Answer To: PRACTICAL AND WRITTEN ASSIGNMENT: The assignment is based on the application of accountingstandards...
Kushal answered on Apr 04 2021
Contents
Introduction 1
Company Introduction - Qantas Limited 1
Industry 1
Literature review 2
Property, Plant and Equipment 2
Depreciation, Amortization, and Impairment – 3
Trend Analysis- 4
Changes in the accounting Standards – 5
Valuation of the Fixed Assets 5
Conclusion – 6
References – 6
Introduction
We will analyze the long lived assets or the property plant and equipment or fixed assets of a firm and also analyze the intangible assets of Qantas limited. We will analyze the different accounting methods for the depreciation, valuation and impairment of this fir. We will try to also analyze the trends of these fixed assets over the years and try to tie it back to the long term strategy of the firm. We will scavenge through the annual reports of the last 10 years to understand this.
Company Introduction - Qantas Limited
Qantas Airways Limited is an Australian Airlines company operating and located in New South Wales, Australia. It has its operations worldwide and majority of its revenue come from the air transportation business. It operates internationally as well and it has almost 20 percent of the revenue coming from this front. Apart from this they have their loyalty program going on as well and they operate under another brand name called Jetstar. Domestic operation of the air transportation business generates as much as 40% of the total revenues. Qantas Airlines Limited is the largest airline in Australia. The other key players in the airlines industry include Virgin Australia, Alliance Australia and Air New Zealand.
Industry
Airline industry is very highly cyclical and highly capital intensive. We are majorly operating in the air transportation and hence, this is highly cyclical which increases the operating risk for the firm. In the airlines industry, the major costs come from the fuels and hence, we need to perform extensive hedging practices in order to make sure that any adverse price movements do not impact the core operations of the firm. The industry is currently going through very tough times due to the widespread corona virus which has made the air travel across countries as well as within country very dangerous and the firm will see the impact of this in the upcoming quarters and this is going to be material.
The barriers to entry in this industry are significantly high, limiting the number of players. Key competitors of Qantas in Australia are Trasnurban group and Brambles limited. Also, the internal competition in this industry is not significantly high. The threat of substitutes is significantly low due to the competitive advantage that airlines are giving in the form of time required for travelling. However, waterways could be the next best alternative for this. For these firms, the barriers to exit are also high due to very high investment in the fixed assets.
Literature review
While following the accounting policy of the fair value to value the long lived assets (Yao, D. F. T., Percy, M., & Hu, F. ), the increase in the audit fees is significant and this leads to the excess burden on the income statement and management, this is majorly due to the excess judgments that go into the calculations. However, while performing these valuations, (Trowell, J. (1992)) the measurement errors are significant due to market prices could be highly volatile for the assets which are currently being valued. Valuation of the leasing contracts (McConnell, J. J., & Schallheim, J. S) look into the present value of all the obligations that need to be paid out and it is pretty much straight forward and prone to less error. Revaluation of the long lived assets,(Easton, P. D., Eddey, P. H., & Harris, T. S.) is allowed in the Australia and more or less firms do stick to fair value accounting for the long lived assets. The impairment of the long lived assets (Riedl, E. J. (2004)) can be realized in the income statement and asset revaluation reserves can be used for the times when the valuation is higher than the reported cost.
Property, Plant and Equipment
The major portion of Qantas Airlines private...