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HA 3011 Advanced Financial Accounting Assessment

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Assessment Task Part A

In the excel file “Find Your Company” you will find the listed company you have been given for this course. This file will be made available on Friday of Week 4. Complete this assignment for the company you have been given. Please be careful to use the listed company you have been given. Your assignment will not be marked if you use a different company to the one you have been given; and you will be asked to resubmit your assignment using the right company. Go to the website of your company, by clicking on the URL next to your company in the list of companies in the file “Your Company”. Then go to the Investor Relations section of the website. This section may be called, “Investors”, “Shareholder Information” or similar name. In this section, go to your firm’s annual reports and save to your computer your firm’s latest annual report. For example, these may be dated 30 June 2015 or 31 March 2016. Do not use your firm’s interim financial statements or their concise financial statements. You are need to do the following tasks: Please read the relevant footnotes of your firm’s financial statements carefully and include information from these footnotes in your answer. Within your firm’s latest annual report (i) From your firm’s annual report find out the asset/s that your firm has tested for impairment.
(ii) How did your firm conduct the impairment testing? (iii)Has your firm recorded any impairment expenditures during the period? (iv) Identify the key estimates and assumptions used by your firm in conducting the impairment testing. (v) Do you find any sort of subjectivity involved in the impairment testing process? How can this subjectivity influence the outcome of the impairment testing? (vi) What do you find interesting, confusing, surprising or difficult to understand about the impairment testing? (vii) What new insights, if any, have you gained about how companies conduct impairment testing? (viii) Based on your assignment, comment on the “fair value measurement”.

Assessment Task Part B

In an address entitled 'introductory comment to the European parliament' (made in Brussels, Belgium) on 11 January 2016, the Chairperson of the IASB, Hans Hoogervorst, made the following comments in relation to the new accounting for leases (as reported 11 January 2016 on the IASB website at I would like to make some comments about our upcoming Leases Standard, which we will publish the day after tomorrow. Currently, listed companies around the world have around 3 trillion euros’ worth of leases, especially in sectors such as the airline industry, retail and shipping. Under current accounting requirements, over 85 per cent of these leases are labelled as operating leases and are not recorded on the balance sheet. Clearly, the accounting today does not reflect economic reality. Despite operating leases being off balance sheet, there can be no doubt that they create real liabilities. During the financial crisis, some major retail chains went bankrupt because they were unable to adjust quickly to the new economic reality. They had significant long-term operating lease commitments on their stores, and yet had deceptively lean balance sheets. In fact, their off balance sheet lease liabilities were up to 66 times greater than the debt reported on their balance sheet. Moreover, the current accounting for leases leads to a lack of comparability. An airline that leases most of its aircraft fleet looks very different from its competitor that bought most of its fleet, even when in reality their financing obligations may be very similar. There is no level playing field between these companies. These problems will be resolved in the upcoming Leases Standard. All leases will be recognised as assets and liabilities by lessees. The accounting will better reflect the underlying economics. This change is expected to affect roughly half of all listed companies and will not be popular with everyone. Accounting changes are often controversial and can be met with warnings of adverse economic effects and costs of system changes. The IASB has looked at all these possible risks very carefully and we will publish a detailed effect analysis on the Standard. Our conclusion is that the risks and costs of the new Leases Standard are manageable. First of all, IFRS 16 will not put the leasing industry out of business. Leases will remain attractive as a flexible source of finance. It will remain appealing to companies to lease assets so that they do not bear the risks of owning them. While the cosmetic accounting benefits of leasing will disappear, the real business benefits of leasing will not change as a result of the new Standard. We do not deny there will be costs involved in updating systems to implement the new Leases Standard, but we have done our best to keep these costs to a minimum. For example, we are not requiring companies to recognise assets and liabilities for short term and small ticket leases. This should be especially beneficial for smaller companies. In sum, we expect the benefits of the new Leases Standard to greatly outweigh its costs. The new visibility of all leases will lead to better informed investment decisions by investors, and to more balanced lease-versus-buy decisions by management. IFRS 16 will lead to improved capital allocation, which should be beneficial for economic growth. Requirements (i) Explain why the chairperson of the IASB believes that the former accounting standard for leases did ‘not reflect economic reality’? (ii)Explain the reason why, under the former accounting standard, reporting entities’ ‘off balance sheet lease liabilities were up to 66 times greater than the debt reported on their balance sheet’. (iii) Why does the Chairperson of the IASB argue that under the former accounting standard for leases there was ‘no level playing field’ between some airlines companies? (iv) Why do you think the Chairperson of the IASB said that the new accounting standard for leases ‘will not be popular with everyone’? What would cause this unpopularity? (v) What are some of the possible reasons why the chairperson of the IASB would say “the new visibility of all leases will lead to better informed investment decisions by investors, and to more balanced lease versus buy decisions by management?


Part A

Requirement I

In Toll Holdings Limited, impairment needs to be done when the market price of an asset is less than the value recorded in the balance sheet. As per the latest financial statements, one can observe that the corporation has used their business goodwill for the purpose to test impairment (, 2018). It needs to be mentioned that Toll Holdings Limited has complies with the required accounting standards and regulations in order to test their goodwill. With the help of the testing of goodwill, the company will be able to adjust their unrealized gains related with goodwill impairment (Scott, 2015).     

Requirement II

It needs to be mentioned that Toll Holdings Limited has followed certain specific steps for the testing of their goodwill impairment. From the latest annual report of the company, it can be observed that the allocation of goodwill is done to the company’s business segments, which represents the lowest level in the company at which the management of goodwill is done (, 2018). In the process of the testing of goodwill, the company uses to compare the asset carrying value required to be tested to the recoverable value related with the future cash flows that is determined for the value calculation (Deegan, 2012). At the same time, the company has taken certain assumptions for the impairment testing of goodwill. For this purpose, the cash flow projection is done based on the forecast of five years. Most importantly, for the purpose of the testing of goodwill impairment, Toll Holdings Limited uses to appoint the goodwill to the cash generating units (, 2018).     

Requirement III

It needs to be mentioned that the business organizations have to incur certain expenditures due to the testing of the impairment of the assets and these expenditures are considered as crucial for the companies. There is not any exception of this fact in case of Toll Holdings Limited as the company has also recorded impairment expenditures in their financial statements. The financial statements of the company indicate towards the absence of any expenses related to impairment for the current year (Williams, 2014). However, the total amount of impairment expenditure for the company in the year 2013 was $245.5 million (, 2018). In addition, the company has segregated their impairment expenditures in three portions; they are goodwill expenses, other intangible assets and PPE (property, plant and machinery). However, the latest annual report of Toll Holdings Limited states that the company has incurred $7 million in 2014 and $7.4 million in 2013 as impairment losses on receivables. These are the major impairment expenditures of Toll Holdings Limited (, 2018).

Requirement IV

From the latest financial statements of Toll Holdings Limited, it can be observed that Toll Holdings Limited has taken certain assumptions in order to conduct the impairment testing of their goodwill. They are as below:

  • In the projection of cash flows, the discount rates refer to the pre-tax discount rate. The major components of this discount rate are risk adjusted discount rate and the adjustment in the discount rate for CGU country-specific risks. In this particular discount rate, two or more country specific CGU risk rate can be observed. In this process, there was an application of additional risk premium so that uncertainties in the cash flows can be reflected (, 2018).
  • Terminal value growth rate refers to the specific growth rate that is applied for the extrapolation of cash flow projection beyond the forecast of five years. The basis of these growth rates are the forecast of long-term performance of the logistics assets (, 2018).
  • There is an increase in the terminal value growth rate of Toll Holdings Limited from 2013 to 2014; that is 2.50% from 2.00% so that alignment can be done with the long-term international growth rate (, 2018).
  • At 30 June 2013, after the completion of the impairment testing of Toll Holdings Limited, there was a charge of $204.0 million against the goodwill of the company and $11.4 million for the customer relationship. These are the major assumptions related with the goodwill impairment testing of Toll Holdings Limited (, 2018).  
Requirement V

From the goodwill impairment testing of Toll Holdings Limited, it can be observed that Toll Holdings Limited has taken into consideration different assumption so that the testing of goodwill impairment can be done in an effective way. In addition, due to the accounting obligation, the management of Toll Holdings Limited uses to review the carrying value of the assets on a regular basis. Toll Holdings Limited recognizes the impairment of any assets when the carrying value of the assets is more than the market value. The amount of impairment losses can be seen in the profit and loss statement of the company and it implies that the revaluation of the assets is done on regular basis. Thus, it can be concluded that there is not any subjectivity involved in the impairment testing process of Toll Holdings Limited that can influence the outcome of impairment testing (Schaltegger & Burritt, 2017). 

Requirement VI

The analysis of the financial statements of Toll Holdings Limited indicates towards the intelligence of the company to test impairment and the view has been obtained that subjectivity is not there in the impairment testing process. It implies that the company has not done their impairment testing in any opportunistic manner. Apart from this, the computation of the impairment requires the judgment from the management of the company and the determination of the future cash flow. This can be considered as the most important aspect in the impairment testing process of Toll Holdings Limited. This aspect confirm the fact of the absence of any influence in the process to test impairment for Toll Holdings Limited. However, it needs to be mentioned that there is not any confuting element in the impairment calculation of Toll Holdings Limited as the company has provided proper justification and clarification related with impairment testing in the notes of the financial statements (Bertoni & De Rosa, 2012).


Requirement VII

From the analysis of the impairment testing process of Toll Holdings Limited, it can be observed that the company has complied with the standards of AASB 9 for the classification and justification purpose. Apart from this, from the analysis of the impairment testing of Toll Holdings Limited, one can get effective idea about how the companies use to carry out the process of impairment testing in the organizations. Thus, it can be observed that the business organizations use to do the impairment testing by considering the value of computation.   

Requirement VIII

Fair Value Measurement is also known as market based measurement that is not specific for any business organization. The main objective of fair value measurement is the estimation of price of the assets and liabilities at which an orderly transaction for the selling of selling of asset or the transfer of liabilities between two parties based on the current market price. Under the process of fair value measurement, it is the obligation of the companies to take into account the current market value of the assets and liabilities for recording them in the financial statements (Edwards, 2013).

Part B

Requirement I

According to the current accounting standard, it is the obligatory requirement for both the lessees and lesser to provide sufficient clarification of their operating and capital lease in the financial statements like balance sheet. Under the current accounting standard, business organizations get the choice to state the lease amount under the head of ‘Assets’ and ‘Liabilities’ for a specific period. However, it is not the obligation of the companies to incorporate the amount of operating lease and capital lease. Thus, it is optional for the companies to present values of operating as well as capital leases (Weil, Schipper & Francis, 2013).

It is the accounting obligation for the firms to disclose all the information of their leases in the statement of financial position or balance sheet. It can be happened that the companies have such greater amount of lease liability that can exceed the original amount of liability of those companies and it can be prevalent from the balance sheet of the companies. For this reason, investors will not be able to assess any information about the lease liabilities of the organizations. Thus, investors will be enabled to be depictive about the financial position of the companies (Horngren et al., 2012).   

Requirement II

The earlier lease agreement demands the disclosure of the information of only capital lease instead of operating lease in the statement of financial position. This aspect contributed towards the lack of disclosure for the companies; and bares the investors from getting better understanding related with the uncertainty of the cash flow from lease. Thus, the previous lease act was lacking both qualitative and quantitative information related with the accounting lease in the books of the companies. For this reason, it was not possible for the companies to achieve the desired accounting objectives. Due to the influence of not enough information, the companies fail to present their lease liabilities in a realistic manner (Beatty & Liao, 2014).

In the current lease regulation, there is not any obligation on the companies to report operating lease, but the companies are obliged to make the payment of these lease liabilities. In this way, business organizations are doing manipulation with their liability position by not doing the disclosure of lease liabilities. In addition, the non-disclosure of liabilities is responsible for the existence of gap between balance sheet liabilities and off balance sheet liabilities (May, 2013).


Requirement III

It can be seen that the airline companies have leased large number of planes and according to the earlier lease standers, these companies are not required to present these lease amounts in the balance sheets. The lease accounting standard shows that historical cost is the basis for lease computation (Henderson et al., 2015). This aspect has created huge gap in liabilities as these companies have made large amount of lease for purchasing airlines. This particular aspect has made huge difference in the recorded financial condition and the actual financial condition of these companies and thus, investors became unable to judge the actual financial position of the companies (Warren & Jones 2018).

Requirement IV

The presence of major criticisms are the main reason for the less-popularity of the new standard for lease accounting and this aspect can create hindrances in the implementation of new lease standard (Bevis 2013). The new lease accounting standard will bring some major changes in the statement of financial position as the companies will be required to disclose the lease information in this statement. This aspect will create greater impact on the costs of the companies. There will be rise in the complexities for financial accounting due to the leases in the small assets. In order to change this situation, the only way for the firms is to update their accounting system so that it can lead to better disclosure of financial information (Sharma & Panigrahi 2013). For this reason, the businesses are required to incur large amount of costs and leads to the unpopularity of this standards.


Requirement V

With the implementation of new lease standards and regulations, accountants will be able to make better presentation of financial information as the balance sheet will contain both qualitative and quantitative information regarding lease. The investors will be able to assess the financial information and financial situation of the companies in an effective manner (Taipaleenmäki & Ikäheimo, 2013). The financial statements of the companies will reflect sufficient information related with assets and credit risks of the lesser. All these aspects will lead to the increase in transparency in the financial statements, as there will be more information available regarding operating lease and capital lease (Bazley et al., 2013).



Annual Report 2014. (2018). Retrieved 25 January 2018, from

Bazley, M., Hancock, P., Fisher, C., Lovell, A., Berk, J., DeMarzo, P., ... & DeMarzo, P. (2013). Financial Accounting: An Integrated. Thomson Pty Ltd, South Melbourne.

Beatty, A., & Liao, S. (2014). Financial accounting in the banking industry: A review of the empirical literature. Journal of Accounting and Economics, 58(2-3), 339-383.

Bertoni, M. P. G. V. A. G., & De Rosa, B. (2012). Green accounting: an alternative approach to reporting emission trading allowances in financial statements.

Bevis, H. W. (2013). Corporate Financial Accounting in a Competitive Economy (RLE Accounting). Routledge.

Deegan, C. (2012). Australian financial accounting. McGraw-Hill Education Australia.

Edwards, J. R. (2013). A history of financial accounting (RLE Accounting) (Vol. 29). Routledge.

Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting. Pearson Higher Education AU.

Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., & Tan, R. (2012). Financial accounting. Pearson Higher Education AU.

May, G. O. (2013). Financial accounting. Read Books Ltd.

Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues, concepts and practice. Routledge.

Scott, W. R. (2015). Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

Sharma, A., & Panigrahi, P. K. (2013). A review of financial accounting fraud detection based on data mining techniques. arXiv preprint arXiv:1309.3944.

Taipaleenmäki, J., & Ikäheimo, S. (2013). On the convergence of management accounting and financial accounting–the role of information technology in accounting change. International Journal of Accounting Information Systems, 14(4), 321-348.

Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.

Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

Williams, J. (2014). Financial accounting. McGraw-Hill Higher Education.

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