176 Accounting: Business Reporting for Decision Making
The various asset classes disclosed on the balance sheet for a large entity such as JB Hi-Fi Ltd are as
follows.
- Cash and cash equivalents — the cash resources that an entity has on hand at a particular point in
time. Generally, you would not expect the cash amount to be substantial as cash generates low returns
relative to productive assets.- Trade and other receivables — the cash the entity expects to receive from parties that owe it money.
This class is often called trade receivables, trade debtors or accounts receivable.
- Inventories — the supplies of raw materials to be used in the production process (in the case of a
manufacturing firm), work-in-progress and/or the finished goods that the entity has available for sale.
The term ‘stock’ can be used interchangeably with ‘inventories’. For JB Hi-Fi Ltd, the inventory
would include items such as televisions, computers, DVDs, CDs, tablets, iPods and hi-fi equipment.- Non-current assets classified as held for sale — a group of assets that the entity plans to dispose of
as a group in a single transaction. Note that JB Hi-Fi Ltd has no non-current assets classified as held
for sale.- Investments accounted for using the equity method — this class of asset will appear only if the
entity owns enough shares in another entity to enable it to exert significant influence (not control) over
the other entity’s decision making. This amount on the balance sheet represents the cost of the shares
acquired plus any share of the other entity’s profits, less any dividends that the entity has received from
the other entity. Note that JB Hi-Fi Ltd has no investments accounted for using the equity method.- Other financial assets — a financial asset is any asset that is cash, a contractual right to receive
cash or another financial asset, a contractual right to exchange financial instruments with another
entity under conditions that are potentially favourable, or an equity instrument of another entity. Items
included in this category are investments in shares. Often the other financial assets category includes
derivative financial assets. However, sometimes the derivative financial assets are separately listed.
A derivative financial asset is a financial asset whose value depends on the value of an underlying
asset, reference rate or index.- Property, plant and equipment — items of property, plant and equipment controlled by the entity.
This classification includes land, buildings, machinery and other items of plant and equipment. Note
that JB Hi-Fi Ltd has plant and equipment only. Some of the items recorded in plant and equipment
are leased assets.- Deferred tax assets — accounting rules are used to determine accounting profit, and taxation rules are
used to derive taxable income. Differences in the two sets of rules can give rise to expected taxation
benefits that satisfy the asset definition and recognition criteria.- Agricultural assets — living animals or plants such as grapevines, trees in a plantation, dairy cattle,
fruit trees and sheep (also known as biological assets). Note that JB Hi-Fi Ltd has no agricultural
assets.- Intangible assets — assets do not have to be in physical form. An intangible asset is a non-monetary
asset without physical substance. Intangible assets are identifiable in the sense that they are able
to be individually identified, measured and recognised. Examples of identifiable intangible assets
include trademarks, brand names, patents, rights, agreements, development expenditure, mastheads
and licences. JB Hi-Fi Ltd’s intangible assets include goodwill, brand names, location premiums and
rights to profit share.- Goodwill — this is classified as an unidentifiable intangible. Goodwill can be recognised on the bal-
ance sheet only if it is acquired. The goodwill acquired is calculated as the excess of the consideration
paid for a business over the fair value of the net assets acquired at the date of acquisition. Effectively,
goodwill represents an amount the acquirer is paying for things such as an established client base,
reputation, operational synergies and control. For example, in 2014 Facebook acquired WhatsApp
for US$22 billion. As the price paid exceeded WhatsApp net assets of approximately US$6.7 billion,
Google recognised goodwill associated with this acquisition of $15.3 billion.
An illustration of the calculation of goodwill is provided in illustrative example 5.2.