Analyzing Financial Performance and Accounting Treatment of Premier Investments Ltd

This report analyzes the financial performance and accounting treatment of Premier Investments Ltd, a leading financial institution in Australia. It discusses the company's background, accounting treatment of brand name assets, basis of accounting treatment adopted, response to ASIC arguments, market reaction, and recommendations.

Running head: COMPANY ACCOUNTING
Company Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Executive Summary:
This report aims analyzing and understanding the financial performance and position of Premier
Investments Ltd. The company is a financial institution operating in Australia since a very long
time. There have been various difficulties in the journey of the company until now. In report,
various performance parameters of the company in different times have been analyzed and
discussed. Lastly, the paper concludes with some key factors behind their long-term success and
some recommendation for improving their accounting and reporting system.

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Table of Contents
Introduction:....................................................................................................................................4
Background of the company:...........................................................................................................4
Accounting treatment of Brand name assets:..................................................................................5
Basis of accounting treatment adopted by Premier Investment Ltd for 2017:................................6
Response by Premier to the ASIC arguments in the 2018 Financial Statement:.............................7
Announcement from Premier Investment Ltd in July 2018:...........................................................8
Market reaction to the announcement of Premier Investment Ltd in July 2018:............................9
Recommendation and strategy to address pressures from ASIC:..................................................10
Conclusion:....................................................................................................................................10
References and bibliography:........................................................................................................12

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Introduction:
Various financial institutions are operating in Australia successfully following the rules,
regulations, accounting and reporting standards of the country. There are some pioneering
financial institutions, which are also operating prosperously and growing with the pace of overall
growth in the economy. In this report such a financial institution Premier Investments Ltd have
been selected for analysis of their financial performance, financial position and accounting and
reporting principles of the company. Accounting treatments of various key financial terms are
important for companies (Rahman 2013). Treatment of accounting transaction can change the
financial performance projection. It has some statutory as well non-statutory effects in the market
as a whole. If in any way the expenses are inflated, it will reduce the tax expense and the earning
for the shareholders. As ASIC is the prime authority to regulate the share market activities in
Australian Stock Exchange, they follow up all those activities of companies. In the case of
Premier Investment Ltd also, they have made certain propositions concerning impairment and
amortization of non-financial assets. Effects of such cased have been discussed briefly in the
following heads (premierinvestments.com.au 2019).
Background of the company:
Premier Investments Ltd is an ASX listed company operating in the financial instruments
and investment market. The company was listed with Australian stock exchange in 1987. The
company’s vision was to maximize the shareholders income and growth in the capital market
through strategic investment options. In achieving their objective, they do retail and distribute
various investment options and plans to the shareholders. They have been leading the Australian
Financial Instruments market since their registration, as a listed company is the Australian Stock

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Exchange. Their past financial and operational performance created a brand value and goodwill
for them and made their customer loyal to them. As the company is a financial company, the fair
value loss on the valuation of financial instruments held for sale on the closing date is common
for such type of a company, but a huge impairment of non-financial assets is not a common
matter for the business in the same industry. Along with the valuation loss on assets held for sale,
they have been reporting a huge impairment loss on non-financial assets for the last couple of
years, which affected their net profit for the respective years (premierinvestments.com.au 2019).
Premier Investments Ltd is prime investment and financial organization in Australia. They have
been the market leader in the financial and investment sector of the Australian money market and
capital market. Their financial and operational performance have a direct impact in the
performance of the market as a whole as they are an important and integral part of the Australian
Capital market and Money market.
Accounting treatment of Brand name assets:
As the company is a financial company, dealing in investments and financial instruments,
their brand name in the market or the goodwill is the main asset for them, which help them in
getting huge market share and generate profit. The brand name or the goodwill means the goof
image of the company to the investors and their customers, which have been built up by the
company by serving premium services over a very long period. Premier Investment Ltd is a
pioneering company in its particular segment and serving their customer with efficiency
(premierinvestments.com.au 2019).
Brand name or goodwill is a type of intangible assets. It is subject to impairment testing
for a particular frequency of time. From their 2017 balance sheet, it can be cited that, they have

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conducted an impairment testing in accordance with the guideline of AASB 13 “Fair Value
Measurement”. They use the value in use calculation for the impairment testing. They have also
made some assumptions for the future recoverable amount of the cash generating units. The
value shown in the financial statement 2017 includes the impairment testing conducted as at 27
January 2018. Therefore, they are properly complying with the requirement of AASB 13 fair
valuation of assets and conducting necessary impairment testing for their Brand Name and
goodwill. For fair evaluation of financial performance of a company and presentation of actual
financial position of a company, it is mandatory to measure and revalue their noncurrent assets
periodically and to write down the value of such assets if required. Unlike the same, in case of
Premier Investment Ltd, their noncurrent assets, tangible and intangible, bust be subjected to a
impairment test and revaluation or write downs if necessary (Rahman 2013).
It can be concluded that, in measuring and presenting the fixed or noncurrent assets of a
company, proper accounting principles, guidelines and techniques must be followed. The books
of accounts must be given proper affect in regard to that. As can be cited from their financial
statement and reports, they have been following required accounting standards and guidelines for
their accounting and reporting. The only thing, which was lacking from their financial statement,
that the disclosure of proper reason behind the impairment of nonfinancial assets by a huge
amount in year after years.
Basis of accounting treatment adopted by Premier Investment Ltd for 2017:
They have recorded the financial transaction in the books of accounts in accordance with
the respective accounting standards, but in some cases their assumptions and accounting
treatments do not conforms to the accounting standards and reporting requirements. As can be

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cited from their 2017 financial statement, they have prepared a general-purpose financial
statement in compliance with the requirements of Corporations Act 2001, Australian Accounting
Standards and other Authoritative pronouncements of Australian Accounting Standards Board
(premierinvestments.com.au, 2019). They have properly shown the basis they have selected for
their accounting and reporting purpose. The notes to the financial statement exhibit all the
supporting calculations explaining various points and computations in the financial statement of
them. Notes to the financial statement are a qualitative part of the statement, without it the report
could not have been completed and meaningful (Rahman 2013).
They are recording all the transaction as per the historical cost basis and principle except
for other financial instruments and available for sale financial assets. They use the fair value
method for valuing and reporting the other financial instruments and available for sale
investments. They are following AASB 116 for property plant and equipment related
transactions and valuations. They follow the AASB 138 for intangible assets valuation,
accounting and reporting. They follow the guidelines of AASB 15 for revenue recognition,
AASB 16 for leases and AASB 9 for financial instruments. All theses accounting standards
guides them in day to day financial accounting, valuation, analysis and reporting (Rahman 2013).
Financial instrument and available for sale financial assets are subject to risk due to
fluctuation in the market conditions, and hence they may be certain amount of loss due to fair
market valuation at the end of the financial year. ASIC is one of the financial market regulating
body in Australia, ASIC stands for Australian Securities and Investment Commission raised
various issues and concerns related to the impairment of intangible assets and non financial
assets. They accept the fluctuation or market risk in the financial assets but they do not agree
with the increase in amortization and depreciation in the non-financial assets year after year. In

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2016, they have shown 23.88 million amortization and depreciation for non-financial assets and
in the year 2017, they have shown a total of 26.07 million amortization and depreciation expense
for non-financial assets. ASIC have raised concerns about this particular point. They wanted to
know the reason behind such a huge amortization expenses and write-down in the value of non-
financial assets. In 2017, they had not followed the impairment testing following the
requirements and guidelines of AASB 13 “Fair Value Measurements” (Rahman 2013).
Response by Premier to the ASIC arguments in the 2018 Financial Statement:
They have acknowledged the arguments raised by ASIC and prepared their 2018
Financial Statement addressing all the points raised by the ASIC. They have disclosed all the
materials information related to the non-financial statement in the 2018 financial statement. They
have conducted a fair value measurement as on January 2018 and valued their brand names and
goodwill following the value in use principle. They have disclosed all the valuation process,
information and complied with all the disclosure requirement of the AASB 13. They have
prepared a non-IFRS general-purpose financial statement in 2018, which the ASIC have
acknowledged also. Hence a proper disclosure and reporting of the accounting treatments and
policies adopted by them addressed the propositions raised by the ASIC in the financial
statement 2018 (Dunbar and Laing 2017).
Therefore in response to the pressure created by the ASIC on the impairment of
nonfinancial assets, were more disclosure of assets related information and the basis of
amortization. They have shown the impairment computation and fair valuation basis and
methods in the financial statement clearly in 2018.

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Announcement from Premier Investment Ltd in July 2018:
In July 2018, the Premier Investment Ltd, have reported their financial statement for the
year ended 30 June 2018. The important fact for that date was hoe they have again treated the
non-financial assets in the financial statement and the main focus was on whether they have
addressed the issues raised by the ASIC in the 2017 financial statement. Again, in the 2018
financial statement they have reported and announced a huge impairment and depreciation
expense for non-financial assets. In the top sheet of the statement, they have shown a total
impairment of 30 million, which decreased their net income by a huge margin. The main part of
their total amortization was the amortization of their wear brand. It affected the perception of
their investors and customers very deeply. Though they have shown all the disclosures and report
requirements, that much of huge impairment affected their total financial performance largely.
The market expectations for the company have also been affected largely. Investors though that
the company is going to perform badly in near future, as they are amortizing their good will and
brand values (Dunbar and Laing 2017). Amortization of wear brand implied exhaustion of lease
license with the wear brand name with which they were working with (Bloom 2013).
It can be concluded that, after a pressure and arguments from the ASIC in the last year’s
financial statement, the investors and customers were looking forward for a solution to the
problem and a better announcement from the company’s end. It disappointed all those
expectation with an announcement of more impairment loss on nonfinancial assets as compared
to the last year.

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Market reaction to the announcement of Premier Investment Ltd in July 2018:
With the disclosure of 30million impairment loss the financial year 2018 showed a 20%
decline in the net income. They have been performing marginally poor, and their approach to
write-down the brand names and goodwill affected their financial result for the financial year
2018. The market reacted to it negatively, the share market index in the Australian stock market
fallen significantly subsequent to the announcement on 28the July 2018. The price of the stock of
Premier Investment Ltd had also been fallen on that day onwards. The market volume for the
share decreased to 139,523 in 30 July 2018 from 175,876 in 27 July 2018. Therefore, many
investors sold their stocks in anticipation of a loss and the volume of investment in shares
decreased drastically. As an affect, the whole performance of the share market showed drastic
fluctuation and a poor performance (in.finance.yahoo.com 2019).
To conclude it can be said that, as the company is a leading company in the respective
segment and industry, their financial performance influenced the whole share market badly with
the announcement of the unexpected huge amount of impairment of nonfinancial assets.
Recommendation and strategy to address pressures from ASIC:
As the company is amortizing and reporting huge impairment loss year after year, ASIC
is creating a pressure to the company. Every year a huge amount of impairment loss is affecting
the net income of the company and affecting the shareholders wealth who has invested in the
shares of the Premier Investment Ltd. They should have made a proper strategy to counter the
arguments of the ASIC. They need to formulate such strategies, which will be showing the same
in other ways. The first strategy should be licensing the brand names; they should enter into
some contracts with those companies in whose brand name they are working with. They need to

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show the expense as a license expense every year. It will be included in the operating expenses
of the company, and will not be showing as any amortization or depreciation. The amortization
and depreciation attracts the eye of ASIC and investor more that the operating expense. They
always suspects all those items in the financial statement but operating expenses they do least
suspect. Hence, it would be a good strategy for the company to pay the license expense annually
and to show it as an operating expense. If such strategy can be adopted and such write-downs can
be shown as an expense item in the financial statement of the company, it can hide the over write
offs in the financial statement and can attract the investors to invest in the company. if it can be
done the arguments of the ASIC can also be addressed easily.
In other way, they can enter into a partnerships and franchisee agreements with the
business organizations. In this way, they can reduce the amortization and impairment expenses
largely. They can adopt all those strategies to address and defend the pressures created from the
Australian Securities and Investment Commission.
Conclusion:
From the above analysis and discussion, it can be concluded that, ASIC is the prime body
to regulate the financial activities in the Australian stock market. Premium Investment Ltd being
a renowned financial institution in Australia, their financial disclosures and announcement was
affecting the performance of the market as a whole. Their financial performance was mainly
impacted by huge write-downs and impairment losses in those years. Suspecting the unfair
impairment of brand names and amortization of non-financial assets in the financial statement,
ASIC made arguments in their financial statement. They had taken certain strategies to address
those arguments but it failed again. Lastly, it can be recommended that, they can change certain

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strategies which can show that expenses as and operating expenses rather than a paper
transaction only.

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