Financial Accounting Analysis of Telstra Group - ACC 201 Report

This financial accounting report provides an analysis of Telstra Group, focusing on key aspects of their financial statements. It begins with an examination of expense classification, determining whether expenses are classified by nature or function and providing reasons for the chosen methods. The report then delves into the company's accounting policies, including key estimates, judgements, and any changes in policies, particularly concerning AASB standards. Finally, it analyzes the notes to the 2016 financial statements, with a focus on depreciation methods, the cost of plant, property, and equipment, depreciable amounts, depreciation periods, and the approach to asset revaluation and impairment. The report concludes that Telstra Group applies concurrent and adequate accounting policies, resulting in a true and fair view of the company's financial position and performance.

ACC 201 – Financial Accounting
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Contents
Introduction:....................................................................................................................................3
Task 1: Analysis of expenses.......................................................................................................4
Task 2: Accounting policy...........................................................................................................7
Task 3: Notes to the 2016 financial statements............................................................................9
Conclusion:....................................................................................................................................14
References:....................................................................................................................................15
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Introduction:
The financial accounting report has been prepared in order to help the users in understanding the
different concepts and issues related with financial accounting in an enterprise. For the purpose
of this report a company has been chosen whose name is Telstra. Telstra has been a leading
telecommunication and technology company which has a worldwide business environment. The
market price of the share of company is currently trading at adequate rates. The report will
include analysis of various expense reported in the income statement of the enterprise and the
different method of classification for these expenses. The report will also include a description
about the various issues related with accounting estimates and policies s reported in the annual
report 2016. Also there will be information about various aspects covered in notes to accounts of
the company which will be evaluated appropriately in this report.
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Task 1: Analysis of expenses
a. Determine whether the expenses are classified by nature of function.
The cost classification for the preparation of income statement can be done in different ways
depending on the nature or the purpose of expense classification. The different types of costs are
classified according to logical groupings. The groups are created in accordance with the easy
classification of each and every cost.
By referring to the annual report for the year ending 2016 for Telstra Group it can be established
that the company ash recognized and classified all its expense except finance cost based on
nature of expenses (Scott, 2015). The reason associated with adopting this classification method
is that the method assist in classifying more accurately the type of cost and it reflects the type of
operations that the company undertakes during the accounting year.
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(Source: Telstra, 2016)
As pet the notes to accounts reallocated to expenses there are various natures in which the cost
has been recognize by the management of company. The first classification of cost is associated
with recognizing the labour expenses of company which includes the item such as employee
redundancy, defined contribution plan expenses, shared based payment expenses and defined
benefit plan expense. Also included in its materials consumed is the cost of goods sold which ahs
amounted to $3204 million in the year 2016. Further the cost has been recognized on the basis of
finance cost and depreciation and amortization which include the depreciation expense
associated with property, plant and equipment and amortization of intangible assets (Hoyle, et.
al., 2015). Also there have been other expenses recognized in the income statement of company
related with impairment losses, various rental expenses, service contracts and other agreements,
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the expenses associated with advertisement and promotions, general and administration expenses
and other operating expense related with company.
b. Give some possible reasons for the different methods of classification used.
There are two methods of classifying the expenses in the income statement of company and the
reasons associated with adopting these methods are presented below:
Nature of expenses – The classification by nature is related with identifying and presenting the
cost on the basis of material, labour and other expenses. The reason behind using this type of
classification is that it is very easy and simple to apply in any of the business and there is no need
of allocation of expenses into functional classification which reduces the complexities of tasks to
be performed by the management (Henderson, et. al., 2015). The classification of expenses by
nature can be an easy task depending on the complexities involved in recognizing the nature of
expenses. The classification of expenditure by nature will allow the management to concentrate
on each and every aspect of the cost related with production activities and the quality control
check and cost control procedures can be applied accordingly.
Functions/ Activities – The expenditures or cost incurred in a company can also be classified
based on various activities or functions. The common function al classifications which can be
performed are segregated into following:
 Production function
 Administration function
 Finance
 Selling
 Distribution
 Research and development
 Quality checking function etc.
The reason behind using this classification method is related with the fact that it allows the
management to calculate and present the gross profit which is not possible in the case of
classification by nature (Hoyle, et. al., 2015). It involves the preparation of multistep format
income statement in which functional classification is shown separately for each and every item.
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The classification of each and every activity on the basis of function will allow the management
to take control of the activities and prepare an appropriate data related to those activities.
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Task 2: Accounting policy
There is certain type of information provided regarding the accounting policies adopted by the
company in the preparation of their financial statements. There have been some issues explained
in the annual report which are described as under:
Key accounting estimates and judgements – The annual report contain the information about
the financial report which states that the financial statements has been prepared with the adopting
of historical cost except for some of the categories associated with financial instruments which
are recorded and presented at fair values (Henderson, et. al., 2015). The key accounting estimates
and judgements have been applied in areas like average estimated customer life, estimation of
provision of income tax, unrecognized deferred tax assets of the company, recognizing the useful
lives and residual value of the tangible assets of company, determination of cash generating unit
for the company and estimating the recoverable value for the same, capitalization associated with
the development costs, determination of fair value of intangible assets and recognizing the
estimated useful life of the asset and other areas also. The accounting policies have been applied
consistently and adequately in order to ensure that the financial statement have been prepared in
order to present a true and fair view of the organisation performance and position.
Changes in accounting policies – The group as adopted the AASB 2015-3: ‘Amendments to
Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality’
effective from 1 July 2015. However the changes or amendments in regard with this type of
policy have not affected the financial results of company for the concerned year. There have
been no significant changes associated with the changes in the accounting policy of company.
Also the changes on accounting policy are made in such a way that they are consistent with the
past records and policies. The adoption of new accounting policy does not bring any error in the
financial statements (Henderson, et. al., 2015). The accounting policies and standards applied in
the company are in accordance with the AASB and international financial reporting standards.
The name allows the company to prepare a true and fair report.
Other accounting policies – The new leasing standard will apply to Telstra form 1 July 2019 the
Company has been assessing the impact of new leasing standard on the financial results of
company. However the errors concerned with the financial statement and policies are the
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responsibility of the management and the errors committed in the preparation shall be recognized
and corrected appropriately during the financial year.
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Task 3: Notes to the 2016 financial statements
Depreciation:
Depreciation refers to the diminution in the value of the asset in a systematic way due to use,
wear and tear and obsolescence over the; life of asset. The determination of depreciation for the
tangible and intangible assets of company is a subject of management (Beatty & Liao, 2014).
There are various methods of calculating the depreciation for the asset which includes straight
line value depreciation method and written down value depreciation method.
Cost of plant, properties and equipments – The notes to accounts numbered 3.1 provides the
information about cost of property, plant and equipment of the company and the written down
value associated with the concerned year 2016.
The cost of the asset includes the purchase price of the asset and each and every type of the cost
that is attributable for bringing the asset to the location and condition necessary for its intended
use in the future years (Wang, 2014). The company capitalizes the borrowing costs which are
directly related with the acquisition, construction or production of a qualifying asset.
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(Source: Telstra, 2016)
The cost of property, plant and equipment is considered to be the historical cost of acquiring the
tangible assets and bringing them to their location along with the cost incurred for making them
workable. The value of assets has been depreciated with the accumulated depreciation provided
by the company during the useful years (Wang, 2014). The information related to cost associate
with property, plant and equipment and the net book value for the concerned year is presented
above. The cost associated with each and every item of properly, plant and equipment is
presented below:
Asset Cost ($ millions)
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Land and site improvements 52
Buildings 1267
Communication assets 62156
Others 1854
Depreciable amount – The depreciable amount refers to the depreciation amount charged for
the tangible assets of company during the year and it represents the accumulated depreciation till
the year end (Warren & Jones, 2018). The depreciation amount has been calculated after
considering the written down value of the asset and charging a suitable depreciation rate for the
written down value.
Asset Depreciation ($ million)
Land and site improvements Nil
Buildings 89
Communication assets 2710
Others 158
Depreciation period – The management of the company applies careful judgement in estimating
the useful life and residual values of the assets and there is a policy of reviewing them
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consistently. The useful life of the assets as represented in the property, plant and equipment are
presented below:
Asset Useful life (Years) 2016
Buildings 4 – 48
Communication assets 2 – 57
Others 4 - 20
Depreciation method – The different items and assets of property, plant and equipment
including leasehold properties and buildings but except the freehold land are depreciated at
straight line basis for the purpose of recognizing depreciation in the income statement of
company over the estimated useful life of the asset (Warren & Jones, 2018). The company starts
charging depreciation at straight line value depreciation method when the asset is installed and
ready for use.
Revaluation – The revaluation of the asset is concerned with reviewing the recoverable amount
and carrying amount of the asset as represented in the financial statement of company. The assets
are revalued after adopting a suitable accounting policy.
Impairment – It can be established that all the noncurrent tangible assets are monitored and
reviewed for impairment when the events or changes associated with the circumstances indicates
that there is a reduction in the carrying amount of the asset which is not recoverable. In order to
conduct the impairment assessment the management recognizes the cash generating unit for the
company (Beatty & Liao, 2014). The recoverable amount of eth cash generating unit is
recognized to be the higher of the fair value less cost of disposal or the value in use which is
obtained after considering the future cash flows. The impairment losses associated with the type
of tangible asset for the year 2016 is presented below:
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Asset Depreciation ($ millions)
Communication assets 11
Others 2
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Conclusion:
The above report concludes that the financial accounting task in an enterprise can be conducted
after reviewing all the accounting policies concerned with the preparation and presentation of the
accounting records of company. The company Telstra Group has been applying concurrent and
adequate accounting policies which have resulted in true and fair view of the company position
and performance during the period. Also there has been classification of expenses based on
nature of expense incurred in the company during the year which seems to be suitable for the
company as it helps in reducing the complexities. The depreciation has been calculated after
recognizing and adopting a suitable policy of revaluing the asset and the impairment charges
have been calculated regularly and consistently. The application of all these policies ensures that
true and fair view has been presented by the management.
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References:
 Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of
the empirical literature. Journal of Accounting and Economics, 58(2-3), pp.339-383.
 Christine, D. and Martiano, F., 2015. Review Of The Revenue Recognition In
Accordance With Statement Of Financial Accounting Standard (PSAK) No. 23/2010 At
Damri Corporation. International Journal of Scientific & Technology Research, 4(8),
pp.373-379.
 Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial
accounting. Pearson Higher Education AU.
 Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
 Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting:
Vision, Tool, Or Threat?. Routledge.
 Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
 Telstra, 2016, Telstra Annual Report 2016, Available at:
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf-e/FY16-Annual-
Report.pdf, [Accessed on: 21/05/2018]
 Wang, C., 2014. Accounting standards harmonization and financial statement
comparability: Evidence from transnational information transfer. Journal of Accounting
Research, 52(4), pp.955-992.
 Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
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