Analysis of Premier Investments' Brand Asset Impairment Report

This report analyzes the financial reporting of Premier Investments Limited, addressing concerns raised by the Australian Securities and Investment Commission (ASIC) regarding the valuation and impairment of brand name assets. The report delves into Premier's response, including the $30 million write-down of casual wear brand assets due to increased volatility in the apparel industry. It examines the valuation methodology, particularly the value-in-use evaluation based on royalty collection and cash flow projections, and the determination of royalty rates considering market share, brand recognition, and profitability. The analysis highlights Premier's compliance with accounting standards and regulations, and the ongoing steps taken to improve financial reporting. The report is based on the 2018 annual report, Kieso et. al (2010) and provides a comprehensive overview of the company's approach to brand asset valuation and impairment testing. The report also mentions the role of top-level management and board members in approving cash flow projections and estimated growth rates. The report is a response to an assignment brief for summer interns at an international accounting firm.

COMPANY ACCOUNTING
2019

Premier
The Australian Securities and Investment Commission (ASIC) undertakes regularly financial
reporting surveillance program. It is an Independent Australian government body which also
words as Australia’s corporate regulator. The main objective of ASIC’ is to enforce and
execute company and its financial services to protect Australia’s consumer, investors, and
creditors. Recently ASIC raised a concern about the value of some brand name assets in
Premier’s annual report for the year ended 29 July 2017. It has specifically raised concern for
reasonableness and supportability of assumptions used for impairment of testing brand name
assets. Thus in the current year Board have given detail analysis of Brand Name valuation.
The valuation has been carried out on the basis of individual brand basis based upon a value-
in-use evaluation. The company has taken brand name acquired through business
combinations allocating to three Cash Generating Unit groups as no particular brand name is
considered as appropriate. The three cash generating units identified are Casual Wear,
Women’ Wear, and Non-Apparel (Premier Investment Ltd., 2018).
Thus value-in-use evaluation is based upon royalty collected with the method using cash flow
projections as at July 2018 for a period of 5 years plus a terminal value. The top level
management and the Board members approved the cash flow projections and estimated
growth rates.
The growth rate projection is kept the same in the current year as compared to last year of
3%. As part of the annual impairment, it was observed that the test management took into
consideration both historical cash flow projections and future growth objective (Premier
Investment Ltd., 2018). Now the big challenge is the determination of Royalty rates for
valuation. Royalty rates are determined using various factors such as market share, brand
recognition, profitability of the brand and general condition of the organisation in the industry
for each brand (Kieso et. al, 2010). Thus management has considered data derived from
market to make comparison between brands and notional royalty payments by converting
them into percentage of divisional earnings before interest and taxation.
Thus Royalty rates applied between ranges of 3.5% to 8% as compared to 3.5% to 8.5% in
2017. This change in valuation has lead to a total impairment expense of $30 million. This
loss has been caused in Casual wear CGU due to an increase in the volatility present in the
Apparel industry of New Zealand and Australia. Thus, now estimated value of assets
approximately equals to recoverable value, thus complying with valuation norms of Brand
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Premier
name assets. The Company has rounded off the values in Report to nearest thousand dollars
as specified in ASIC Corporations Instrument 2016/191, which is dated 24 March 2016.
The Company has also given disclosure regarding Cross Guarantee entered by a subsidiary
and each of its controlled entities. Premier Investments Limited is not having any need to
comply with Deed of Cross Guarantee (Premier Investment Ltd., 2018).
Thus the Company has well complied with all the regulations of the Corporations Act 2001,
Australian Accounting Standards and other financial standards of the Australian Accounting
Standards Board. The management is taking big steps to bring the fair of assets and bring the
carrying amount to recoverable amount. In the coming years, further steps are being taken to
further improve the reporting in Financial Statements.
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Premier
References
Kieso, D., Weygandt, J., Warfield, T; Young, N. & Wiecek, I . (2010). Intermediate
accounting. Toronto: John Wiley & Sons Canada.
Premier Investment Ltd. (2018) Premier Investment Ltd annual report and accounts 2018.
Available from: https://www.premierinvestments.com.au/wp-content/uploads/2018/10/2018-
Annual-Report-to-Shareholders.pdf [Accessed 7 May 2019]
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