Electronic Commerce and Social Commerce †MyAssignmenthelp.com

Question: Discuss about the Electronic Commerce and Social Commerce. Answer: Introduction: Telstra Group being the telecommunication company has the asset classes of Land and site improvements, telecommunication assets, building and other property, plant and equipment. It applies straight line method depreciation on all the asset classes over the estimated useful life of the respective assets. Depreciation is not charged on those assets which are still in construction and are not ready for use. Depreciation is also calculated on leased assets over the term of the lease as per the latest AASB 16. The below table shows the useful life being considered in the company.(Ian, 2017) As per this, building falls under the useful life class of 4-48 years, communication equipments under 2-57 years and PPE under 4-20 years. These may change depending upon the assessment of useful (Annual Report, Telstra, 2017, pp 97) life being made by the management each year based on the international standards being followed in other telecommunication companies and in caser of communication equipments, technological obsolescence is also taken into consideration. In case the life needs to be changed, the revised depreciation is taken in the books on a prospective basis from the change year till the residual life is left including the current year. The impact of this was $84 MN in 2016 as compared to $166Mn in 2015. This can have a huge bearing on the financial profits of the year as the amount is material and it is one of the management estimates being taken into consideration here.(Downes, Mervin, Byrnes, Scuffham, 2017) In case of TPG telecom limited, depreciation policy is almost the same as was in Telstra Group, here the asset classes are categorized under the category Network Infrastructure, Land and building and Leasehold improvements. Here again, depreciation is charged on the straight line basis over the period of estimated useful life of the asset. Furthermore, depreciation will be charged on both the operating and finance leased assets as per AASB 16.(Curwen Whalley, 2017) The estimated life in case of TPG is estimated to be 3-35 yrs. for Network infrastructure, 40 years straightaway for building and 8 years for Leasehold (Annual Report, TPG Telecom, 2017, pp 50) improvement. An assessment of change in depreciation policy and estimated life, if any, is visited annually. Impact on Profitability: Based on the policies of depreciation in 2 companies, we can say that there though the disclosures are more in Telstra financials but it has a huge scope of manipulation of the profits based on the estimation of useful life and revision of policy, the impact of which can be seen in the last 2 years. In case of TPG, the policy is flat, but the disclosure is not adequate as the basis on which the revision of the useful life can be done hasnt been shown. However, on the hind side the chances of manipulation in its accounts is far more less.(Bena, Ferraira, Matos, Pires, 2017) This is an extract of depreciation expense for the year 2015 and 2016 for Telstra Group. (Annual Report, Telstra, 2017, pp 97) This is an extract of depreciation expense for the year 2015 and 2016 for TPG telecom limited. (Annual Report, TPG Telecom, 2017, pp 49) Analysis and Explanation on Inventory Valuation Telstra Group is valuing the inventories as per the IFRS standard i.e., lower of the net realisable value and the cost incurred. The cost is being determined using the weighted average cost method and the net realisable value is estimated selling price less cost incurred upfront and cost incurred as selling, distribution and marketing expenses to bring the same into the saleable condition. It uses the concept of fair value less the estimated cost of disposing it. However, in case of the construction contracts the net realisable value is amount expected to be earned from its use in the future. The finished goods here comprises those goods which are saleable within one year and also the spare parts to be used in maintaining the telecommunication networks. The company also procures some strategic inventories to be used for maintenance of long lasting network assets. The construction work in progress inventory implies the differential amount for progress billing less related costs and profits thereon recognised. The standard assumption here used by the management is to arrive at the net realisable value (Annual Report, Telstra, 2017, pp 106) which they determine using the future expected selling price of the contract taking into consideration both the future and current technological developments. (Turban, Whiteside, King, Outland, 2017) In case of the TPG Telecom Ltd., inventory in the books is valued at the lower of net realisable value and the cost incurred on the same. Net realisable value here is stated as the difference between the Estimated price of selling and estimated selling price to be incurred on it in the normal ordinary course of affairs. Further, in case the company acquires any other company via business combination, inventory would be valued using the fair value method, which again is estimated selling value less estimated cost incurred in normal business course.(Boccia Leonardi, 2016) Impact on Profitability: From the disclosure perspective, again Telstra is on positive side as it has almost mentioned all the possible break up and their method of valuation. From the profitability perspective, inventory can have major impact on the assets side when technological essence is taken into consideration and estimation of inventory value is done. Profits can be declined in case inventory is impaired materially due to huge technological changes and innovations, due to which the taxes will also have a downward increase resulting in less cash flow for the organization. (Capaldi, Idowu, Schmidpeter, 2017) Telstra Group categorizes its intangibles majorly into 4 categories: Goodwill, internally generated intangibles, acquired intangibles and deferred revenue expenditure. Goodwill is generally recognised at cost in a business combination or takeover (difference of payment consideration and fair value) and is not amortised. However, the same is assessed for impairment, if any on a yearly basis or when such situation arises.(AULICH, Jones, Head, 2017) Internally generated intangibles are generally the development cost incurred during a design or testing of newly introduced IT system that has future viability and is commercially feasible and also if the company has sufficient resources to complete it. Research costs are generally charged off to PL. These have a fixed life and amortized as per straight line method. Acquired intangible assets are either value at fair value (business combination) or at cost incurred (if acquired specifically). These generally have a fixed life and amortized as per straight line, however, in case it is for indefinite period, it is considered for assessment of impairment annually. The life of acquired intangibles, the value sat which it is recorded and the capitalisation of the development costs is all subject to management estimates. (Lin, Riccardi, Wang, 2017) In Telstra, management judgement is applied to determine the amortization period but for those where it is finite, the weighted average amortization is shown in the adjoining table. In case of TPG telecom Ltd., the major categorizations are amortizable and non-amortizable which is much more clear presentation as compared to Telstra where it may change every year based on assessment. The goodwill is recognized at cost and brand is recognized using Relief from Royalty procedure. Both of these are non-amortizable over its life, however, they are subject to impairment test annually. On the other hand, acquired customer bases are valued using discounted cash flow technique for the future expected benefits derivable and are amortized over the contract period using reducing balance method. Indefeasible rights of use of capacity are either valued at fair value or the present value of cash outflows to be made. These are amortised over the IRUs life. In case any subsequent expenditure is made which increases the economic benefits to be derived, the same is added to the cost of intangible assets. All the other intangible assets are amortized over the useful life using the straight line method. (Kodua Mensah, 2017) Analysing the valuation and amortization of the intangible assets by both the companies, it clearly states that TPG has more transparent techniques of valuation and amortization as compared to Telstra where most of the things are based on the management judgement. Recommendations Both the Telstra Group and TPG Telecom Ltd. belong to the same telecommunication industry having identical business and are situated in the same geography of Australia but the reporting structure in annual reports is entirely different. In Telstra, most of the significant policies are subject to management judgements and estimates whereas in case of TPG telecom, all the policies are clearly stated and are subject to less interference by management. This calls for recommendation that Telstra should report all its crucial policies in a much more concrete way and it should be subject to lesser interference as it impacts profitability and reporting by billions. Moreover, consistency is the essence of accounting which needs to be taken care as per the increased regulations by ACCA. On the other hand, TPG telecom needs to have a more detailed reporting on depreciation and the basis on which the valuation is being done in the case of inventories. Also, it has not disclosed the bifurcation o f the inventory which the user of the financial statement (like banks and other financial institutions) may ask for while approving the loan. (Flix, 2017) Further, it was also found in case of Telstra, that the useful life of land and building asset class is also changing, which not change in case of a telecommunication should company as its life is fairly the same unless a major wreck is foreseen. (Li, Sougiannis, Wang, 2017) References AULICH, C., Jones, S., Head, B. (2017). DIVESTMENT OF COMMONWEALTH PUBLIC ENTERPRISES IN AUSTRALIA: THE CUPBOARD IS BARE. Wiley Online Library, 9-21. Bena, J., Ferraira, M., Matos, P., Pires, P. (2017). Are foreign investors locusts? The long-term effects of foreign institutional ownership. Journal of Financial Economics, 21-35. Boccia, F., Leonardi, R. (2016). The Challenge of the Digital Economy. Markets, Taxation and Appropriate Economic Models, 1-16. Capaldi, N., Idowu, S., Schmidpeter, R. (2017). 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Mandatory IFRS Adoption and the Usefulness of Accounting Information in Predicting Future Earnings and Cash Flows. SSRN , 1-47. Lin, S., Riccardi, W., Wang, C. (2017). Relative Effects of IFRS Adoption and IFRS Convergence on Financial Statement Comparability. SSRN, 16-40. Turban, E., Whiteside, J., King, D., Outland, J. (2017). Implementation Issues: From Globalization to Justification, Privacy, and Regulation. Introduction to Electronic Commerce and Social Commerc, 383-413.