Financial Accounting and Reporting: A Comprehensive Analysis of Brambles Limited

This report delves into the financial accounting and reporting practices of Brambles Limited, a leading industrial products company. It examines the nature of general purpose financial reports (GPFR) in the context of AASB's SAC 1, explores the recognition criteria for property, plant and equipment (PPE), and analyzes the requirements of AASB 116. The report also discusses depreciation expense, useful life, residual value, and fair value, providing insights into the ethical considerations involved in financial statement preparation. Through a comprehensive analysis of Brambles Limited's financial statements, the report aims to provide a clear understanding of key accounting concepts and their practical application in a real-world business context.

Financial Accounting and Reporting
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Executive Summary:
The accounting and reporting work performed in an enterprise have become increasingly
important and relevant for the success and growth of an enterprise. The financial reports as
presented by the organisation represent the way in which the enterprise informs their investors
regarding the financial position and performance of an enterprise. The report will thus help in
evaluating the financial statement preparation of an enterprise in context of various accounting
standards provided in AASB. The function of high quality reporting is considered crucial for
analysing the operational efficiently of an enterprise and the same assists in effective reporting.
The report will include the financial analysis of an enterprise which is listed in the Australian
Stock Exchange and the interpretations will thus be used to recommend the solution for the
relevant problems associated.
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Contents
Executive Summary:........................................................................................................................2
Introduction:....................................................................................................................................4
1. Explain the nature of general purpose financial reports (GPFR) in the context of the
AASB’s current SAC 1 Definition of the Reporting Entity.........................................................5
2. Describe what assets constitute property, plant and equipment (PPE), and what the
recognition criteria are for PPE....................................................................................................5
3. Outline and explain the requirements of AASB 116 in relation to:.........................................6
4. What is meant by depreciation expense, and explain whether all assets are subject to
depreciation?................................................................................................................................7
5. How is useful life determined, and what is meant by residual value of an asset?...................8
6. What is fair value? Discuss whether AASB 116 set fair value as the ceiling for the carrying
amount of assets and the impact of AASB 112 tax effect accounting on assets carried at fair
value.............................................................................................................................................9
7. Discuss whether CEO’s argument is ethical when preparing the company’s financial
statements in accordance with AASB101..................................................................................10
Conclusion:....................................................................................................................................11
References:....................................................................................................................................12
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Introduction:
The main purpose of the report is to conduct a financial analysis of an enterprise in order to make
decisions. In order to serve this purpose a company will has been chosen whose name Brambles
Limited is dealing in industrial products. The report will contain the matter related with general
purpose associate with prepari8ng the financial statement of an enterprise. The description about
various assets recognized in property, plant and equipment will be identified and the
measurement and recognition criteria will be evaluated in context of an organization. The
information about depreciation treatment in an enterprise will be explained and the residual value
will be explained appropriately. The fair value assessment regarding the different assets of an
enterprise will be recognized and recommendation will be made for the same.
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1. Explain the nature of general purpose financial reports (GPFR) in the context of the
AASB’s current SAC 1 Definition of the Reporting Entity.
As per SAC 1, Definition of Reporting Entity The objective and nature of general purpose
financial reporting is to provide the users with sufficient and adequate information about the
reporting entity so that the users can make the informed and appropriate decision after making
evaluations about the various aspects of entity (Barth, 2015). The objective also means the way
in which the management and governing bodies of the organisation discharge their
accountabilities and responsibilities regarding users. The general purpose financial reports needs
to be prepared for the users who are required to make decisions about the allocation of various
resources and make a correct investment decision. The concept requires the identification of an
entity in reference to the existence of users who are highly dependent on the general purpose
financial statement for their decision making purpose. In case of Brambles Limited it can be
established that the nature of general purpose of financial statement is associated with
recognizing the information needs of the users who are willing to make investment in company
and discharging the accountability towards various stakeholders of company.
2. Describe what assets constitute property, plant and equipment (PPE), and what the
recognition criteria are for PPE.
The property, plant and equipments are recognized and reported at liabilities side of balance
sheet as noncurrent assets and these includes the items such as land, buildings, office
equipments, machinery, furniture and fixtures and vehicles which are used in a business. The
[property, plant and equipments also includes the accumulated depreciation concerned with these
items (Beatty & Liao, 2014). Thus the property, plant and equipment consist of the tangible and
long lived assets of the company which are held for long purpose.
The property, plant and equipment section for Brambles Limited includes the assets such as land
and buildings and plant and equipment necessary for carrying out the operational functions of
company. The schedule for property, plant and equipment is presented below:
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(Source: Brambles Limited 2017)
Recognition and measurement – The recognition and measurement criteria for property, plant
and equipment will be associated with stating the assets at cost after deducting depreciation and
impairment loss if any. The cost for the assets includes the expenditures which are directly
incurred for the acquisition of assets and where is includes the initial estimate of dismantling and
removing the items and restoring the site at which it is located (Beatty & Liao, 2014). The
subsequent expenses are capitalized in the cost of assets when it is probable that they will bring
future economic benefits to the company. Thus the recognition criteria of Brambles Limited
seem to be appropriate in this case.
3. Outline and explain the requirements of AASB 116 in relation to:
Acquisition of property, plant and equipments – As per AASB 116 related with property,
plant and equipment, the initial cost of acquisition must be recognized after considering the
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nature and purpose for which the cost has been incurred for an enterprise. Te cost of acquisition
for a property, plant and equipments refers to eth cash price equivalent at the recognition date
(Waegenaere, et. al., 2015). If the payments are deferred over the normal credit period of
company then the difference between the cash price and the payments will be recognized as
interest over the period of credit unless these are capitalized to the cost of acquisition. Also the
cost of acquisition system includes the basic elements described below:
 The purchase price of the asset including the import duties and non refundable taxes
which is obtained after deducting the rebates and discounts allowed by the supplier.
 Any type of costs which are directly attributable for bringing the asset to the location and
the condition necessary for carrying out operations associated.
 The initial cost of removing and dismantling the item and restoring the same at the place
of operations.
The measurement of property, plant and equipments subsequent to acquisition – The
measurement of subsequent cost associated with cost of asset is related with identifying the cost
that has been incurred in relation to replacement of asset. The cost must be measured after
considering the amounts expended for the replacement(Beatty & Liao, 2014). Thus the
subsequent cost of improvement will be capitalized in the value of asst if it is probable that it will
bring future economic benefits to the company and the entity will be able to use the asset for a
longer period of time.
4. What is meant by depreciation expense, and explain whether all assets are subject to
depreciation?
The depreciation associated with the assets in a business can be defined as the expense of an
asset involved in producing various types of revenues for the company during its useful life
(Robson, et. al., 2017). In context of accounting it is defined as the allocation of cost of assets to
the periods in which the asset is used by the company The calculation of depreciation expense
affects the value of business as the accumulated depreciation as disclosed in the financial
statement will reduce the book value of asset and it also affects the net income derived by the
company during the year.
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The tangible assets of the company are subjected to depreciation but there are some kinds of
assets on which no depreciation is charged and they are as follows:
 Land – Although it is a long term tangible asset of the company still it is not changed to
depreciations.
 Financial assets – The financial assets of the company including the various types of
current assets are not depreciated by the management. These types of assets include
accounts receivables, derivatives and other assets (Scott, 2015). These assts does not lose
their value due to time and hence are not depreciated.
For Brambles Limited, the depreciation expense for the year has amounted to $500.0 million in
the year 2017 which is related to property, plant and equipments of company.
5. How is useful life determined, and what is meant by residual value of an asset?
The useful life associated with the asset of company is the estimation of the length of time in
which the asset can be reasonable used by the company and will bring benefits to the company. It
does not really means the time the asset will last for the company (Warren & Jones, 2018). The
useful life of the asset will vary according to user and to is also dependent on the asset age, the
frequency with which it is used, the condition of the environment of business in which it is used
and the asset repairmen policy of company. The other factors which impact the determination of
depreciation includes the anticipated technological improvements, changes in economic factors
and the associated changes in laws.
The useful life in case of Brambles Limited has been estimated after making careful assumptions
and considering the economic conditions of the business and industry in which the company is
operating. The operating life of asset which is estimated for different assets in property, plant and
equipments are shown as under:
 Buildings – 50 Years
 Pooling equipments – 5 – 10 years
 Other plant and equipments – 3 – 20 years.
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Residual value of an asset – The residual value associated with an asset refers to the estimated
amount that a company can realize on the disposal of asset at the end of its useful life. The
determination of residual value of an asset is a subject matter of deducting the estimated cost of
disposing the asset.
6. What is fair value? Discuss whether AASB 116 set fair value as the ceiling for the
carrying amount of assets and the impact of AASB 112 tax effect accounting on assets
carried at fair value.
Fair value of an asset represents the current value or price of the asset in market. In other words
it can be represented as the value of the asset which it can fetch in the outside market when it is
sold. The fair value can be measured as the monetary amount which a buyer is willing to pay to
the seller of the asset considering the current economic conditions and circumstances of the asset
(Scott, 2015). The market approach of valuing the asset is easier in order to recognize the fair
value of the asset as the ready to sae price is available in the market for an asset. The
determination of fair value of an asset is significant for the company in determining the financial
statements and this will help the company in estimating the total; worth of company in the
market.
The fair value of an asset can be recognized maximum to its recoverable value less costs incurred
to sell the asset. As per AASB 116, the cost of an asset recognized in the property, plant and
equipment can be carried maximum to its fair value and if there is any reduction in the fair value
of an asset then it is impaired accordingly (Waegenaere, et. al., 2015). The carrying amount of an
asset thus can be recognized at fair value which can be recognized by the company in its normal
course of business at the end of life of asset.
The Australian Accounting Standard allows the use of fair value for the prose of carrying the
asset in its financial statement but the same results in some of the temporary differences as and
when in some jurisdictions the revaluation of other restatement affects the taxable profit of the
company for the current period and in some other jurisdictions the taxable profits are not affected
by those adjustments or revaluations. In such cases the tax base of the company needs to be
adjusted according to the taxable portion of company.
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7. Discuss whether CEO’s argument is ethical when preparing the company’s financial
statements in accordance with AASB101.
No the CEO argument regarding the depreciation is not ethical and the reason for the same is
described below:
The purpose of charging depreciation is to match the cost of productive asset with the revenues
obtained by the company while using the asset. However it is hard to track a direct link with the
revenues and therefore the cost of asset is allocated to the years of using the asset. Thus the
allocation of depreciation helps in ensuring that the matching principle of accounting is followed
while preparing the financial statement of company. Also the determination of depreciation
expense helps in estimating the real profits of the company which are concerned with
establishing the financial performance during the year. The use of depreciation allows the
business to claim tax benefits by showing the depreciation expense as the allowable deduction
for taxation purposes (Warren & Jones, 2018).
Thus the depreciation should be recognized even if there is no diminution in the value f the asset
in order to ensure eth accuracy of matching principle.
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Conclusion:
The above report concludes that financial accounting and reporting can be recognized as a
crucial element of financial decision making in a company and the management needs to prepare
the accounting reports as per eth accountings standards prescribed for the company. By analysing
the current situation of financial statements of company it can be established that the financial
reports have been prepared after considering all the standards appropriately and the CEO of the
company should take into consideration the depreciation expense while preparing the financial
reports. This will help in ensuring that adequate correct financial reports have been provided to
various users and they can make appropriate decision regarding the investment to be made.
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