Financial Analysis Report on Accounting Policies and Estimates of PPE

This report provides a detailed financial analysis of accounting policies and estimates related to Property, Plant, and Equipment (PPE), with a focus on the application of AASB 116. The report begins with an executive summary and table of contents, followed by an introduction that establishes the context of PPE accounting treatment according to AASB 116, using Caltex Limited as a case study. The discussion section addresses key questions, including the selection and changes in accounting policies as per AASB 108, the impact of professional judgment, and the specific accounting policies of Caltex Limited, particularly those concerning PPE valuation and depreciation. A critical evaluation of the accounting estimates and policies is presented, examining the impact of PPE on the company's financial position. The report concludes with recommendations for improvements in accounting estimates and policies, and references relevant accounting standards and literature. The report provides a comprehensive analysis of the accounting treatment of PPE, offering insights into the application of accounting standards and the impact on financial reporting.

Running head: ACCOUNTING FINANCIAL ANALYISIS REPORT
Accounting Financial analysis report
Name of Student:
Name of the University:
Authors’ note

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EXECUTIVE SUMMARY:
This completed report is providing a brief idea about the AASB 16 plant, property and
equipment. The application of AASB on Caltex limited and the probable impacts on overall
financial statements. In the first part of this report is providing the basic idea about
accounting policies and the effects of specific changes in polices. Next to this report is
presenting the annual report of the firm for the year 2018. The accounting estimates and
policies applied by the firm in the plant, property and the equipment have been explained.
The accounting policies implemented by the firm are all appropriate according to the
Australian accounting standard.

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Table of Contents
Introduction................................................................................................................................3
Discussion:.................................................................................................................................3
Answer to question 1:.............................................................................................................3
Answer to question 2:.............................................................................................................4
Answer to question 3:.............................................................................................................6
Answer to question 4:.............................................................................................................7
Conclusion..................................................................................................................................7
References:.................................................................................................................................9
Appendix:.................................................................................................................................11

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Introduction
According to the provision issued under AASB 116, the accounting treatment for
Plant, Property and Equipment is needed to present in the financial statement for providing
the overall financial condition of an organization during a particular time. The primary issues
for submitting the accounts for Plant, Property and Equipment is to recognize the assets,
determination of carrying amounts of such assets and also the depreciation amount that
charged and impairment losses that to be known about them (Laing and Perrin 2014).
Here for recognition, the plant, property and equipment selected a company which is
named as Caltex Limited. Caltex Limited Company is an oil company, which was established
in the year 1936 with the joint venture between the Texas Company and Standard Oil of
California (Caltex 2018).
Discussion:
Answer to question 1:
Selecting and changing Accounting policies as per AASB 108:
In accordance with the provision issued under AASB 108 paragraph 14, an entity
shall need to change in accounting policies if it is required as per the relevant Australian
accounting standard. The results of financial statements are providing the reliable and more
accurate and reliable information about the effects of transactions, other related events and
conditions on organizations’ financial position, performance or generated cash flows
(Standard 2015).
As per paragraph 15, generally, the users of financial statements are required to be
able to compare the financial statements of an organization’s financial positions, performance

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and generated cash flows. In that case, the same accounting policies are continually applied
unless there is a change is occurred as per the criteria issued under paragraph 14.
As per paragraph 17, the initial application of a relevant policy which is related to the
revaluation of assets in accordance with the AASB 116 Plant, Property and Equipment.
AASB 138 intangible assets are typically changed its accounting policies in the case to deal
with as a revaluation following the standards.
Professional judgment impact accounting policies and estimates:
Generally, the professional judgements are defined as the application of relevant and
accumulated knowledge along with proper experience gained through the using of pertinent
accounting or auditing training. In other words, the standard judgemental power can provide
the favourable impacts in case of selection relevant accounting policies. Through the using of
accounting judgements, an organization can give necessary changes in case of its accounting
policies. With the expertise knowledge and judgements, such as like through the proper
managerial decisions by relevant persons an organization can able to make necessary changes
and implementing new accounting policies that influenced towards the favourable benefits of
the company (Davern et al. 2019).
Answer to question 2:
Accounting Policies of Caltex Limited:
In accordance with the Annual report issued by Caltex Limited 2018, while preparing
the consolidated financial statements, the management makes some relevant judgments,
estimations including some assumptions that affect in case of application of policies and also
reported to the amounts of assets, liabilities, incomes and expenses. Such estimates and

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assumptions are generally based on the historical cost experiences and various other factors
that probably influenced the overall organizational operations.
Along with such policies valuation details, the annual report is also providing some
relevant changes regarding the accounting policies. Such changes are in Revenue generated
from the customers. In contrast, per the provisions of AASB 15, the company need to review
all the revenues and incomes, including sales relating to the contracts across different
significant customers. In case of such company followed the provisions issued under AASB
15 franchisees fees would be distinct in the balance sheet and recognized in the income
statements generally over the term of agreements with relating to franchisees. Another
accounting policy that influenced the accounting treatment of the company is followed the
provision AASB 9 recognizing and measuring the financial assets, liabilities, including some
character of buying or sell non-financial items. Here the company is performed with a review
of its current classification and measurement of financial assets and liabilities for compliance
with the requirements of the new standard. Another significant essential policies that
influenced the accounting treatment is the fair value system (Rahman 2013).
Estimates relating to PPE:
The Caltex limited generally had freehold land, buildings, leasehold property, plant
and equipment, capital projects in progress etc. generally in case of owned assets the
company measured the value of such assets through cost less accumulated depreciation and
impairment losses. Cost representing the general expenses that directly attributable to the
acquisitions of assets. Major cyclical maintenance expenditure is basically separate
capitalised as an asset component to the extent that it is probable that future economic
benefits, in excess of the originally assessed standard of performance (Weil, Schipper and
Francis 2013). The company in general followed the straight line method system in case to

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compute depreciation amount. The normal Depreciation rate followed by the company for
assets are as follows;
For Freehold buildings 2%, Leasehold property 2% to 10%, Plant and equipment 3% to 25%
and for Leased plant and equipment 3% to 25%.
Answer to question 3:
Critical evaluation of whether the accounting estimates and policies:
The PPE is usually mean the plants, property and the equipment of a business. This is
located in the balance sheet of a firm. This is grouped together at an original cost less the net
accumulated depreciation of the PPE of the firm. This are basically the tangible assets of the
firm which have a life span of more than one year. These kinds of goods are basically used in
the manufacturing or supply of the particular goods and the services. The accounting policies
are basically the particular principles, bases, protocol, rules and practices applied by the firm
while preparing and introducing the monetary statements in the annual report. The relevant
changes in the accounting estimate is an relevant adjustment of the carrying amount of the
resources and the relevant expenses incurred by the firm resulting from the re-examining the
expected future benefits and the obligations that are related with resources of the firm
(Caltex, 2018). The disclosures related to the changes in the accounting policy are including
the interpretation or the title of the standard cause the change, relevant changes in the
accounting policies, and descriptions of the transitional provision of the firm. The plant
property and the equipment of the firm identified in the consolidated financial report that is
2,889,863. The amount of property plant and equipment of the previous year of the firm is
2818353. The PPE includes the freehold land, buildings, leasehold property, plant and
equipment and the capital projects that were in progress by the firm. The PPE amount of the
year 2018 was measured at a cost less accumulated depreciation and impairment losses. The

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carrying amount of PPE for the year 2018 is 1,561,662 and the amount in the previous year
was 1,473,458. This means that the financial position of the firm increases from before. The
preparation of the consolidated financial report of the firm is done in accordance with AASBs
(Australian Accounting Standards Board 2015). The estimation and the underlying
assumptions amount of the firm are reviewed on an ongoing basis. The judgments and the
estimates made by the management in the application of the AASB have a significant impact
in the consolidated balance sheet of the firm and the estimates with a significant risk of
material adjustment in the financial years of the firm (Weil, Schipper and Francis, 2013).
Answer to question 4:
Recommendation:
The firm can provide the audit guidance of the PPE of the firm. The revised
accounting standards should be considered by the firm while preparing the financial
statements of the firm (Rahman, 2013). The firm have shown the disclosures properly
however, the firm can disclose the restriction on the title and items pledged as security for
liabilities, the contractual commitments for the acquisition of the plant, property and
equipment of the firm (Buculescu and Velicescu, 2014). The relevant compensation from the
third parties for the items of the PPE that were impaired and included in the profit and loss
statement of the firm. These are the relevant improvement in the accounting estimates and the
policies in PPE that can be followed by the firm.
Conclusion
It can be concluded from the above discussions that, this completed report is
providing a brief idea about the AASB 16 plant, property and equipment. The application of
AASB on Caltex limited and the probable impacts on overall financial statements. In the first
part of this report is providing the basic idea about accounting policies and the effects of

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specific changes in polices. Next to this report is presenting the annual report of the firm for
the year 2018. The accounting estimates and the policies applied by the firm in the plant,
property and the equipment have been analysed. The accounting policies implemented by the
firm are all appropriate according to the Australian accounting standard. The actions for
better improvement of the accounting estimates and policies in PPE of the firm have also
been recommended in the report.

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References:
Australian Accounting Standards Board 2015. Property, Plant and Equipment. [ebook]
Australia: Australian Accounting Standards Board, p.22. Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB116_08-15_COMPoct15_01-18.pdf
[Accessed 30 Sep. 2019].
Buculescu, M.M. and Velicescu, B.N., 2014. An analysis of the convergence level of tangible
assets (PPE) according to Romanian national accounting regulation and IFRS for
SMEs. Accounting and Management Information Systems, 13(4), pp.774-799.
Caltex 2018. 2018 Annual Report | Caltex Australia. [online] Caltex. Available at:
https://www.caltex.com.au/annual-report-2018 [Accessed 30 Sep. 2019].
Davern, M., Gyles, N., Potter, B. and Yang, V., 2019. Implementing AASB 15 revenue from
contracts with customers: the preparer perspective. Accounting Research Journal, (just-
accepted), pp.00-00.
Juárez, F.E.R.N.A.N.D.O., 2016. The Dual Aspect of Accounting Transaction and the Assets
Claims on Assets Equivalence. International Journal of Economics and Management
Systems, 1, pp.39-43.
Laing, G. and Perrin, R.W., 2014. Deconstructing an accounting paradigm shift: AASB 116
non-current asset measurement models. International Journal of Critical Accounting, 6(5/6),
pp.509-519.
Rahman, A.R., 2013. The Australian Accounting Standards Review Board (RLE
Accounting): The Establishment of its Participative Review Process. Routledge.
Standard, I.A., 2015. Presentation of Financial Statements. Balance Sheet, 54, p.80A.

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Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.
Yao, D.F.T., Percy, M. and Hu, F., 2015. Fair value accounting for non-current assets and
audit fees: Evidence from Australian companies. Journal of Contemporary Accounting &
Economics, 11(1), pp.31-45.

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Appendix: