Critical Use of Accounting Information: TPG Telecom Limited Analysis

This report provides a critical analysis of accounting information, focusing on the financial performance of TPG Telecom Limited. It begins by examining the use of Return on Assets (ROA) as a key performance indicator, explaining its calculation and significance in evaluating an organization's efficiency in generating wealth from its assets. The report then delves into a detailed review of TPG Telecom Limited's financial data from 2014 to 2016, highlighting trends in ROA and identifying crucial asset categories such as property, plant, and equipment, along with deferred tax assets and liabilities that require close attention. Furthermore, it explores key income statement items, including segment reporting and other income, providing insights into how these components impact the company's overall financial position. The report also discusses the accounting policies and methods used by TPG Telecom Limited, including the valuation of property, plant, and equipment, and the treatment of staff benefits and goodwill impairment. Through this comprehensive analysis, the report offers a thorough understanding of the critical role accounting information plays in assessing the financial health and operational effectiveness of TPG Telecom Limited.

Running head: CRITICAL USE OF ACCOUNTING INFORMATION
Critical Use of Accounting Information
Name of the Student:
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1CRITICAL USE OF ACCOUNTING INFORMATION
Table of Contents
Use of return on assets (ROA) for the resources of an organisation used to generate wealth
and two categories of assets and income statement items needing closer inspection:...............2
Relevant financial information for three years for TPG Telecom Limited:...............................3
Organisational choice of respective accounting policies and methods of making pertinent
estimates:....................................................................................................................................7
References:.................................................................................................................................9

2CRITICAL USE OF ACCOUNTING INFORMATION
Use of return on assets (ROA) for the resources of an organisation used to generate
wealth and two categories of assets and income statement items needing closer
inspection:
Return on assets (ROA) is an indicator of how profitable the organisation in relation
to its total assets. Thus, it provides an idea as to how effective management is at utilising its
assets in generating earnings. This is computed by dividing an organisation’s yearly earnings
by its overall assets, it is displayed as a percentage (Adenike & Michael, 2016). This is often
referred to as return on investment. Some investors include interest expense back into net
income at the time of performing this computation, as they would like to use operating
returns before the overall borrowing cost.
This measure helps in generating the earnings from invested capital (assets). In this
context, Demski (2013) stated that this measure for public organisations could vary
substantially and it would be highly reliant on the industry. This is the reason of utilising
ROA as a comparative measure; it is effective to contrast the same against the previous
numbers of ROA or the ROA of an identical organisation.
In this case, the organisation selected to fit the purpose of this assignment is TPG
Telecom Limited, which is one of the popular telecommunications service providers in
Australia. It has been observed that the assets of an organisation are comprised of both debt
and equity and both of these financing types are used to fund the operations of the
organisation (Hoque, Covaleski & Gooneratne, 2015). Thus, the ROA figure would provide
the investors of TPG Telecom Limited with an idea of the effectiveness of the organisation in
converting its money needed to invest in net income.

3CRITICAL USE OF ACCOUNTING INFORMATION
The greater the ROA, the better it is for the organisation, as it is generating additional
money on lower investment. For instance, it is assumed that an organisation has a net income
of $1 million and the overall asset base is $5 million, its ROA is 20%. However, if another
organisation has the same amount of net income with total asset base of $10 million, its ROA
is 10%. Thus, ROA is an important measure for TPG Telecom Limited in order to generate
wealth at lower investments.
Particulars 2014 2015 2016
Net income 172 224 380
Total assets 1509 1654 3771
Return on assets 11.40% 13.54% 10.08%
According to the above table, it could be found out even though there is an increase in
overall return on assets from 2014 to 2015; it has declined sharply in 2016. This is because of
the inability of the organisation to utilise its assets in an effective fashion.
The two asset categories that require closer attention include property, plant and
equipment and deferred tax assets and liabilities, while the two income statement items
include segment reporting and other income.
Relevant financial information for three years for TPG Telecom Limited:
Segment reporting:

4CRITICAL USE OF ACCOUNTING INFORMATION
Table 1: Segmental reporting of TPG Telecom Limited for the years 2016 and 2015
(Source: Asx.com.au 2017)
According to the above table, it could be seen that the organisation has made all the
relevant disclosures in its segment of geographic reporting for each type of TPG consumer
and TPG Corporate. In this case, all the revenues from Australia are obtained from the
Australian-based organisations except for $15.3 million obtained from the overseas
customers. In addition, all the non-current assets of the group are situated in Australia, except
for assets amounting to $124.4 million, which are situated either cross-borders or
international markets.

5CRITICAL USE OF ACCOUNTING INFORMATION
Deferred tax assets and liabilities:
Table 2: Deferred tax assets and liabilities of TPG Telecom Limited for the years 2016
and 2015
(Source: Asx.com.au 2017)
Based on the above table, it could be stated that the deferred tax liabilities are
recognised both in income statement and in equity. However, the deferred tax assets are not
recognised in equity.
Other income:
Table 3: Other income of TPG Telecom Limited for the years 2016 and 2015

6CRITICAL USE OF ACCOUNTING INFORMATION
(Source: Asx.com.au 2017)
The above table clearly denotes that the organisation has classified the other items
clearly in its disclosures. It has been found that the items include profit on past hold interest
in iiNet, gain on sale of investments and dividend income (Meutia & Putra, 2017). The
respective amounts of each of these items have been disclosed in the annual report.
Property, plant and equipment:
Table 4: Property, plant and equipment of TPG Telecom Limited for the years 2016
and 2015

7CRITICAL USE OF ACCOUNTING INFORMATION
(Source: Asx.com.au 2017)
Organisational choice of respective accounting policies and methods of making
pertinent estimates:
The property, plant and equipment of the organisation are depicted at cost less
accumulated depreciation and losses related to impairment (Pan & Seow, 2016). This cost
takes into account the expense directly attributable to the overall asset acquisition. The cost
of self-constructed assets takes into account the overall material cost, initial estimate, direct
labour and the initial estimates. In case of acquisition related to a subsidiary, the contracts
with customers and associations of the acquired subsidiary are valued at the anticipated future
economic benefits depending on the projections of discounted cash flows and this is needed
to be brought into account in the form of intangible assets (Simkin et al. 2014).
The considerable expenses on capitalised intangible assets is capitalised only at the
time the future economic benefits are increased, which are embodied in the particular assets
they relate. The other expenses are expensed at the time of occurrence (Wijaya et al. 2015).
In order to carry out the testing of impairment, goodwill is apportioned to the cash generating
units of the organisation. It has been observed that TPG Telecom Limited has two groups of
cash generating units, which include the corporate and consumer cash generating units.
The liabilities pertaining to staff benefits are expected to be cleared within a year of
the reporting date depict current obligations arising from staff services provided up to the
date of reporting. These are computed at the undiscounted amounts depending on the wage of
remuneration and rates of salary. This is the situation, in which the organisation is projected
to incur as the date of reporting incorporating associated on-costs like insurance of workers’
compensation and payroll tax. The obligation associated with non-current staff benefits is
computed with the help of anticipated future increase in the rates of salaries and wages

8CRITICAL USE OF ACCOUNTING INFORMATION
including associated on-costs and anticipated dates of settlement. This is discounted with the
help of rates associated with the corporate bonds at the date of the balance sheet having dates
of maturity approximating to the obligation terms of the organisation.

9CRITICAL USE OF ACCOUNTING INFORMATION
References:
Adenike, A. T., & Michael, A. A. (2016). Effect of Accounting Information System Adoption
on Accounting Activities in Manufacturing Industries in Nigeria.
Asx.com.au. (2017). Retrieved 15 September 2017, from
http://www.asx.com.au/asxpdf/20161020/pdf/43c4ntvj1x9f81.pdf
Demski, J. (2013). Managerial uses of accounting information. Springer Science & Business
Media.
Hoque, Z., Covaleski, M. A., & Gooneratne, T. N. (2015). A response to “theoretical
triangulation and pluralism in accounting research: a critical realist
critique”. Accounting, Auditing & Accountability Journal, 28(7), 1151-1159.
Meutia, I., & Putra, B. C. (2017). Narrative Accounting Practices in Indonesia
Companies. Binus Business Review, 8(1), 77-83.
Pan, G., & Seow, P. S. (2016). Preparing accounting graduates for digital revolution: A
critical review of information technology competencies and skills
development. Journal of Education for Business, 91(3), 166-175.
Simkin, M. G., Norman, C. S., & Rose, J. M. (2014). Core concepts of accounting
information systems. John Wiley & Sons.
Wijaya, R.E., Ludigdo, U., Baridwan, Z. and Prihatiningtias, Y.W., 2015. Paradigm Blurred:
Opera Cake in Management Accounting Information Research. Procedia-Social and
Behavioral Sciences, 211, pp.859-865.