Comparison Of Accounting Policies For Property, Plant And Equipment: NAB And Evolution Mining Essay.

Classes of Property, Plant, and Equipment

Dsicuss about the Accounting Policies Are Important Aspect In Financial.

Accounting policies are important aspect in financial accounting and reporting. Accounting policies refers to set of standards that a company uses to govern it financial statement preparations. They are principles, procedures, and rules and are implemented by management for preparing financial statements (Scott, 2015). Accounting policies are important to setting standards and defining how companies recognize and disclose their financial performance. A company’s accounting policies show stakeholders whether the management is aggressive or conservative when reporting its earnings (Macve, 2015). A Conceptual Framework help companies develop consistent accounting policies whenever there is no standard policy in regard to a particular transaction or where there is allowance for choice of accounting policies (Alayemi, 2015). The following report describes NAB and Evolution Mining accounting policies on measurement and disclosure of plant, property, and equipment. The report also compares the two companies accounting policies to accounting theories.

NAB is a financial institution with headquarters in Melbourne Australia. The company offers banking and financial services to customers in Australia, New Zealand and around the globe. NAB has almost 160 years in the financial industry and offers business, consumer, and wholesale banking services to over 9million customers. NAB is listed in ASX and trades as NAB whose share value is $28.4 as at 10^th May 2018. NAB is led by Kenneth R Henry as the group chairman and Andrew Thorburn as the CEO.

 Evolution Mining is a gold miner company based in Australia. The company extracts and processes gold from its six mines that are Cowal gold operations that is New South Wales, Mt Rawdon, Mt Carlton and Cracow in Queensland, Edna May and Mungari in Western Australia ("Evolution Mining – Australian Gold Company", 2018). The company also has economic interest in Ernest Henry Copper-gold mine that is located in Queensland. The NAB Evolution was created in 2011 from Conquest Mining Ltd and Catalpa Resource Ltd merger. The company total gold production for 2017 financial year amounted to 844124 ounces. The company also had a successful 2017 FY where it recorded A$ 217.6M net profit after tax. The NAB Evolution mining is listed in ASX as EVN and it share value is $3,360 as at 10^th May 2018. The company is led by Jake Klein as the Executive Chairman, Lawrie Conway as the Chief Fiannciae Officer, and Bob Fulker as the operating officer ("Evolution Mining – Australian Gold Company", 2018).

Measurement of Plant, Property, and Equipment

Both NAB and Evolution Mining Company have disclosed and recognized several components for plant, property, and equipment in their financial statements. The companies have also outlined accounting policies that have been used in preparation of their financial statements. The following section describes NAB and Evolution Mining accounting policies for different classes of plant, property, and equipment measurement, recognition, and disclosure in relation to Australian Conceptual Framework for Financial Reporting.

Property, plant, and equipments are tangible and fixed assets of a company that are vital for its operations. They are asset that cannot be easily liquidated and generate economic benefits for a longer period of time of more than one year (Bodnar, 2014). The AASB defines property, plant and equipment as tangible items that a company holds for production or supplying goods or services, administrative or for rental to others and the asset is used for more than one year ("AASB 116 - Property, Plant and Equipment - August 2015", 2015).

From the NAB and Evolution Mining annual reports, both companies record their plant and equipment cost with an objective of recording at the true value of the asset on the financial statements.

The NAB cost of plant and equipment is recorded at a cost equals to fair value of the asset at acquisition date which includes expenditures directly attributable to the asset acquisition. This entails that NAB plant and equipments account amount entered represent cost less accumulated impairments and depreciation. The company major classes of property, plant, and equipment are personal computers, motor vehicles, building, data processing equipments, leasehold, furniture, fittings and fixtures and other equipments. These categories have different depreciation rate with buildings having the lowest at 3.3% and personal computers with the highest rate of 33%. The NAB uses straight line method that calculates accumulated depreciations for the components of plant, property, and equipments. The straight line method enable the company allocate property, plant and equipment cost which is net of the asset residual value within it estimated useful life. This is in accordance with AASB 116 of property, plant, and equipment. Land is recognized as freehold land. The company freehold land is recorded at it cost.

Evolution Mining also accounts for property, plant, and equipment at the fair value in their financial statements. The fair value is recorded as the carrying amount which is the initial cost less depreciation. Evolution Mining also included assets’ subsequent costs in the carrying amount. The subsequent costs are also recognized separately as an asset when the company expects a future economic benefit that are associated with the asset and cost can be reliably measured. The company derecognizes any component that is accounted as separate asset when replaced. Evolving Mining does not include repairs and maintenances as part of the carrying amount. Repairs and maintenances are charged in the company’s Statement of Profit or Loss at the end of reporting year when the costs is incurred (Henderson, Peirson, Herbohn, & Howieson, 2015). Evolution Mining accounting policies entails that any plant, property and equipment has to be derecognized when disposed, or sold, or the asset is not expected to bring future economic benefits to the company. The company records any loss or gain from asset derecognized in the statement of profits or loss for the financial period that the asset is derecognized. The Evolution Mining calculates property, plant, and equipment depreciation using straight line method. The rates used in the method vary between 10%-33% per year. The company does not calculate the calculate depreciation for it freehold land as it termed not to depreciate. The Evolution Mining review it property, equipment, and plant estimated useful lives, depreciation methods and residual value annually as the carrying amounts of the assets involve significant judgment that is important to the company. The company accounts for changes gotten from reassessment prospectively from the day of reassessment to end of asset revised useful life.

Depreciation Methods and Rates

The NAB has shown adherence and non-compliance with Australian Conceptual Framework for Financial Reporting when disclosing plant, property, and equipment in their financial statements in relation to Conceptual Frameworks. First, the company discloses it measurement methods of depreciation. The company outlines that it uses straight line method to account depreciation of its plant and equipment assets. The company also discloses depreciation rates that are used on each class of plant, property, and equipment asset. Secondly the NAB discloses it time period that plant and equipment are accounted at. The company plant and equipments are calculated annually from 1^st October to 30^th September every year. The NAB does not disclose reconciliation of plant, property, and equipment detailing all factors that affect the account within a financial year. This is against Conceptual Framework for Financial Reporting.  

Evolution Mining discloses it Plant, Property, and Equipment in accordance with Australian Conceptual Framework of Financial Reporting. The Evolution Mining annual report shows financial statements that discloses each class of plant, property, and equipment. First, the company discloses the measurements base that its use to determine gross carrying amount. The Evolution Mining disclose that it measurements for plant, property and equipments are fair value amount that is equal to the asset cost. The gross carrying amount for Evolution Mining is measured by deducting accumulated impairment and depreciation of plant or equipment. Secondly, Evolution Mining discloses the depreciation method that the company uses in determining accumulated depreciation. The company uses straight line method to determine it property, plant, and equipment depreciation over the asset useful life (Macve, 2015). Thirdly, the Evolution Mining Company discloses the depreciation rate that the company uses to for determining accumulated depreciation. The Company discloses that the rates used vary but rare between 10% and 33% annually. Another important disclosure made by Evolution Mining is the accumulated depreciation and gross carrying amount at the start and end of the financial period. The company discloses plant, property, and equipment cost and accumulated depreciation for the previous financial year that is dated 1^st July and ending 30^th June. The amounted carried forward to the current financial year is the next carrying amount that is arrived at by deducting accumulated depreciation form the cost of the asset. Lastly, the Evolution Mining discloses reconciliation that show carrying amount for the company’s plant, equipment, and freehold land at the start and end of financial year. The reconciliation show the additions, increase/decrease from revaluation, depreciations, disposals, reclassifications and depreciation from fair value uplift as a result of business combinations. The reconciliation derives the company’s carrying amount for the financial year.

Disclosure of Plant, Property, and Equipment

Accounting theories are basis for conceptual framework accounting (Balashova et al., 2016). Accounting theories constitute generally accepted principles, doctrines, procedure, widely used customs, and conventions in accounting (Benson, Clarkson, Smith, & Tutticci, 2015). The following section discusses how NAB and Evolution Mining accounting policies compare against generally and widely used accounting theories in financial reporting.

First, both NAB and Evolution Mining accounting policies use fair value amount to report property, plant, and equipment. The fair value accounting is current market value that recognizes assets to their estimated price that assets can be sold or disposed at. The fair value entails that an asset can also settle a liability at the current market conditions in an orderly transactions. The accounting theory behind this concept holds that assets don’t remain of the same value over a period of time (Bryce, Ali, & Mather, 2015). Assets have useful life and once in use they depreciate their value. This means that a plant or equipment value decrease with time and usage and if the initial value of the asset is used in financial statement it will not represent the true financial position of a company. The fair value is obtained by deducting accumulated depreciation from the initial cost of an asset (Barker, & Teixeira, 2018). NAB Evolution accounting policies therefore follows this accounting theory in its financial reporting.

Secondly, both NAB and Evolution Mining accounting policies applies straight line method of calculating depreciation of plant, property, and equipment. The straight line method gradually reduces the assets’ carrying amount over useful life (Cheng et al., 2014). This method ensures the amount recorded for plant and equipment reflects true value of what the company owns in terms of non-current assets ("IAS 16 — Property, Plant and Equipment", 2016). The Evolution Mining uses a straight line method of determining depreciation at is between 10%-33% per financial year while NAB depreciation rate is between 3.3%- 33% per annum. The straight line method of depreciation therefore enables a company to recognize depreciation expense and make decision on replacement policy of a plant or equipment to maintain and improve efficiency in the organization.     

Thirdly, the accounting theory of double entry is applied in both NAB and Evolution Mining financial reporting. The double entry concept is generally used and accepted and applies that every transaction has two effects/sides on financial statements (Guthrie, & Parker, 2016). A transaction that adds amount reduces another side amount in different account. This concept is evident in the transactions recorded for property, plant, and equipments. For instance an increase in accumulated depreciation reduces the value of the asset by the same value. Double entry is important for balancing company’s assets and liabilities and equity in the balance sheet. A balance sheet shows that the company financial data is accurate.

Comparison of Accounting Policies with Accounting Theories

The other accounting theories that can be used to compare Evolution Mining and NAB accounting policies are accounting assumptions. The accounting assumptions for recording and reporting financial information assume that an entity is a going concern, specific financial period, and separation between owner and entity (Whittington, 2017). The Evolution Mining accounting policies report financial information with the assumption that the company is an ongoing concern. The company has a set financial year that starts on 1^st July and ends on 30^th June while NAB has it financial year starting at 1^st October to 30^th September. The financial period for reporting is equal that enable comparison of company’s financial performance. The Evolution Mining accounting policies also separates owners and the company. The company deemed independent from the owner. Accounting assumptions are important for forming bases of standardizing financial reports.

Lastly, Evolution Mining and NAB accounting polices differ on application of accounting theories of full disclosure. The principle of full disclosure requires businesses to provide all necessary information. Information disclosure enables financial information users to understand the accounting policies that are used in preparing financial reports (Lodhia, & Hess, 2014). This enables an interested party to make informed decisions in relation to the company. Evolution Mining discloses all factors that affect plant, property, and equipments on the financial year being reported. The company also discloses notes that give more information on the accounting practices used. On contrary, NAB discloses limited information on each class component of property, plant, and equipments. Therefore, Evolution Mining applies the principle of disclose to comprehensively inform readers of the accounting practices that have been applied in preparing the financial information.

Conclusion

Accounting policies are guidelines that a company uses to prepare its financial information. The accounting policies form bases of accounting practice that have to be followed a company. Accounting policies are put forward by the management who seek to align with Australian Conceptual Framework for Financial Reporting. The Evolution Mining and NAB accounting policies are based on the Conceptual Framework for financial reporting. The companies’ accounting policies outline their measurement, recognition, and disclosure of components included on class of property, plant, and equipments assets. The Evolution Company discloses all components that affected plant, property, and equipments as required by AASB as opposed to NAB that discloses limited information. Both companies also outlines how measurements and recognitions have been determined with an aim of using fair value or carrying value that represent current cost of an asset. After reviewing accounting theories and comparing between NAB and Evolution Mining accounting policies, the companies have been found to be using several concepts, principles, and assumptions of accounting. The NAB and Evolution Mining accounting policies therefore use and align to Australian Conceptual Framework for Financial Reporting and widely accepted and used accounting theories.

References

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