Discuss about the Accounting Development for Theory and Application.
The present report deals with the analysis of the annual report of Dexus Property Group and Sonic Health Care by focusing on intangible assets of the company. The analysis has been done to ascertain that whether the company has complied with applicable accounting standards in an appropriate manner or not. The study is focused on comparison and contrast of accounting policies adopted by both the companies in preparation of financial statement with the framework of IASB framework and related accounting standards. For the same aspect impairment and valuation policies of companies are evaluated and compared with each other in order to comment on the viability of financial statements.
Dexus Property Group
DXS is an Australian Real Estate Investment Trust that invests, develops, manages and trades Australian office and industrial property. It consists of an approximately $22.2 billion assets under management. The buildings are located in the central business district if Sydney, Perth, Adelaide and other areas. The property portfolio of the group includes $ 11 billion of owned property, and $11.2 billion of property managed by third parties and the remaining part is relating to development pipeline. During its journey of 30 years, the company has invested solely in Australia. To guarantee a reliability of governance, the Board of Dexus Group has recognised a commercial governance framework which applies to the invested funds of the entire group.
The company has followed the guidelines provided in IAS 36 for impairments of assets. According to the standard, “Assets should be assessed for impairment at the end of each reporting period (Mayorga and Sidhu, 2012.). If there are indications of impairment, an impairment test should be carried out (Andersson and Wenzel, 2014). Regardless of whether there are indications of impairment exist or not, such a test must be carried out for:
- An intangible asset having an indefinite life or which is not yet available for use
- Goodwill relating to obtained in a business combination.
For assessing impairment, all the assets are assembled at the lowest levels for which there are separately identifiable cash inflows. All the intangible assets of the company are documented at fair value at first and then measured at amortised cost. The intangibles are charged on a continuing basis for impairment. Impairment of goodwill for the year 2015 and 2016 remain same at $99000. The Net Realizable Value (NRV) of intangibles is determined using a forecasted price with a reduction of approximate costs which can be incurred to get the assets to their over and done condition.
The major hypotheses related to all the current intangible assets and goodwill are evaluated every year or as per the need arise if there are any signs of impairment. In the year 2015-16, the reviewed key estimates of inventories show no existence of impairment. As per the study of Kung and et.al.( 2013), loss in the impairment value is recognised in the income statements at a cost which carrying amount of assets exceeds its recoverable amount.
Sonic Healthcare Limited is an Australian based company which offers services related to laboratory pathology, and radiology. The corporation has become one of the leading diagnostic companies globally. The practices are dedicated to providing efficient quality and service to the patients and doctors that they serve. The core of the success of the company is its commitment to medical sovereignty and independence. It has its foundation in the pathology practice of Douglass Laboratories. The entity was listed on the ASE in the year 1987 as Sonic Technology Australia Ltd. In 1995 the name of the company was changed to Sonic Healthcare Ltd.
According to the annual report, all the assets of Sonic Health Care have subjected to impairment annually. IAS 36 deals with impairment of assets. As per the provision of same standards, assets should be assessed for impairment at the end of each year (Ienciu and Matis, 2014). In case the carrying value of assets exceeds its recoverable amount of individual asset, an impairment loss is recognised by reducing the carrying value of the asset. The same practice has been adopted by the company.
The company comprises of a large collection of intangible assets. Due to this, there are high prospects of a reduction in the output of asset, and impairment of the concerned assets. The objective of AASB 138 (Intangible assets) is recognised intangible assets only if they meet the specified criteria. According to Bonin (2013), the standard also specifies the methodology to measure the carrying amount of intangible asset and the appropriate manner of disclosing them in books of accounts. Amortisation of intangibles for the year 2016 was $54,528. Amortisation of the intangibles has increased by 16.3% due to business acquisitions and growth. Amortisation expenses of intangibles assets show an increase of 21% owing to new software developments and innovations. Although there is an increase in impairment of assets, profits of the company have shown a drastic improvement of an increase of 20%.
Verifiability of value declared
Value declared in the financial statements of both the companies is eligible to verification by the independent auditors and stakeholders. Users can also verify the value declared by taking into consideration the given information (Bryer, 2013.). Assessment of assets is done by sovereign experts in the field which ensures reliability and precision of financial figures mentioned in the annual report. Both the companies had valued the intangible asset in accordance with the provisions of AASB 138 and IAS 36. According to AASB 138, the intangible assets should be recognised only if the probability of future economic benefits for the company exists and the assets should be measured initially at cost. The same provisions have been followed by both the companies.
The goodwill of DEXUS group represents the excess of the cost of an acquisition over the fair value of the identifiable asset of acquired subsidiary as on the date of acquisition. The valuation has been evaluated by Board after approving long-term forecast of five years with the assistance of discounted cash flow model. The performance of year five has been taken as terminal value. However, no specific method of impairment has been specified by Sonic Healthcare, but the company has amortised intangible assets relating to software as well as the contract cost. The goodwill that has been recognised by the company is arising from business combinations featured with their reputation in the local market. The benefit from same is expected in revenue growth, future market development and other areas.
Intangible asset as off-balance sheet item
The intangible assets of Dexus Property Group are valued at $307,076 as on June 2016. The value has increased in comparison to the previous year which was $3 01,400. The intangible assets are measured at actual cost and amortised using the straight-line method. The useful life is estimated at 16 years. The goodwill is not subjected to amortisation (Glaum and et.al. 2013). The intangible assets of Sonic Healthcare are valued at $5,158,984. There is an increase in the value of intangibles as compared to last year.
According to Deegan (2012), appropriate accounting of amortisation is made by considering the standards of Australian Accounting Board. In addition, all the expenses and payments related to intangible assets are recorded in the consolidated income statement (Gaffikin and Aitken, 2014 ). Hence, the companies have not recorded intangible asset as off-balance sheet item. However, detail reporting of the accounting strategies related to intangible assets with is only mentioned in the notes of Dexus Property Group.
The present study shows that the companies have complied with provisions of applicable standard relating to intangible assets. However, the study depicts that Dexus Property Group has provided all the associated accounting policies in a detail and appropriate manner in comparison to Sonic Heath care. Further, the methods of valuation and explanation are quoted through which the users of financial statement can understand the accounting policies of the company with no trouble. However, Sonic health Care is lacking in this aspect.
In addition, both the companies have documented their assets at fair value by considering the condition of prudence. This shows true and dependable information to stakeholders. Both the companies have complied with the guidelines of AASB 138 and IAS 36 for amortisation. They had acknowledged the intangible assets by taking into consideration of the fact that they provide financial benefit in the future. While measuring the value of intangible assets, the companies have considered the provisions of accounting standard and valued as per their accordance. Hence, the intangible assets are recognised only when the probability of future economic benefit for the company exist and are valued at initial cost. The same policy has been followed by both the companies and is in accordance with provisions of accounting standard too.
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DEXUS Industrial Trust (ARSN 090 879 137) Financial Report. (2016). [PDF]. Available through <www.annualreports.com/Company/DEXUS-Property-Group>. [Accessed on 23rd December 2016].
Sonic Healthcare Concise Annual Report. (2016). [PDF]. Available through <www.sonichealthcare.com › Investor Information>. [ Accessed on 23rd December 2016].