Accounting Business Reporting for Decision Making

262 Accounting: Business Reporting for Decision Making

d. Hypothesise how the share price of Groupon may have reacted to announcements of accounting

irregularity. Identify the trend in Groupon’s share price since its listing in 2008.

e. In 2011, Groupon was criticised by the corporate regulator for its use of a pro forma profit

measure. Discuss the pro forma profit measure that Groupon was using and why the regulator

objected to its use.

6.45 Depreciation expense is an allocation of the cost of an asset over the asset’s useful life. Entities

assess the useful life of their various assets. The notes to the accounts for two airlines reveal the

following variation in useful life estimates.

Air New Zealand Ltd depreciates its aircraft fleet on a straight-line basis to an estimated residual

value over their economic lives as follows.

Aircraft 18 years Residual values are reviewed annually

Engine overhauls Period to next overhaul

Source: Air New Zealand Ltd 2015, Annual financial results, p. 15.

The Qantas Group depreciates its aircraft fleet as follows:

Aircraft and engines 2.5–20 years 0–10 per cent residual value

Aircraft spare parts 15–20 years 0–20 per cent residual value

Source: Qantas Airways Ltd 2015, annual report, p. 95.

Required

a. Comment on the effect of these differing depreciation rates on the profit of Air New Zealand

Ltd and the Qantas Group.

b. Can you suggest any reasons why the choice of useful lives would differ across the entities?

c. Debate whether you believe entities should have discretion to choose the depreciation method

and useful lives applicable to various asset classes.

d. What do you think would affect the useful lives of assets such as aircraft?

6.46 In its 2015 annual report, the Qantas Group refers to ‘underlying profit’ and ‘statutory profit’. Identify

the differences in these profit figures. Debate the merits of reporting non-statutory profit figures.

6.47 Extracts from the 2013 statement of comprehensive income for David Jones Ltd are provided below.

Consolidated statement of comprehensive income

for the 52 weeks ended 27 July 2013 and 28 July 2012

David Jones and its controlled entities

Note

2013

$’000

2012

$’000

Revenue from sale of goods

Cost of sales

1 845 012

(1 147 968)

1 867 817

(1 167 987)

Gross profit

Other income

Employee benefits expenses

Lease and occupancy expenses

Depreciation and amortisation expenses

Advertising, marketing and visual merchandising expenses

Administration expenses

Other expenses

Finance costs

Finance income

2

3

3

3

697 044

62 532

(296 103

(193 286

(56 762

(34 966

(24 119

(14 442

(9 057

490

) ) ) ) ) ) )

699 830

57 568

(282 593

(189 114

(51 949

(39 036

(26 909

(13 384

(10 938

347

) ) ) ) ) ) )

Profit before income tax expense

Income tax expense 5

131 331

(36 147)

143 822

(42 719)