Reporting and Disclosure of Intangible Assets

Executive Summary of Ramsay Health Care Analysis

The report summarizes the AASB 138 – Intangible Assets standard concerning the Ramsay Healthcare company. The company's treatment of Goodwill has been analyzed in the report. Ramsay follows the treatment of its intangible assets as per the standard. Goodwill and Brand have been considered as having an infinite life for which amortization has not been done while service cost and software have been considered as having finite life for which amortization has been considered. This is done as per the AASB 138 standard. Also, if the company has used a different policy than the results drawn will be different and expenses would have increased for the company.

Table of Contents

Introduction.

About the Company.

AASB 138.

Intangible asset for the company.

Difference in opting for a different policy.

Reasons for opting AASB.

Conclusion.

References.

Introduction to Ramsay Health Care Analysis

The report is aimed at studying the accounting standard of Intangible Assets that is AASB 138. The company that will be taken for study is Ramsay Health Care. The company’s 2019 financial statements are considered under study and the disclosure practices will be analyzed. The report will analyze the treatment of Intangible assets for the company and the policies and procedures that have been followed under AASB 138.

About Ramsay Health Care Analysis

Ramsay Health care is a public company that provides healthcare in various countries like the U.K., Australia, and France, etc. The company was established in the year 1964 in Sydney, Australia. The specialization of the company lies in surgery, rehabilitation, and psychiatric care. There are around 77000 employees that are employed in the company. The company is the largest provider of hospitals in Australia in the private sector and has around 100 health facilities in the operation. The company's revenue was up by 24.4% from the last year and has reached $11.4 billion in the year 2019 while the EBITDA of the company was at 41.6 billion. The NPAT of the company was at $590.9 million up by 2% from the year 2018 (Ramsay Annual report 2019). The company prepares its reports as per the AASB standards and the calculations are done accordingly.

AASB 138

AASB 138 has the objective to prescribe a treatment for the intangible assets. The standard recognizes the intangible asset and specifies the measurement for the carrying amount of intangible assets and under the standard, it is required by the companies that a disclosure regarding intangible assets has been made. According to the AASB 138, an intangible asset should be recognized only if:

  • There are probable future economic benefits that are attributable to assets that will flow in the organization (Fraser 2018).
  • The cost that has been incurred on assets can be measured reliably.

The treatment of intangible assets for the company is disclosed separately.

Intangible Asset for The Company

The company as per the requirement of the result shows the calculation of intangible assets separately. Once the statements are prepared notes for intangible assets are shown differently for the company where measurement, recognition, amortization charges are depicted for the assets.

Goodwill- Measurement and recognition

Goodwill that was acquired by the company in a combination of business is measured initially at the cost that is excess for the business combination. The excess value is over the Group's interest in the net fair value of identifiable assets liabilities of acquirees. The factor that is contributing to the goodwill is related to the synergies that are existing about the acquired business by the company and it is expected that the results will be achieved by combing the facilities from the rest of the group.

Recognition of the goodwill is done as per the standard requirement of AASB138. The goodwill when merged with the facilities in the organization will bring in future economic benefits for the company (Malone, Tarca and Wee 2016).

The measurement policy followed in the company for goodwill costs less any accumulated impairment loss. The company identifies the life of goodwill for an indefinite period. Impairment of goodwill is reviewed annually. According to AAS138, the company can measure its intangible asset within the cost model and the revaluation model. The company is following the cost model of AASB 138. It has been stated in the model that after recognition, the asset will be carried out at cost less any amortization that is accumulated and any impairment loss (Wang 2019).

Treatment of Goodwill

Goodwill

$'000

   

Cost (As on 1st Jul 2017)

1937444

Additions

 

Disposals

 

Impairment

-1774

Business combination

161704

Exchange differences

54698

30th June 2018

2152072

Additions

 

Disposals

-98553

Business combinations

1543781

Exchange differences

79509

30th June 2019

3676809

Amortization

 

Net Book Value

3676809

The company has not taken any amortization cost for the Goodwill as it has considered the useful life of the goodwill at an indefinite period. According to the standard AASB 138 when the useful life of the intangible asset is considered as indefinite that amortization is not done. Goodwill stays throughout the functioning years of the organization. Increase and decrease might happen but the value does not end. It is required within the standard that there is a review that should be carried out for the assets that are not being amortized (Cheung and Lau 2016). It is done to check whether the circumstances still support that indefinite useful life of the asset. If, there is a change than the useful life is to be changed from infinite to finite according to AASB 108. Yet under AASB 136, it is required that the asset is revalued and impairment charges are to be addressed.

The same has been followed by the company. Though the goodwill has an indefinite useful life, the company revalues it at the end of each year, and charges are mentioned accordingly related to impairment and other disposal or the additions that have been made depicting the accurate value at the end. Impairment testing on goodwill is done by allocating it to each of the cash-generating units of the group that are to be benefited from the synergies. It is then determined by assessing the amount that is recoverable from the units that generate cash. If the recoverable amount is less than the amount that is being carried than a loss of impairment is recognized. This is how the company has recognized the loss of impairment in the Goodwill.

Other Intangible assets of the company

The other Intangible assets of the company include service concession assets, brands, and software costs.

Treatment

Particulars

Service Assets

Brands and Software

1st July 2017

95997

119613

Additions

13814

12740

Disposals

-127

-4635

Business combination

 

979

Exchange differences

 

4002

30th June 2018

109684

132699

Additions

447

42674

Disposals

 

-23431

Business combination

105777

279375

Exchange differences

3290

6174

30th June 2019

219198

437491

     

Amortization at 2019

-65198

-94210

     

Net Value

154000

343281

The company measures the intangible assets that are acquired separately on the cost for which they were initially recognized. The cost is recognized according to the standard. According to the standard, the intangible asset should be measured at cost. For business combination generated assets the fair value has been considered on the date of acquisition (Intangible Assets 2015). The company has followed the criteria mentioned in the standard. According to AASB 138 and by the AASB 3 business combinations, that if an intangible asset is attained through a combination of business than it is depicted at its fair value on the date of its acquisition.

The company recognizes the intangible assets as per the standard and then the measurement is done accordingly. The assets are carried forwards at the cost less any amortization that has been accumulated. And the losses of impairment. Also, the assets that have been generated internally are not capitalized by the company and the expenditure is charged concerning the profits of the year.

Also, the company follows the finite and infinite life rule of amortization for the assets according to the AASB 138 standard. The assets whose life is considered finite by the company are amortized for their useful life. Every financial year the company reviews the assets and changes in the value of assets in respect of its amortization cost and finite life is made to represent the fair value.

The Service Commission Asset of the company has a finite useful life and is acquired by the organization. Amortization is done for the company for which the lease is generated. Brands are treated with an indefinite life, so they are not amortized by the company. While the software cost has been considered to have a finite life due to which amortization of that is being done by the company on a straight-line basis. Service commission assets have been acquired by the company so they are recognized at the fair value of consideration on the date of its acquisition. The gain and losses at the time of de-recognition of assets are done when there is a difference between the net disposal and the cost of carrying the asset.

In this manner, Intangible assets are treated in the company's balance sheet that is as per the accounting standard AASB 138. The company follows every rule that has been laid down in the standard for recognizing Goodwill and Intangible Assets. The company has bifurcated the life of its intangible assets and as per that the treatment of the assets is conducted. Goodwill and Brands have infinite life so amortization is not conducted while Service cost assets and software have finite life for which amortization is undertaken every year in the company.

Difference in Opting for A Different Policy

Under AASB 138, two cost models can be followed that are the Cost model and the Revaluation model. The company has followed the cost model where the asset is carried out at cost less any accumulated amortization or any impairment loss. While the Revaluation model recognizes the value of the intangible asset at its revalued amount, and then deduct the amortization cost for the company.

If the company would have followed the model than the need for revaluation would not be there. The method of calculating the value for the asset would have changed. The impairment loss that has occurred due to change in value will be shown in the expenses limited to the amount that is reduced and the loss will be depicted as revaluation loss in the balance sheet under the equity section (Tran and Zhu 2017). This will change the calculations for the company. Since there is a loss of impairment, the profits of the company will reduce as expenses will increase for the company. The value of assets and liabilities will change as the asset will be depicted on the fair value of the company and the loss will be shown on the liabilities side of the balance sheet.

According to the standard, the life of the assets decide whether amortization will be done on the assets or not. If the asset has a finite life then amortization is done while if the asset has an indefinite life than amortization is not carried out. The company has started an indefinite life for Goodwill and Brand. Amortization is not done for these two intangible assets. But, if the assets were considered as the one having finite life than the value of these two would have changed. If Goodwill and Brand were infinite life than the company would have charged amortization on them that might have increased the expenses of amortization for the company reducing the value of Goodwill and Brand over the year and increasing the expenses of amortization that would have impacted the profit of the company negatively. So, if the company has followed a different policy than the profits would have been impacted and expenses would have increased for the organization.

Reasons for Opting AASB

The company has been formed in Australia and has its maximum base in Australia. AASB is formed to develop high-quality reporting in the sectors of the economy of Australia. To have its result in better comparison with the companies of Australia and still match them with the global reporting standards might be the reason for adopting AASB in the company (Bugeja and Loyeung 2017). Also, in Australia historically the majority of companies in the sector used to follow the AASB standards that helped them in better comparison. This has also inclined the company to follow the AASB standard for its reporting.

Conclusion on Ramsay Health Care Analysis

Ramsay health care is an Australian company in the health sector. The company prepares its financial statements as per the AASB accounting standards. AASB 138 is the accounting standard that deals with the treatment of Intangible assets for the company. The company has Goodwill, Service cost, Brand, etc. as its intangible assets. Goodwill and Brand were treated as an asset of indefinite life for which amortization was not carried out as per the standard while service cost had amortization charged in eh company. If different policies have been followed under the standard than the expenses of the company would have increased. Also, the AASB standard is popular in Australia which makes it easy for the company to compare due to which the company might have chosen this standard.

References for Ramsay Health Care Analysis

Annual Report. 2019. Ramsay healthcare. Available at: https://www.ramsayhealth.com/common/emag/rhc/annualreport2019/RHC-Annual-Report-2018-2019sml.pdf (Accessed on: 8th September 2020).

Bugeja, M. and Loyeung, A. 2017. Accounting for business combinations and takeover premiums: Pre-and post-IFRS. Australian Journal of Management42(2), pp.183-204.

Cheung, E., and Lau, J. 2016. Readability of notes to the financial statements and the adoption of IFRS. Australian Accounting Review26(2), p.162-176.

Complied AASB Standard. 2015. Intangible assets. Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf (Accessed on: 8th September 2020)

Fraser, J., 2018. Alternative assets insights: Budget announcements thin capitalization. Taxation in Australia53(2), p.90.

Malone, L., Tarca, A., and Wee, M., 2016. IFRS non‐GAAP earnings disclosures and fair value measurement. Accounting & Finance56(1), p.59-97.

Tran, A., and Zhu, Y.H., 2017. The impact of adopting IFRS on corporate ETR and book-tax income gap. Austl. Tax F.32, p.757.

Wang, X., 2019. Compliance Over Time by Australian Firms with IFRS Disclosure Requirements. Australian Accounting Review29(4), pp.679-691.

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