Analysis of Accounting Items for Telstra Corporation Limited

Question: Discuss about theAnalysis of Accounting Items for Telstra Corporation Limited. Answer: Introduction The accounting system of the company plays a very important role in the proper functioning of the company. For the purpose of the report Telstra Corporation Limited has been selected. To start with the study two accounting items Property plant and equipment and Intangibles has been selected from the annual report of the company. The accounting policies relating to these accounting items have been detailed along with the importance that both the items have on the financial position and financial performance of the company. After that the social impacts of these items have been discussed and the overall view of the company has been summarized from emphatic view. At the end the study is then concluded with the recommendations Accounting Items For the purpose of the study, two accounting items have been selected from the annual report of the company for the year endingn30th of June 2016. These are as follows: Property Plant and Equipment The company in the annual report has recorded the amount of $ 20581 million as the book value of the Property plant and equipment. As per Note number 3.1.2 of the annual report of the company Property plant and Equipment is recorded at the cost of purchase less the amount of the depreciation that has been accumulated over the years including the current year depreciation and the impairment loss if any (Company Official Website, 2016). Cost is identified as the cost of acquisition including the costs which can be directly allocated to the asset. The additions in the assets also include the borrowing costs which can be directly attributable to these assets (Assets, 2008). Intangibles The company has recorded the intangibles at the book value of $9229 million as on 30th of June 2016. As per Note number 3.2.2 of the annual report of the company Goodwill is recognized at cost on every business combination that the company made during the year. The cost is equivalent to the excess amount paid for acquisition of the business on the fair value of the assets of the company. The goodwill is not amortized but is tested for the loss of impairment at the end of every annual year or other frequent intervals. Other intangible assets which are internally generated like new Information technology software, etc are capitalized if the content of the costs includes the development costs. For instance, direct expense of the material involved, salary of the employees which can be directly associated with the asset so being developed and the interest cost comprising of loan if any taken. Specific disclosure has been made that any of the research expenditure if incurred shall be char ged to the statement of Profit and Loss Account. Other intangible assets like patents, etc. are valued at the cost which can be either will be the part of the business arrangement or the part of the individual acquisition. Importance and Impact Importance of Items These items have very important place in the financial statements of the company. Both the items represent the part of the net worth of the company. The higher the value of the property plant and equipment, the more will be the net worth of the company and which in turn will help in increasing the share price of the company. On the other hand the intangible shows the technologies that the company have and how much goodwill the company has been able to generate while engaging in the same line of the business. If these items are not present in the financial statement majorly property plant and equipment then no investor will decide to invest in the company (Steenkamp, and Kashyap, 2010). Impact On Financial Position And Financial Performance Both the items can give the material effect in the financial position and the financial performance of the company. Financial position is exhibited by the balance sheet of the company and financial performance of the company is depicted by the statement of the profit and loss. Following impact has been observed: Property Plant and Equipment This item gives the material effect in determining the financial position of the company in the sense that the if the value of the same is underestimated then the value of the company and the shareholder wealth will be decreased and in case it is overstated then not only the shareholders wealth will be increased but also the eyes of law will be affixed on the working of the company. Many collapses have been encountered due to wrong valuation of the assets (Abdul-Shukor, 2008). Intangible assets - If this item is undervalued then there will be wave in the market that the reputation of the company has been eroded and which in turn will hamper the financial position and the financial performance of the company (Barth, 2008). Social Impact The major social impact that has been observed in the positive sense is that the readers and the users of the financial statements of the company will have more insights of the working of the company and its adherence to social and environmental protection related laws and the compliance with the accounting standards and the governing law (Goodwin, 2006). Reflections Being the shareholder of the company, the company is performing well and has disclosed all the relevant information and the explanation that is required by the accounting standards and the relevant provisions of the corporations act, 2001. As the company has reported the earnings per share as 31.6 cents and the company has the growth in future therefore the company is the strong performer. Conclusion The Accounting items have been flowed throughout the report detailing their accounting treatment as per the policies listed in the annual, importance, impact on the position and performance of the company in the financial terms and impact on the society. The observations from the annual report have been given. In order to conclude, the report has specified that each accounting item have its own importance and shall be treated and dealt accordingly. References Abdul-Shukor, Z., 2008. The value relevance of intangibles non-current assets in different economic conditions.International Review of Business Research Papers,4(2), pp.316-337. Assets, I., 2008. Non-Current Assets.Group,30, p.2007. Barth, M.E. 2008. Revalued financial, tangible, and intangible assets: Associations with share prices and non-market-based value estimates.Journal of Accounting Research,36, pp.199-233. Company Official Website, (2016), Annual Report 2016, available at https://www.telstra.com.au accessed on 14/09/2017. Goodwin, J., 2006. Factors affecting the audit of revalued non?current assets: Initial public offerings and source reliability.Accounting Finance,36(2), pp.151-170. Steenkamp, N. and Kashyap, V., 2010. Importance and contribution of intangible assets: SME managers' perceptions.Journal of Intellectual Capital,11(3), pp.368-390.