which is valued at 27 million cannot be attributed ot the individual business units, that is to the individual store of Sass and Bide, therefore te management has decided to account them on the whole basis rather than individual store. The same is being accounted by the management on the brand name of Sass and Bide company, which is indefinite useful life related to 23 million and is allocated based on the whole business. (Brealey, 2011)
The management has accounted the cost of impairment as per the standards set in AASB 16, which states that the goodwill and the other intangible assets possess indefinite life which can be tested on annual basis or as and when it requires. The management has applied the provision which states that while testing the assets for the impairment the recoverable values need to ascertain on case to case baisis using different calculation. The calculation is mainly based on the cash flow projected as per the financial budgets which is mainly approved by the management which covers to a span of 5 years. The cash flows which is exceeding 5 years is forecasted based on the growth rate of nearly 2.5% per years, the basic assumptions which is stated by the management is the discount rate is stated to be at 14.4% which is inline with the projections of 2013, the terminal growth rate is stated to be at 2.5% which is also the same rate as stated in 2013 and the profit margin is retained at 41%. The company has also stated that neither the goodwill nor the other intangibles which has the indefinite period needs to be impaired at the end of the accounting period. Also the company uses various sensitivity analysis to place various changes based on the assumptions which may not result in the overall outcome based on the impairment need to be required.
Accounting policies in relation to goodwill and other intangibles of Myer holdings
IAS 36 Asset degradation, issued in 1998 and amended in 2004 and 2008, aims to ensure that an asset is not sold over the recoverable amount in the balance sheet. The purpose of this document is to critically assess the conditions under which write-downs are regarded as write-downs and explain when companies need to write a write-down test, they will discuss the effects of impairment assessments on financial position and results. company. kev earlier and valid guidance on accounting for impairment of assets. The lack of clear guidelines for many devices can greatly appreciate radiation amount and time (Berman, 2013). Over time, accounting standards have been designed to present different items in the balance sheet at fair value. Thus, IAS 36 attempts to remove greater discretion. IAS 36 The principle of depreciation of assets is to ensure that the company has reported the return value of the assets and standard establishes criteria for determining the recoverable amount. The company will conduct an impairment test of the value of the index for certain intangible assets and requires an annual impairment test of various entailing the loss of goodwill. unlimited life cycle of intangible assets, intangible assets that are not yet available and goodwill be evaluated annually for impairment good manual. (Welch, 2011).
Value loss occurs when the transport exceeds the recoverable amount (ie value in use and net realizable value or fair value in accordance with IFRS 13 in the unit). At the end of each financial reporting period, an entity assesses whether there is an impairment. If the lack is obvious, you must calculate the assets' recoverable value [IAS 36.9]. The loss is reported if the value is less than the amount of the charge is recyclable [IAS 36.59]. The loss recognized immediately, usually as filler, unless it relates to depreciation, the loss value is treated as a reduction of the revaluation (IAS 36.60). (Brigham, 2010). For the goodwill of a cash-generating unit to which the goodwill is assigned, at least to be tested for impairment, the acquisition cost of the appliance, compared to goodwill and goodwill annually. (Beringer, 2013). Units can be recycled: [IAS 36.90] If the value of the unit exceeds the recoverable amount of the company, estimates the company, however, a deficiency. Recognizing dramatic added value is changing dramatically. Previously, according to international accounting standards, goodwill recognition should be assessed over the useful life. (Graham, 2011).
Impairment indices are defined in IAS 36 to make the decision less subjective than before. Unwanted changes in technology, marketing, finance and law can have a negative impact on the company's assets. Indicators of degradation can be internal or external sources. Market value of an asset due to reduced usage time or transition. (Parsons, 2009). The loss may be due to other external indicators of significant technical, commercial, financial or legal changes affecting the device or the device negatively. Market prices affect the discount rate used to calculate the use of the unit and thus reduce its recoverable amount. Internal indicators of impairment may be obsolete equipment or the consequences of physical damage, or if a device is part of the restructuring or sale or when the economic development of an asset is worse than expected.
1. Beringer, C., Jonas, D., & Kock, A., (2013). Behavior of internal stakeholders in project portfolio management and its impact on success. International Journal of Project Management, 31, 830-846.
2. Berman, K. (2013). Financial Intelligence. 2nd edition. Harvard Business Review Press.
3. Bragg, Steven. (2007). Throughput Accounting: A Guide to Constraint Management. 1st edition. Wiley & Sons
4. Brealey R., Myers S., Marcus A. (2011), Principles of Corporate Finance,10th ed., Mc-Graw Hill Irwin
5. Brigham, E. F. (2010). Financial Management: Theory & Practice. 5th edition. Cengage Learning.
6. Brooks, R. M. (2012). Financial Management. 4th edition. Prentice Hall.
7. Graham J., Leary M. (2011), A Review of Empirical Capital Structure Research and Directions for the Future, Annual Review of Financial Economics”, Vol: 3, pp. 309-345
8. Kaplan, R. S., & Young, M. S. (2011). Management Accounting. 3rd edition. Prentice Hall.
9. Myer (2014). Annual report of Myer.
10. Parsons C., Titman S. (2009), “Empirical Capital Structure: A Review”, Foundations and Trends R in Finance Vol. 3, 1–93
11. Ray, G., & Eric, N. (2011). Managerial Accounting. McGraw-Hill/Irwin.
12. Titman, S. J. (2010). Financial Management. Prentice Hall.
13. Welch I. (2011), “Two Common Problems in Capital Structure Research: The Financial-Debt-ToAsset Ratio and Issuing Activity Versus Leverage Changes”, International Review of Finance, 11:1, pp. 1–17