Contemporary Issues in Accounting

This document discusses the contemporary issues in accounting and their impact on Myer Holdings. It explores the drop in share prices and profits, as well as the reduction in intangible assets. The reasons behind these trends and their implications for the company are also analyzed.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary issues in accounting
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1CONTEMPORARY ISSUES IN ACCOUNTING
Table of Contents
Question 1..................................................................................................................................2
Question 2..................................................................................................................................3
References..................................................................................................................................6

2CONTEMPORARY ISSUES IN ACCOUNTING
Question 1
An entity that is earning profit though providing services and selling the goods are
expected to though not guaranteed to experience rise in its stock prices. Profit helps the
investors to know about the success of the entity that generally makes the share more
valuable and boosts its prices. Myer Holdings Limited is the ASX listed department store
entity. The department store network of the company includes footprints of near about 60
stores under retail location all over Australia. Looking into the share price of the entity over
the last 3 years consisting 2016, 2017 and 2018 it can be identified that the share price of the
company are in reducing trend (Myer.com.au 2019). It can be found out that the share price
dropped to $ 0.77 per share in 2017 from $ 1.34 per share in 2016 and further dropped to $
0.46 per share in the year 2018. On the other hand, if the trend of profit is analysed it can be
found that the profit are in reducing trend over the last 3 years covering 2016, 2017 and 2018.
It can be noticed out that the net profit dropped to $10,430 thousands in 2017 from $ 60,543
thousands in 2016 and further dropped to net loss amounting to $ 485,690 in the year 2018
(Investor.myer.com.au 2019).
Different reasons are attributable for drop in the profit from last few years. Since the
year 2009 the annual revenue of the company dropped around 20% that is from $ 3.2 billion
to $ 2.5 billion whereas the upmarket rival that is David Jones dropped by 30%. However, the
crushing of its revenue last year that led to loss of $ 486 million was driven by the write-
downs in balance sheet that raised the concerns regarding its survival (Cludius, Forrest and
MacGill 2014). It was further compounded by insurgency from the large shareholders of the
company that is the retail veteran Solomon Lew. As per the data issued by Australian Bureau
of Statistics retail sales went by only 0.1% of month on month of January that is not even the
weaker expectation. Different reasons behind the same are low growth of wages and dropping

3CONTEMPORARY ISSUES IN ACCOUNTING
house prices kept the cap on the spending of consumers. The departmental stores dropped by
2.1% and further by 13% in the month of December (Myer.com.au 2019). Unlike UK and US
where some of the stores have 40% of the online orders are picked up from the stores, for
Myer only 20% of the online order at present are picked up from the store and then only 1 out
of 5 customers make unplanned purchases. Further, online sales only accounts for $ 9 out of $
100 earned by Myer that King wants to increase to $ 20 (Myer.com.au 2019). Further, 20 new
brands are entering in Australian retail fashion market those may poses threat to the
departmental stores like Myer. Further, King wanted to bring back Myer in track again
though offering discount that dove the sales but ate up the profitability. On the contrary, its
competitor David Jones continued to enhance the sales through heavy promotions. As a
result, total sales of Myer dropped by 2.8% in last 6 months however, profit margin went up
by 3% as the profit margin improved for which it had to cut the costs (Price 2016).
After coming out from the trading halt, share price of Myer dropped by 6.1% and was
trading at 0.46 at the closing of the financial year 2018. Trading halt took place after an
article published by The Australian Financial Review that alleged that the sales of the entity
for the recent quarter dropped by 5.5%. Different factors those worked against Myer for its
profit as well as share price are – (i) retail sales in Australia just accounts for one third of the
consumption (ii) irrespective of long-term damage that may take place, RBI cut off the cash
rate by 2 or more times (iii) this led to mid cycle slowdown that had the potential to hurt the
retailers like Myer (iv) slowdown also had an impact on the dividend payment policy that led
to lowering of interest in investing by the investors who prefer receiving regular return on
investment (Price 2016).

4CONTEMPORARY ISSUES IN ACCOUNTING
Question 2
Intangible assets include reputation, recognition of name, intellectual property like
know how and knowledge. These are long term resources of the entity those do not have
physical existence. Value of the intangible assets are derived from the legal or intellectual
rights and from the value added by them to other assets. Different intangible assets own by
Myer Holdings include goodwill, trademarks and brand names, software and lease rights. If
the trend of the amount of intangible asset owned by the entity is analysed it can be found
that the same though went up from $ 904,171 thousands to $ 985,263 thousands over the
period from 2016 to 2018, it significantly dropped to $ 484,706 thousands in the year 2018
(Myer.com.au 2019). Major reason of reduction in amount of intangible assets is the
impairment and amortization of goodwill amounting to $ 465,031 thousands. As per the
requirement of AASB 136 on impairment of assets, goodwill as well as intangible assets
those have indefinite useful life shall be assessed at the closing of each accounting period
whether any indication is there for impairment. Goodwill generated from acquisition of Myer
business in 2017 that was amounted to $ 465 million could not be allocated to the individual
cash generating unit of the entity and therefore in 2018 it is allocated fully to Myer business.
In the same way the brand names with indefinite useful life amounting to $ 402.8 million
allocated fully to Myer business. Amount of software went up $ 98,670 thousands to $
113,513 thousands as there was an addition amounting to $ 37,899 thousands and
amortisation charges amounting to $ 29,318 thousands. Further, the lease rights amounting to
$ 25,786 thousands have been amortised in full (Myer.com.au 2019).
During the concerned period there was an indication of impairment owing to changes
in the market scenario as well as operating performances of the entity along with the present
market position for capitalisation. Accordingly recoverable value of the assets related CGU
were evaluated through value-in-use and discounted cash flow approach (Sutton-Brady,

5CONTEMPORARY ISSUES IN ACCOUNTING
Kamvounias and Taylor 2015). As a result, the carrying value of goodwill as well as brand
names exceeded its recoverable value and the impairment amount charged for goodwill
amounting to $ 515.3 million and Myer brand names amounting to $ 50.3 million
(Myer.com.au 2019). Further, the same has been included under the costs of store exit and
restructure, impairment asset and lease expenses under the entity’s consolidated income
statement. Reduction in recoverable amount reflected acceleration of market changes during
the concerned period with more competitive and challenging retail market that led to
deterioration in the financial performances as compared to the previous expectations. As a
result, it led to moderate outlook for business over the forecasted period (Aasb.gov.au 2019).

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References
Aasb.gov.au. 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf
[Accessed 31 Aug. 2019].
Cludius, J., Forrest, S. and MacGill, I., 2014. Distributional effects of the Australian
Renewable Energy Target (RET) through wholesale and retail electricity price
impacts. Energy Policy, 71, pp.40-51.
Investor.myer.com.au. 2019. [online] Available at:
http://investor.myer.com.au/FormBuilder/_Resource/_module/dGngnzELxUikQxL5gb1cgA/
file/Myer_Annual_Report_2016.pdf [Accessed 31 Aug. 2019].
Myer.com.au. 2019. MYER | Shop Fashion, Homewares, Beauty, Toys & More. [online]
Available at: https://www.myer.com.au/ [Accessed 31 Aug. 2019].
Price, R., 2016. Controlling routine front line service workers: An Australian retail
supermarket case. Work, employment and society, 30(6), pp.915-931.
Sutton-Brady, C., Kamvounias, P. and Taylor, T., 2015. A model of supplier–retailer power
asymmetry in the Australian retail industry. Industrial marketing management, 51, pp.122-
130.