Review and Evaluation of PPE Disclosure in Context to Selected Companies

This report provides a review and evaluation of PPE disclosure in context to selected companies. It discusses the factors that should be considered by accountants for setting up accounting policies of a company in relation to PPE. It also provides a detailed view on subsequent measurement of property, plant, and equipment and recommendations for accounting standard setters.

Business
Research
Report

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Review and evaluation of PPE disclosure in context to selected companies:.............................1
Discussion of factors that should be considered by accountants for setting up of accounting
policies of company in relation to PPE:.......................................................................................4
Detailed view on subsequent measurement of property, plan and equipment and providing
recommendations for accounting standard setters:......................................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Property, plant and equipment can be described as a long term assets of an organization
that is vital for operations of business and is not easily convertible into cash. These are tangible
assets which indicates it can be touched as it is physical in nature. Purchase of property, plant or
equipment serves as a signal which pinpoints that management of company pertains faith in long
term sustainability as well as profitability of business and hence, incorporates outlook for long
term. It is also known as fixed assets as such assets cannot be liquidity easily (Ajili and Bouri,
2017). Some examples for property, plan and equipments are machinery, vehicles, land, building,
furniture etc. This report is based on business research of Qantas airways limited and Sydney
airport. Qantas airways is founded in 1920 and is headquartered in Australia. Sydney airport
operates internationally and is owned by government of Australia. It is referred to as busiest
airport in the country. This report covers review ans evaluation of PPE disclosure in context to
both companies. Along with it, factors that should be considered by accountant of an enterprise
while setting up accounting policies of company in relation to property, plant and equipments are
discussed. Lastly, recommendations are provided for accounting standard setters.
MAIN BODY
Review and evaluation of PPE disclosure in context to selected companies:
Range of measures that is utilised for determination of amounts of PPE items in reports of
individual organizations:
IFRS or International financial reporting standards refers to accounting standards that are
issued by foundation of IFRS as well as International accounting standard board. These are some
common rules which is implemented for the purpose of consistency, transparency and
comparability of financial statements around world (Angeloni, 2016). It specifies ways in which
companies should maintain as well as reports its accounts, define its transaction types and other
similar events that pertain financial impact. It is established for the purpose of creating common
language of accounting for consistency and reliability of financial statements of an various
organizations that operates in several countries. Hence, it can be stated that standards of
international financial reporting is incorporated for brining consistency in accounting standards
or policies used by companies regardless of business or country. It addresses record keeping,
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reporting of accounts and another aspects in relevance to financial reporting. It fosters greater
transparency in corporates.
On consideration of measures that is followed by Qantas airways and Sydney airport for
measuring its property, plant and equipment it is evaluated that companies follows international
accounting standard 16. IAS 16 incorporates principles for recognition of property, plan and
equipment. It sets standards for measurement of carrying accounts, depreciation charges as well
as impairment losses that is to be analysed in context to PPE. It indicates accounting standards
for property, plant as well as equipments which involves recognising and determination of such
assets (Baum, Mackmin and Nunnington, 2017).
According to this accounting policy, cost items that incorporates in property, plant or
equipments can be recognised as an asset if it pertains economic benefits in future and costs
associated with assets is measurable. Costs of items of PPE involves purchase price of an item by
including import charges or duties as well as purchase taxes that are non-refundable. Trade
discounts as well as rebates are deducted from costs of purchase, plant or equipment. Apart from
it, costs which are directly attributable in context to transaction of assets are also included in it.
Further, estimated costs for dismantling or removing of item as well as costs for restoring it in
site are also added in costs of PPE, unless it is related to production of inventory during a time
period.
Further, there are two methods for cost evolution of PPE under International accounting
standard 16, that are cost model and revaluation mode, former states analysis if cost of item after
deduction of depreciation and impairment losses. While, later, states utilization of fair value
which is revalued amount of property, plan and equipment by deducting subsequent accumulated
depreciation and impairment loss. Qantas airways and Sydney airport applies cost model for this
evaluation (Ebaid, 2016).
Discussion on validity of adding items in context to measures that is used:
While considering validity for adding items following points can be identified that
international financial reporting standards are adopted globally hence, it provides consistency in
accounting policies which enhances comparisons among organizations (Ellwood and
Greenwood, 2016).
Interpretation of total amount for PPE in financial statements:
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On interpretation of total amount associated with property, plan and equipment in
financial statement of an organizations it is analysed that Sydney airport costs in relevance to
property, plant or equipment involves expenditure which is directly attributable with asset
acquisition. Costs associated with assets that are self constructed involves expenses of direct
labour, materials capitalist borrowing or other costs that is directly attributable for bringing of
assets in working condition. Depreciation for PPE in accounted in a company on straight line
basis and ongoing repairs or maintenance as considered as expenditures as incurred (Harrison
and Rouse, 2016).
In context to evaluation of property, plant or equipments for Qantas airways it is
estimated that such costs as stated in an organization after deducting accumulated depreciation as
well as impairment losses. PPE cost are initially recorded on the basis of costs by adding
incidental costs that is directly attributable for acquisition. Costs associated with acquired assets
involves initial estimations at time period of installation as well as costs in relation to
dismantling or removing of items. Here also, depreciation is recorded on straight line basis.
While analysing financial statement of both companies for the year 2019 it can be
interpreted that total value of property , plant and equipment of Qantas airways is 12776, which
involves, freehold lands, buildings, leasehold improvements, aircraft deposits, aircraft spare parts
and plants or equipments. Value of PPE in context to Sydney airport is 3532.6 which indicates
that costs of former company in context to property, plant and equipments are more in
comparison to later organization (Kieso, Weygandt and Warfield, 2020).
Comparison of measures that is utilised by different businesses for similar items along with
identification of any inconsistency in context to its measurement:
On comparison of measures that is utilised by different companies for similar items it is
identified that for depreciation both the organizations, that is, Qantas airways and Sydney
Airport adopted method of straight line basis. For subsequent measurement of PPE items is on
the basis of costs after deducting accumulated depreciation and impairment loss in Sydney
airports, while in Qantas airways, subsequent expenses are capitalised in a condition if it pertains
future economic benefits (Lee and Moon, 2016). expenditures maintenance for owned or leased
aircraft in Qantas are considered as assets and hence, it is depreciated from over shorter usage
period, while maintenance costs of Sydney airport are considered as incurred.
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Discussion of factors that should be considered by accountants for setting up of accounting
policies of company in relation to PPE:
Accounting policies can be described as a specific principles or procedures which is
implemented by financial management team of a company for preparation of its financial
statements. Such policies involves various items such as, accounting methods, procedures as well
as management systems for the purpose of presenting disclosures (Nurunnabi, 2017). Accounting
policies is different from principles of accounting as principles refers to rules of accounting
while policies are ways in which organization adhere to such policies. It is set by an organization
for processing, measuring, recording as well as disclosing specific transactions in financial
statements of business.
Following factors should be taken into consideration by accountants of an organization
while setting up accounting policies for PPE:
 Precise or accuracy: Accounting policies that is adopted for PPE should convey
information of accounts in a clear manner. Instead of making adjustments that are
unnecessary , accounting policies should present information in a simple or genuine
manner (Previts and Roberts, eds., 2020).
 Capital intensity: Selection of accounting policies by managers of business is also
highly dependent on capital intensity of business. As, companies that are capital intensive
reports higher amount of profit in comparison to firms that are labour intensive. Hence,
capital intensive organizations are expected to utilise accounting policies that are income
decreasing or in other words such businesses are required to adopt that accounting
policies which showcase high expenditures in context to plant, property or equipments.
 Financial leverage: It is identified as essential determinant factor for accounting
policies. Firms that are highly leveraged as required to adopt such policies of accounting
which showcase increment in income generated by business for the purpose of meeting
bank requirements. Hence, such type of enterprise needs to prefer those accounting
policies for PPE that shows less expenditures (Sellami and Gafsi, 2018).
 Firm size: Size of firm pertains huge influence on selection of accounting policies for
PPE. As organization that is of large scale needs to adopt that policies which are [profit
reducing for the purpose of avoiding political cost. Hence, such companies are required
to showcase high expenditures on property, plants and equipments so policies should be
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adopted accordingly. Enhanced expenditures in financial statements of an entity is also
helpful for reduction of tax burden on business.
 Profitability: Profit earning capacity of an organization is an important determinant of
accounting policies. If motive of business is to attract large number of investors for future
growth or expansion that company needs to show high amount of profit. In such case,
accounting policies which are income increasing or PPE expense decreasing should be
adopted by management team of an organization (Tracy, 2016).
 Income smoothing: It is an essential criteria for selection of accounting policies. It
indicates that accounting policies that should be selected for financial presentation of an
organization should work for making flow of income smoothly.
Detailed view on subsequent measurement of property, plan and equipment and providing
recommendations for accounting standard setters:
While recommending accounting standard setters it can be stated that accounting policies
which are created for property, plant and equipments are not feasible bearer plants. In addition to
it, such policies brings inflexibility or rigidity in computation of PPE as there is set rules for
every treatment of accounting (Verdery, 2018). Hence, it is recommended to formulate policies
that is easily adoptable and flexible for pertaining higher scope.
CONCLUSION
From the above report it can be concluded that property, plan or equipments refers to
physical assets that are acquired for long term. These are tangible items that holds utilisation in
production of products in business. International accounting standard 16 is an accounting policy
that is adopted by business to record its analyse and record position of property, plant and
equipment in an organization. This international financial reporting standard is concerned for
accounting of PPE that is hold by an enterprise. Apart from it, this report interpreted various
factors that is required to be taken into consideration while evaluating accounting policies, that
are, firm size, capital intensity, profit maximization, financial leverage etc.
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REFERENCES
Books and Journals:
Ajili, H. and Bouri, A., 2017. Comparative study between IFRS and AAOIFI disclosure
compliance. Journal of Financial Reporting and Accounting.
Angeloni, S., 2016. Cautiousness on convergence of accounting standards across countries.
Corporate Communications: An International Journal.
Baum, A., Mackmin, D. and Nunnington, N., 2017. The income approach to property valuation.
Routledge.
Ebaid, I. E. S., 2016. International accounting standards and accounting quality in code-law
countries. Journal of Financial Regulation and Compliance.
Ellwood, S. and Greenwood, M., 2016. Accounting for heritage assets: does measuring
economic value ‘kill the cat’?. Critical Perspectives on Accounting. 38. pp. 1-13.
Harrison, J. and Rouse, P., 2016. DEA and accounting performance measurement. In Handbook
of operations analytics using data envelopment analysis (pp. 385-412). Springer,
Boston, MA.
Kieso, D. E., Weygandt, J. J. and Warfield, T. D., 2020. Intermediate accounting IFRS. John
Wiley & Sons.
Lee, I. and Moon, I., 2016. Total cost optimization of a single mixed refrigerant process based on
equipment cost and life expectancy. Industrial & Engineering Chemistry Research.
55(39). pp. 10336-10343.
Nurunnabi, M., 2017. IFRS and Saudi accounting standards: a critical investigation.
International Journal of Disclosure and Governance. 14(3). pp. 191-206.
Previts, G. J. and Roberts, A. R. eds., 2020. Federal Securities Law and Accounting 1933-1970:
Selected Addresses (Vol. 22). Routledge.
Sellami, Y. M. and Gafsi, Y., 2018. What drives developing and transitional countries to adopt
the IFRS for SMEs? An institutional perspective. Journal of Corporate Accounting &
Finance. 29(2). pp. 34-56.
Tracy, J. A., 2016. Accounting for dummies. John Wiley & Sons.
Verdery, K., 2018. The vanishing hectare: property and value in postsocialist Transylvania.
Cornell University Press.
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