Macquarie Business School ACCG923: PPE Accounting Report Analysis

This report provides a comprehensive analysis of the accounting treatment of Property, Plant, and Equipment (PPE), focusing on the application of professional judgement in financial reporting. The report examines the use of accounting estimates and the application of AASB 116, using the annual report of ALTIUM LTD as a case study. It evaluates the initial and subsequent recognition of PPE, including the cost model, depreciation methods (SLM), and impairment considerations. The analysis also compares ALTIUM LTD's practices with those of its competitor, Class ltd, highlighting the reasonableness of the accounting choices. The report discusses the importance of qualitative characteristics in financial information and the potential use of alternative accounting methods, such as the revaluation model and diminishing depreciation methods. The conclusion emphasizes the significance of proper accounting estimates and judgements in presenting accurate financial statements, and the importance of adhering to accounting standards.

ACCG923

Executive Summary
In this paper, research has been done relating to different judgement applied by the
professionals of the entity. The accounting treatment of PPE has been examined and
evaluated. The necessary disclosures of PPE by the entity in the notes to accounts have also
been considered while reporting. Different models for the subsequent and initial recognition
of leased as well as other depreciating assets have been evaluated. The effect of changes in
the accounting policy and estimates have also been considered.

Table of Contents
Executive Summary...................................................................................................................2
Introduction................................................................................................................................4
Findings and Analysis................................................................................................................4
Conclusion..................................................................................................................................7
References..................................................................................................................................8

Introduction
In this assignment, different accounting estimates and accounting judgment have been taken
to measures the company PPE. The annual report of ALTIUM LTD has been critically
analysed to identify the measurement criteria and the accounting treatment relating to PPE
(Anon, 2019). Proper evaluation has been done to measure the reasonableness of the
judgement used by the accountant. The qualitative characteristics of the have been examined
in detail to evaluate the disclosures and accounting policies disclosed by the entity.
Findings and Analysis
a) After analysing 2019, annual report of Altium LTD it has been found that the
company has applied the Accounting standard of AASB 116 which is related to
property, plant, and equipment to measure the PPE. The professional judgement
which the company uses to initially record property, equipment, and plant of the
entity is cost model. The Cost model states that the company should initially
recognize PPE at cost. The assets which have been received at the time of business
combinations has also been added in the cost of assets. The amount of goodwill has
been allocated to the units which are cash generating. The total non-current assets has
been increased from the previous year by 2050000 dollars. in 2018, the non-current
assets were 5172000 dollars. The management of ALTIUM LTD after giving
recognizing the PPE as asset recorded them at cost minus depreciation minus
impairment amount. The depreciation which is deducted should be accumulated
depreciation. The management has included only those costs which are directly
related to the purchase of assets and which can be easily identified by the entity. The
other estimates which have been applied by the entity are that the entity has included
in the subsequent cost only those items which will provide economic profits to the
entity in the future. Costs that are related to the maintenance and repairs of the assets

are transferred to the P/L account and are written off according to their useful life.
The entity recorded the assets as separate assets. The company uses the SLM method
to depreciate its equipment and plant. The leaseholds assets of the organization are
amortised and they are amortised by using the useful life of the leased assets. The
assets which are classified under finance lease are depreciated by considering the
lease term or the useful life whichever is lower. The useful lives which have been
considered by ALTIUM ltd for its assets are:
Assets years
Plant and equipment 7
Leasehold assets 3 to 7
Hardware of Computers 2 to 3
Equipment (Office) 3-5
The other policies that have been used are that the residual value of the assets and the useful
lives of PPE are reviewed by the management at each date of balance sheet. If the
management finds any indicators related to the amendment in the useful lives or residual
value then they are changed accordingly. The accountant also uses the standard on accounting
related to impairment of PPE. The impairment losses are computed by deducting the carrying
amount from the recoverable amount. Whenever the carrying amount exceeds the recoverable
amount then there is impairment loss. The profits and losses on the assets are transferred to
OCI or statement of P/L. The losses and gains are computed by comparing the realizable
value with the amount that has to be recognized in the balance sheet.

b) After evaluating the recognition method of PPE of ALTIUM ltd it has been seen that
all the professional judgement applied are reasonable and appropriate. The standard
which has been used to identify, record, measure, and recognize the entity assets are
as per the provision of AASB 116. Each estimates has been taken by the accountant
for the initial as well as subsequent recognition. After examining the measurement
criteria of Class ltd which is the main competitor of ALTIUM ltd it has been noticed
that the accountant of Class ltd also uses the same accounting estimates and principles
for the measurement of PPE. It has also been examined that Class ltd uses 3 to 7 years
useful life for its leased assets which is higher than Altium ltd. The provision which
has been stated in AASB express that an entity can take a higher life than the
extimated life. They have also considered the same cost model to initially record their
assets at purchase cost and also apply the impairment method for recording any
impairment gain or loss on its assets. The management of Class td also followed the
estimation rules of the standard of PPE and impairment loss. Altium ltd changes the
life of assets and also changes the scrap value of the assets when any amendment
exists. The assets which are taken on lease agreement by the entity are recorded in the
books of accounts by adhering to the rules provided in the standard of lease.
According to Rampini (2019, p-664), the leased assets should be measured at an amount
of minimum lease agreed at the time of entering into the contract between parties.
Entity has also recognized the financial lease after classifying the assets as financial
lease which is correct judgment taken by the accountant or management.
c) After analysing all the policies and disclosures followed by ALTIUM ltd it has been
clarified that all the qualitative characteristics relating to the financial information
have not been fulfilled by the entity. The company could have followed the policy of

revaluation model to revalue their assets or subsequently record its assets instead of
following cost model. They could have also followed other methods for depreciation
instead of SLM. According to Tsamis & Liapis (2017), in diminishing method, the
assets are decreased by depreciating amount on the reduced value. As stated by
Ndebugri & Tweneboah Senzu (2017), the WDV method helps the company to reflect
high amount of profit in its P/L statement. The revaluation allows the entity to
recognize or record their assets at fair value instead of recording them at cost.
Whenever they are any change in the amount after comparing the fair value of assets
with carrying then the entity should revalue PPE.
Conclusion
It has been concluded that proper accounting estimates should be used to reflect the correct
amount in financial statements. It has also been scrutinized that the company can use two
methods to record PPE in the statement of affairs. Proper judgment should be applied for the
compliance of the policies of the standard. If an entity is not sure about what judgements are
to be applied then it should prefer other accounting standards which are provided by the
Australian Accounting Board.

References
Anon, (2019). Retrieved 29 September 2019, from
https://www.altium.com/resources/investor-announcement/2019_annual_report_19
_aug_2019.pdf
Ndebugri, H., & Tweneboah Senzu, E. (2017). Analyzing the Critical Effect of Creative
Accounting Practice in the Corporate Sector of Ghana. Analyzing the Critical Effect of
Creative Accounting Practice in the Corporate Sector of Ghana (September 29, 2017).
Rampini, A. A. (2019). Financing durable assets. American Economic Review, 109(2), 664-
701.
Tsamis, A., & Liapis, K. (2017). Fair value and cost accounting, depreciation methods,
recognition and measurement for fixed assets.