BUACC5932 Corporate Accounting For Core business of Qantas Airways

Analysis of the financial structure of the company

Left in the optimal capital structure, capturing a minimum level of liquidity, while making sure there is the optimum management of long-term commitments. Along with this, it has managed great accessibility to a range of further financial sources and maintaining maturity returns,

Long-term source of finance

The company has used debt and equity as long-term finance, these long-term financial sources have supported the capital and financial structure of the company in an optimal way, as it has fulfilled the capital needs of the company, so it can perform its operations and activities seamlessly (Forsyth, 2017). These funds are raised from various sources and ensure sound financial outlook and operations thereby assisting in higher profitability and productivity.

Short term source of finance

Bank overdraft and trade credit have been used by the company as short-term funding sources, these both selected short-term financial sources benefits company by offering higher flexibility, cash-withdraws  and a cost-free system for ensuring time to time payments. Furthermore, it assists the company in improving sales, achieving customer loyalty while maintaining a competitive edge (Graham and Morrell, 2016).  This has resulted in managing an optimal capital structure and a proper balance in investments, fontanel and capital structures.

Capital structure

The company aims to uphold an optimal capital structure in order to optimise the cost of capital. The financial structure of groups aims at optimal capital framework along with a total bet ranging of among $4.8 billion and $6 billion, on the basis of present Average Invested Capital of about $9 billion. Further, this capital framework has reduced the capital cost of the Group while retaining financial strength thereby improving the shareholder value on a long-term basis (Annual report of Qantas Airways, 2017). In 2016/17 financial year, the net debt of Group $5.2 billion, been at the low end of the target extent of $4.8 billion to $6 billion.

Key elements of financial performance

Optimal capital structure

In the 2016/17 financial year, the Group has reinforced its capital position by affirmative free cash flow. Total debt reduced by $434 million to $5.2 as compared to the previous year, being at the reduced end of target extent. Over 60% of the fleet of Group currently free of debt, stating an agile base of asset approximately US$3.8 billion (Vasigh, Fleming and Humphreys, 2014). The liquidity on short-term basis has remained reinforced at $1.8 billion, along with additional $1 billion in undrawn amenities.

Improving return on invested capital

All the elements of the Group have a higher return over the weighted cost capital. As a large, the Group attained a total return of 12-month on the investment made on capital of 20.1%. It Disciplined management of capacity and enhanced fleet utilities have supported this throughout Qantas and Jetstar, along with new businesses in Qantas Loyalty offering extra revenue streams (Annual report of Qantas Airways, 2017).  On other $470 million in the benefits of transformation benefits were served as on 2016/17, finishing the total of 3-year program while the outperformance of $2 billion targeted by $125 million.

The Group is serving constantly against its strategic decisions to extend the value of shareholder on long-term basis, positioning in the dominating position in home Australia, positioning more flexibility on Qantas International, developing the earnings-related with non-cyclical at Qantas Loyalty, with the alignment to Qantas and Jetstar (Suhardjanto and Ajibroto, 2017). 

The event that occurred after reporting date

Expect from the notes present in Note 6, dividends and other related shareholder distribution; there is no even occurred between the period 30 June 2017and the reporting date. Further any situation will create a materialistic impact on Consolidated Financial Statements as on 30 June 2017.

Disclosure of changes in accounting policies

The Group has implemented AASB 9 (2013) as of 1 July 2014; further the same has been amended by AASB 9 (2014) inclusive of the new anticipated credit loss model to calculate financial assets impairment. This standard is not likely to create a material impact on the Group. AASB 111 Construction Contracts, AASB 118 Revenue and Interpretation 13 Customer Loyalty Programmes would be replaced by AASB 15(Taneja, 2016).  A singular, based on principle, 5 step model has been provided by AASB 15 and is applicable to all sales contracts on the basis of transferring of products and service control to clients. AASB 117 Leases, Interpretation would be replaced by AASB 16, identifying if or if not an arrangement is inclusive of a lease. Presently, operating leases, formerly property and aircraft are not realized on the balance sheet as per AASB 117.Impact of change in accounting policies has clear description and disclosure in a systematic manner in the notes to accounts section of the annual report.

Accounting policies relating to Property, Plant, and Equipment

Measurement and realization of property, plant and equipment items are considered at cost minus impairment losses as well as accumulated depreciation. These items are initially are reported at costs, at the fair value of the concern provided along with accidental costs attributed to the acquisition in a direct manner. The capital cost is inclusive of the assumption at the initial anticipation during installation time of dismantling costs and eliminating the items and restoration of the site where these are situated, and the measurement changes of current liabilities realized for the costs caused from time changes or resource outflow (Lara, Osma and Penalva, 2016). This is required to do settlement of the obligations or discount rate changes. The treatment of the unwinded discount is done as financial expenditure in the consolidated income statement. Along with this, the cost might be inclusive of hedge reserve for adjustment of the fair value of the asset.

Subsequent asset: The capitalization of subsequent expenditure is done only if it is potential that the economic benefits based on future related to the expense will move to the Group.

Depreciation: On the basis of straight-line, depreciation is held on all property, plant equipment items, exclusive of freehold land. The rate of depreciation on acquired assets is measured in order to assign the cost or asset valuation, by deducting the anticipated residual value on the anticipated useful life of the asset to the Qantas Group. Depreciation on assets is provided on the acquisition date, in regards to internally built assets, since there is the accessibility of assets for use (Lubbe, Modack and Watson, 2014). Depreciation on the assets improvement costs is held on the anticipated useful life of the asset, by considering the shorter amount. The percentages of standard depreciation period of assets and anticipated residual value are represented as below: 

Maintenance and overhaul costs

Embedded maintenance

A component of the acquired aircraft costs is characterised by the potential of its service=, stating the maintenance position of the aircraft and engines (Patriksson and Strömberg, 2015). Depreciation on cost is held on short-term to the next main inspection event or the asset’s remaining life or lease term.

Subsequent maintenance expenditure

The subsequent main cyclic checks on maintenance costs for acquired and leased aircraft are realized as assets and depreciation is held on short-term period to the next main inspection event or the aircrafts’ remaining life or lease term (Christer, 2014). Checks on maintenance covered under third-party contracts of maintenance wherein the transferring of risk and the legit requirements are expensed based on hours flows.

Further modification in accounting policies is done by considering changing aspects.

Accounting policies relating to Intangible Assets

Recognition and measurement

Goodwill: it is considered as the cost minus accumulated impairment losses (Annual report of Qantas Airways, 2017). In regards to the accounted investments as per equity method, then the goodwill’s carrying amount is inclusive in the investment’s carrying amount.

Airport landing stats: these are recorded at accumulated impairment loss deducted from cost.

Software: It is considered at accumulated amortization and impairment losses deducted from costs. The expense on software development, inclusive of material costs and labour costs, is recognized as an asset in which the Group manages the future economic benefits consequent of cost incurrence (Bond, Govendir and Wells, 2016). By this, the future economic benefits will emerge, and there will be reliability in cost measurement

Brand names and trademark: These are carried at accumulated impairment loss deducted from costs.

Customer contracts/connections: these are carried at fie value itself at the acquisition date less impairment loss and accumulated amortization.

Contract intangibles: These are stated at accumulated amortisation reduced from cost.

Subsequent expenditure

This is capitalized only if it enhances the future economic benefits contained in a particular asset to which it is related (Bianchi, 2017). Further, other expenses inclusive on the goodwill generated on internal basis expenditure and brands are realized within the Consolidated P&L statement as it incurs.

Amortization

Amortization is measured by writing off the intangibles costs minus the anticipated residual values by making use of straight-line method on the estimated working life and is further realized within the consolidated income statement. Trademarks, airport stats, brand names and goodwill, are considered as indistinct lived intangibles, and their allocation is done to reliable cash-generating units (Sougiannis, 2015). Amortization of vague lived intangibles are not conducted, but impairment testing is one each year. Amortization of contract intangibles are not conducted until it is ready to employ, but impairment testing is one each year.

Impairment Property, Plant, and Equipment, and Intangible Assets

The non-financial assets carrying amount are reviewed at every balance date to identify if or if not there is the scope of impairment. If there is any indicator of impairment, the recoverable amount of assets is estimated. For the intangibles and goodwill with indistinct lives, estimation of recoverable amount is done on an annual basis (Visvanathan, 2017). The recoverable assets amount is the higher of its fair value minus costs to put in sale and value in use.

References

Annual report of Qantas Airways, (2017). Retrieved 16th May 2018 from https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2017AnnualReport.pdf>

Bianchi, P., (2017). The economic importance of intangible assets. Routledge.

Bond, D., Govendir, B. and Wells, P., (2016).  An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136. Accounting & Finance, 56(1), pp.259-288.

Christer, A.H., (2014).  Operational research applied to industrial maintenance and replacement. Eglese, Rand, pp.31-58.

Forsyth, P., (2017).  Pre-financing airport investments, efficiency and distribution: Do airlines really lose?. Journal of Air Transport Management.

Graham, A. and Morrell, P., (2016). Airport Finance and Investment in the Global Economy. Taylor & Francis.

Lara, J.M.G., Osma, B.G. and Penalva, F., (2016). Accounting conservatism and firm investment efficiency. Journal of Accounting and Economics, 61(1), pp.221-238

Lubbe, I., Modack, G. and Watson, A., (2014).  Financial accounting GAAP principles. OUP Catalogue.

Patriksson, M. and Strömberg, A.B., (2015). Optimization of Maintenance Activities—Models, Methods, and Applications. Annals of Operations Research, 224(1), pp.193-196.

Qantas Airways. About Qantas, (2018). Retrieved 16th May 2018 from https://www.qantas.com/travel/airlines/about-qantas/global/en

Qantas Airways. Our Company, (2018). Retrieved 16th May 2018 from https://www.qantas.com/travel/airlines/company/global/en

Sougiannis, T., (2015). R&D and intangibles. Wiley Encyclopedia of Management.

Suhardjanto, D. and Ajibroto, N., (2017). Ownership Structure and Financial Performance: An Empirical Study of Listed Airlines Industry in Asia and Australia.

Taneja, N.K., (2016). Adaptation Strategies by Airlines. In Airline Industry (pp. 101-125). Routledge.

Vasigh, B., Fleming, K. and Humphreys, B., 2014. Foundations of airline finance: Methodology and practice. Routledge.

Visvanathan, G., 2017. Intangible assets on the balance sheet and audit fees. International Journal of Disclosure and Governance, 14(3), pp.241-250.