Company and Financial Reporting
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Added on 2020-03-23
Company and Financial Reporting
Added on 2020-03-23
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Company and Financial ReportingEXECUTIVE SUMMARY‘Conceptual Framework’ is a concise presentation of a company’s financial aspects,especially those which demonstrate its financial strengths. AASB has framed threestandards for this, namely AASB 101, AASB 136 and AASB 138.AASB 101 is related to the financial statements which provide information aboutfinancial position, financial performance and cash flows of the entity. This can be usedby a wide range of users for making economic decisions. In the case of Telstra, thisinformation assists this report in understanding Telstra’s future cash flows, in particular,their timing and certainty. AASB 136 Impairment of Assets deals with the issue of impairment of an asset and itdefines this as –‘An asset is impaired when its carrying amount exceeds its recoverable amount.’This report concludes that when estimating an asset’s recoverable amount from thefinancial statement of Telstra, the management uses a great degree of judgement andestimation.Objective AASB 138, which deals with Intangible Assets, is to account for how thesenon-monetary assets which have no physical presence, can be recognised, measured anddisclosed within financial statement of Telstra.PART – IANSWER – 1 (a)Management of Telstra has the practice of identifying all profit earning segments asCash Generating Units (CGUs), Telstra, (2016). With the commencement of the revisedNBN Definitive Agreements (NBN DAs), the company is going to transfer the HybridFibre Coaxial (HFC) cable network, which was functioning as a separate CGU for
impairment assessment, to the assets of NBN Co. The transfer will include assets suchas Lead-in Conduits (LICs), HFC and certain other external infrastructure assetsassociated with this CGU. The management has acknowledged that after the revisedNBN Das coming into force, it is not possible to separate the cash inflows jointlygenerated by both the networks, as per Baker & Riddick, (2013). (See Extract-01 ofTable-B showing Cash Generating Units (CGUs) from Page-100 of Telstra’s AnnualReport 2016 in Appendix)This is also in conformation with the Australian Conceptual Framework whichprescribes AASB 101, the standard which prescribes the following segments to bereported cohesively.Acquisition Property, Plant and Equipment are to be recorded at cost price less the accumulateddepreciation and impairment. Telstra capitalises all borrowing costs, attributing themdirectly to an acquisition of a qualifying asset. Telstra then recognises as expense allother borrowing costs in its income statement, assert Greuning, Scott & Terblanche,(2011). Depreciation All items of Property, Plant and Equipment are depreciated by Telstra on a straight-linebasis over their estimated useful lives, Telstra, (2016). Depreciation of assets starts aftertheir installation. The useful lives of the Property, Plant and Equipment assets areshown in Table B, as per Janousek et al, (2015). (See Extract-02 of Table-B showingUseful Life of Assets in Years from Page-97 of Telstra’s Annual Report 2016 inAppendix)ANSWER – 1 (b)Telstra transferred its assets valued at $1,004 million, as explained above, to NBN Co.under the revised NBN DAs as at 30 June 2016. This was 4.9 per cent of Telstra’s NetBook Value of its total Property, Plant and Equipment (See Extract-03 of Table-Ashowing Details of Property, Plant and Equipment from page 96 of Telstra AnnualReport 2016 in Appendix). Management judgement was applied by Telstra in assessing
the useful lives of these assets and was based on the anticipated NBNTM network rolloutperiod, Telstra, (2016). The full impact on the useful lives of these assets cannot beassessed fully as of now and will depend on the selection of access technologies byNBN Co. in each of the rollout region and also on the sequence in which this rolloutprogresses, as per Cichosz, (2014). (See Extract-04 of Table-A Goodwill and otherIntangible assets from Page-99 of Telstra’s Annual Report 2016 in Appendix). Duringthe financial year 2016, Telstra has made assessment of its telecommunications networkCGU based on the identify indicators of impairment, as has been specified by AASBstandard 136. This has been done by using both the external as well as the internalsources of information, asserts Yona, (2011).PART – IIANSWER – 2 (a)Rolling out the services of 4G voice by using the small cells technology was part ofTelstra’s long standing commitment towards expansion of its 4G coverage in theregional Australia. This has made Telstra, the first carrier in Australia which is going toprovide 4G voice services to customers using the small cell technology. During thisfinancial year itself, Telstra has identified 50 small cell sites with 4G voice services andhave already become operational in rural Australia, Telstra, (2016). A further 10 moresuch sites are expected to be activated by the end of June. This technology is based onthe ongoing investment commitments under the revised NBN DAs which Telstra ismaking in the rural areas of Australia for its mobile network used by the ruralcustomers, as per Kurth, (2011).A small cell is kind of a miniature version of the large size standard base station whichare set up by telcos, mostly in highly congested networks found in densely populatedurban areas. The purpose of the small cell is also to boost coverage and capacity of the4G voice calls in rural areas. Being a technical hardware, the small cells are alsoclassified under the Property, Plant and Equipment head in the Annual Report of 2016,Telstra, (2016). Since Telstra’s commitment is part of its support to the FederalGovernment’s Mobile Black Spots program, the management is committed to funding
up to 250 small cells during its overall expansion program. In this regard, full funding isbeing provided by Telstra from its internal resources, say Marchildon & McDowall,(2013).Deferred Expenditure A Deferred Expenditure is not only related to the direct incremental costs associatedwith the establishment of a customer contract, it also relates to the costs incurred forinstallation and connection fees for providing basic access to existing and new services.It also relates to the deferred costs which are related to the costs incurred on small cellinstallations under the revised NBN DAs, Telstra, (2016). All such costs, incurred inexcess of the future revenues earned, shall be recognised in the subsequent incomestatement reported in the Annual Report of 2017. The amortised deferred expenditure,which is expected to be realised, shall be recognised in the subsequent operatingexpenses of 2017, as explained by Cichosz, (2014).ANSWER – 2 (b)Telstra’s intangible assets mainly include the following three items –A.All IT related development costs of designing, building and testing of new orimprovised IT systems. B.Research costs which are expensed when incurred. C.Capitalised development costs, which include: (a)External direct costs related to materials and services consumed. (b)Payroll and payroll-related costs for employees associated with a project.(c)Borrowing costs which are directly attributed to a qualifying asset. All internally generated intangible assets are assessed as having a finite life and henceare amortised over their useful lives on a straight-line basis. Recognition of thedevelopment costs are done on the basis of management judgement (Refer to‘Capitalisation of development costs’), Telstra, (2016).PART – III
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