Depreciation Expense Analysis

This assignment analyzes the depreciation expense of Plant and Equipment for JB Hi-Fi Limited in their 2017 annual report. It examines the total depreciation expense, its breakdown, the depreciation method used (straight line), the estimated useful lives of assets, and the impact of impairment assessments. The analysis adheres to Australian accounting standards (AASB 2014 4).

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By student name
Professor
University
Date: 07 January 2018.
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Contents
Depreciation expense of Plant and Equipment...........................................................................................3
References...................................................................................................................................................5
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Depreciation expense of Plant and Equipment
In the given assignment, the annual report of the company named JB Hi-Fi Limited needs to be accessed.
The annual report chosen for the same pertains to the year 2017. The company is one of the pioneer
companies in the field of consumer retail goods and deals in Australia and New Zealand. The company is
also listed on Australian Stock exchanges and has 112 stores in operation. It is one of the fasting growing
business in Australia and deals in electronic games, video games, CDs, DVDs, electronic and electrical
home appliance.
The total depreciation expense being recorded by the company in its profit and loss statement for the
year ended 30th June, 2017 is $ 53.9 Mn vs $ 40.9 Mn in 2016 (Das, 2017). The split of the depreciation
expense can be seen in the screenshot below where out of $ 53.9 Mn, $35.6 Mn pertains to the Plant
and equipment and the other $ 18.3 Mn pertains to leasehold improvement. The company recognises
depreciation on the straight line basis and does the valuation of the assets as per the Australian GAAP
and IFRS standards (Gooley, 2016). The company has also shown the detailed reconciliation of the
balances of property, plant and equipment by the way of showing the balances at the beginning which is
being arrived by deducting the accumulated depreciation from the Gross Block. Furthermore, the
additions and disposals during the year, the impairment charge for the year, the effect of foreign
exchange reserves, etc has also been shown in the reconciliation statement of the PPE. The depreciation
expenses has been arrived based on the management judgement and estimation of the useful lives of
assets to be 1-15 years for Leasehold improvements and 1.5 – 15 years for Plant and equipment
(Alexander, 2016). The depreciation method and the estimated useful lives of the assets is being
assessed annually towards the end of the financial year and in case any changes are found, the effect of
the same is reported on a prospective basis.
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Besides depreciation, the plant and equipment is also being assessed for impairment, if any, in acse the
internal or external factors of impairment do exist. The impairment loss is tehn recognised in the profit
and loss account as the difference between the carrying value of the asset and the recoverable value of
the asset. The revoverable value is the higher of value in use or the fair value less cost of disposal. Gain
or loss on the retirement of the assets is also recognised in the profit and loss account. It is generally the
difference between the carrying value of the asset and the sale proceeds (Dichev, 2017).
With regards to the accounting standards being followed here, the company has followed AASB 2014 4,
which deals with the clarification on the acceptable methods of depreciation and amortisation.
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References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-
431.
Das, P. (2017). Financing Pattern and Utilization of Fixed Assets - A Study. Asian Journal of Social Science
Studies, 2(2), 10-17.
Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), 617-632.
Gooley, J. (2016). Principles of Australian Contract Law. Australia: Lexis Nexis.
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