Vicinity Centre VCX Executive Summary In this report, the affairs pertaining to the administrative and financial affairs of Vicinity VCX have been put to discussion. The company is engaged in real-estate investment trust and is listed on the ASX. In addition, the company is engaged in rental of property in the pattern of building and land that is being provided to the tenants. Moreover, the influence of variations in retail market has been discussed with the help pf this report. 2
Vicinity Centre VCX Answer - a AASB 140 covers the accounting treatment of the investment property and focuses on measuring, recognizing and disclosing it. It is a property not purchased to put on sale later. Investment property mainly denotes land and buildings that are acquired and maintained for making money in the form of rent or for the capital appreciation or both. The interest of property that forms the part of investment property accounts is a situation where the basic criteria of comprising investment property measurement are calculated on cost or fair value model (Davies & Crawford, 2012). Adherence to requirements mentioned in AASB 140 is required for such property interest which encourages immense disclosure processes as and when required. Investment property is construed as an asset in the group’s finances subjected to the fulfillment of the conditions mentioned below- 1)In order to ensure reliability of the parties on the property, it is required to calculate its cost in an appropriate manner. 2)The properties must account for monetary benefits and also remain held by the group in the future needs to be ensured. For the earning of rental income, Vicinity Centre VCX deals in leasehold and freehold properties like buildings and land. The costs incurred in order to procure the properties and their original purchase expenses are considered the total amount at which these properties are recorded by the company. This means the company has a policy of recording its property at the cost plus its original purchase expenses. The overall cost of the property also includes any material work in progress. Also, the current value of the property owned by the company is determined by the valuation experts and calculated on the basis of such values. This ensures that the properties are recorded at their true and legitimate numbers (Carmichael & Graham, 2012). Vicinity Centre VCX Board and Investment committee too regulated the same valuation. The same process also engages the major executives of the company. Also, the company takes necessary measures to review this process timely and regularly. Mentioned below are the necessary treatments in various scenarios- 3
Vicinity Centre VCX a.)From the date of valuation in perpetuity form, the annual net income of the property is capitalized. Rental revisions, future capital expenses, fluctuations in the rate of interest are factors due to which such value is adjusted. b.)For the purpose of asset development, future expenses are incurred in the form of construction expenses which is calculated through DCF. It is then reduced from the present value of assets to fall at a value as and when it is completed (Peirson et. al, 2012). c.)The terminal amount is calculated by capitalizing through a terminal rate of yield. Such amount should be recorded at the termination of the investment tenure. The discounted rentals and cash flow of properties are considered to be disposed of as a terminal amount (Parrino et. al, 2012). The company also complied with the adherence to AASB 13 which segregates investment measurements into 3 levels- a.)Level I- quoted price. b.)Level II- apart from quoted price. c.)Level III- the value of assets and liabilities which is not based on market information. Answer - b The management values its investment properties on the following method of valuation and ideology- The assets and liabilities are valued by the management not taking market information into its consideration. The values are subjected to further adjustments depending on changes in rates of interest, enhancement in rentals, discounted present value, and government policy factors. The expenses incurred in construction and in the development of investment property to their cost are summed up by the management (Bodie et. al, 2014). At the end of every year, the assets undergo revaluation in order to ensure fair valuation of these assets. The enhanced fair value is adjusted in the cost of these assets. For computing, the value of investment properties the management also framed a measure. Answer C 4
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Vicinity Centre VCX The significant changes in the values of the retail environment of the financials are as follows: 1.In this type of case, it’s generally observed that the monotonous of the environment leads to the demolition of the tenants’ quality. Also, the ability of the payment will decrease because of the decreased demand for the goods and services in the market. The company’s profit is observed to be varied a lot when there are significant variations observed in the values of the rentals. 2.The values of the investments are also varied as because of the overall changes which are observed in the social and economic factors of the retail environment of the firm. These valuations also depict the financial negative aspect of the demand for services and products. Also, these types of values initially depict the decreased valuations thus letting the firm to obtain fair values at the end of the fiscal year (Kisko et. al, 2010). 3.The capital expenses of the firm are believed to be disparaging with the flowing time of the current economy. The company should not try to invest in the big projects which consume any type of apex as there are chances that the economy may tend to fail. Also, the company should try not to make any M&A deal because of the bad economic conditions and the recession period of the firm (Benabou & Tirole 2010). 4.The firm must experience an increment in the value of receivable with the decreasing economic conditions of the market. 5.Also, the firm will be required to clear all the dues because of the recession period of the sub-market divisions. 6.The condition of the economic environment may also make the tenants disagree in their payment of rentals which may cause the firm to write the payments as bad debts which may affect the profit margin of the firm (Vicinity, 2017). Answer D 1.The firm has experienced a downward trend in the investment sector of the years ending 30 June 2017. There was a huge decline of $37 million noticed when compared to the data of previous year. 5
Vicinity Centre VCX 2.An enhancement was noticed in the conduction of the developments which varied the rents by around $10.9 million. 3.All the above changes led the firm to experience a downfall in the total earnings per share which came down to 18.74% compared to the data of the year 2016 which was 19.14% (Vicinity, 2017). 4.There has been a rise observed in the investment opportunities of the firm as there was an increment in the net value of the assets. Also, these types of increment in the value of assets may lead to the growth of the investment sector of the firm. 5.The changes of such types of variations can be easily observed because of the changes in the average movement of $1000 million relating to the market variations of the retail structure (Vicinity, 2017). 6.It has been observed that there has been an increasing trend in the lease receivables of the company. The leases receivables have increased by value $265 million as compared to that of the previous year. 6
Vicinity Centre VCX References Benabou, R. and Tirole, R. (2010) Individual and Corporate Social responsibility.Ecnomica. [online]. 11, pp. 1-19.Available from:https://doi.org/10.1111/j.1468-0335.2009.00843.x [Accessed 6 May 2018] Bodie, Z., Kane, A. and Marcus, A. J. (2014)Investments. McGraw Hill Carmichael, D.R. and Graham, L. (2012)Accountants Handbook. Financial Accounting and General Topics,John Wiley & Sons. Davies, T. and Crawford, I. (2012)Financial accounting. Harlow, England: Pearson. Kieso, D., Weygandt, J., Warfield, T., Young, N and Wiecek, I . (2010)Intermediate accounting,Toronto: John Wiley & Sons Canada. Parrino, R, Kidwell, D. and Bates, T. (2012)Fundamentals of corporate finance. Hoboken, NJ: Wiley Peirson, G, Brown, R., Easton, S,Howard, P. and Pinder, S. (2015)Business Finance, 12th ed.North Ryde: McGraw-Hill Australia. Vicinity. (2017)Vicinity 2017 annual report & accounts[online].Available from: http://vicinity.com.au/media/686503/170816-fy17-annual-report.pdf[Accessed 6 May 2018] 7