Premier Investments Limited: Accounting Treatment and ASIC Concerns

This report examines the accounting treatment of Premier Investments Limited, specifically focusing on the impairment of brand name assets. The analysis begins with the identification of the questioned accounting treatment, which involves a $30 million write-down of casual wear brand assets. The report then delves into the basis of this accounting treatment, detailing the company's policies, judgments, and assumptions used in determining the impairment amount. It highlights the use of indefinite useful lives for brand names, annual impairment tests, and the value-in-use model. The report also addresses the concerns raised by the Australian Securities and Investments Commission (ASIC), particularly regarding the rationality and supportability of assumptions used in determining royalty rates and sales growth forecasts. The ASIC's concerns stem from doubts about the valuation of assets and the selection of appropriate accounting policies, especially in light of industry changes and increased market competition.

Running head: COMPANY ACCOUNTING
Company Accounting
Name of the Student
Name of the University
Author’s Note

1COMPANY ACCOUNTING
Table of Contents
Requirement 1..................................................................................................................................2
Identification of Questioned Accounting Treatment...................................................................2
Requirement 2..................................................................................................................................3
Examination of Basis of Accounting Treatment.........................................................................3
Basis of Concern Raised by ASIC...............................................................................................3
References........................................................................................................................................5

2COMPANY ACCOUNTING
Requirement 1
Identification of Questioned Accounting Treatment
It can be seen from the 2018 Annual Report of Premier Investments Limited (Premier)
that the company has written down its casual wear brand names assets by $30 million. The
company has undertaken certain accounting treatments for the above impairment of brands.
Acceding to the 2018 Annual Report of Premier, the value of their brands on 30 July 2017 was
$376,179 and the company has charged impairment of $30,000 on these brand names. After
deducting the impairment from the initial amount, the net carrying amount of brand names is
$346,179 (premierinvestments.com.au 2019). It needs to be mentioned that the company has
applied certain accounting policies for the determination of the impairment amount on brand
names.
The brand names of Premier have indefinite useful lives and these brand names are not
subject of amortization or revaluation. These brand names are acquired and they are tested for
impairment on annual basis for the indicators of impairment (Huian 2013). It is crucial to
mention the fact that Premier has three brand names; they are casual wear, women’s wear and
non apparel. The 2018 Annual Report has stated that Premier has applied certain average growth
rates applied to projected cash flows; they are 2% to 2.5% for casual wear, 1.5% to 3.5% for
women’s wear and 3% for non apparel. The used terminal value growth rate is same for three
brands which is 3%. In addition, Premier has used the value-in-use model for the determination
of recoverable value of these assets (premierinvestments.com.au 2019). It needs to be mentioned
that the above-discussed whole accounting treatment raises a big question in the determination of
impairment of $30 million for brand names.

3COMPANY ACCOUNTING
Requirement 2
Examination of Basis of Accounting Treatment
It can be seen from the 2017 Annual Report of Premier that the company conducted the
accounting treatment of impairment of brand names on the basis of certain accounting policies,
judgments and assumptions. As per the 2017 Annual Report, these brand names are acquired on
separate basis and they are initially measure on the fair value basis. Management of Premier
assessed these brand names on the basis of identified useful lives because of reflecting the
intention of management to continue operate these for generating net cash inflows into the
foreseeable future (premierinvestments.com.au 2019). The management of Premier considers the
occurrence of impairment of these brand names on the basis of when the carrying amount of
these brand names exceeds their recoverable values. The company determines the recoverable
amount of the brand names acquired in business combination on individual basis on the basis of
value-of-use calculation. Relief from royalty method was used for determining the value-in-use
calculation while using cash flow projections as at July 2017 for a period of five years plus a
terminal value (Amiraslani, Iatridis and Pope 2013). The management of Premier used 8.7% as
the post-tax discount rate applied to the cash flow projections. Certain factors like brand
profitability, market share, general condition of the industry and brand recognition were
considered for the determination of appropriate royalty rate for each brand. These are the main
basis on which accounting treatments for brand were conducted.
Basis of Concern Raised by ASIC
The investigation of ASIC has taken into consideration the decision of the management
of Premier for writing down the value of their casual wear brand name asset by $30 million in
the financial statement for the year ended 28th July 2018 (asic.gov.au 2019). The main basis for

4COMPANY ACCOUNTING
the concern of ASIC was the values of these brand names in the financial reports of Premier for
the year ended 29th July 2017. According to ASIC, there were certain doubts in the rationality
and supportability of the assumptions used by Premier for the determination of royalty rates and
forecast of sales growth used for to test the asset impairment (asic.gov.au 2019). According to
ASIC, the company has considered increased competitive retail market along with the structural
changes in the industry that has impact on the apparel industry of both Australia and New
Zealand. In this context, it needs to be mentioned that the main concern of ASIC behind
conducting this surveillance program is the impairment of non-financial assets along with the
wrong accounting treatment (asic.gov.au 2019). According to the ASIC, the directors and
auditors of certain companies are not providing adequate focus on the values of assets and
appropriate selection of accounting policies for the preparation of financial statements
(asic.gov.au 2019). These are the concerns raised by the ASIC.

5COMPANY ACCOUNTING
References
Amiraslani, H., Iatridis, G.E. and Pope, P.F., 2013. Accounting for asset impairment: a test for
IFRS compliance across Europe. Centre for Financial Analysis and Reporting Research
(CeFARR).
Asic.gov.au. 2019. 18-310MR Premier Investments writes down brand name assets | ASIC -
Australian Securities and Investments Commission . [online] Available at:
https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-releases/18-310mr-
premier-investments-writes-down-brand-name-assets/ [Accessed 4 May 2019].
Asic.gov.au. 2019. 19-014MR Findings from 30 June 2018 financial reports | ASIC - Australian
Securities and Investments Commission . [online] Available at:
https://asic.gov.au/about-asic/news-centre/find-a-media-release/2019-releases/19-014mr-
findings-from-30-june-2018-financial-reports/ [Accessed 4 May 2019].
HUIAN, M.C., 2013. Stakeholders’ participation in the development of the new accounting rules
regarding the impairment of financial assets. Business Management Dynamics, 2(9), p.23.
Premierinvestments.com.au. 2019. Annual Report 2017. [online] Available at:
https://www.premierinvestments.com.au/wp-content/uploads/2017/10/Premier-Investments-Ltd-
Annual-Report-29.07.17.pdf [Accessed 4 May 2019].
Premierinvestments.com.au. 2019. Annual Report 2018. [online] Available at:
https://www.premierinvestments.com.au/wp-content/uploads/2018/10/2018-Annual-Report-to-
Shareholders.pdf [Accessed 4 May 2019].