Non-current assets

Published on March 21, 2017   17 min

A selection of talks on Finance, Accounting & Economics

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Hi, and welcome to part five: Non-current Assets in this HSTalks lecture series on Analyzing Financial Statements. My name is David Bond. In this video, we'll look at how to account for non-current assets.
Non-current assets are vital to all entities. Examples of non-current assets include land and buildings, machinery, aircraft, brand names, and goodwill. The two primary topics of non-current assets and the ones we'll be looking at in this video are property, plant, and equipment, often known as PPE and intangible assets.
But before we get started, what are PPE and intangible assets? PPE are tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and are expected to be used during more than one period. Examples of PPE include land, buildings, machinery, ships, aircraft, motor vehicles, office equipment, and so on. Intangible assets have a shorter definition and are simply identifiable non-monetary assets without physical substance. Examples of intangible assets include goodwill, brand names, patents, licenses, customer lists, and so on. Identifiability in short means the asset is separable from the entity. For example, the entity could sell the asset to another entity without physical substance is the crux of it. Intangible assets are things you cannot touch. So whereas a car would be property, plant, and equipment, a license to operate that car as a taxi would be an intangible asset.
One last thing before we get into the accounting for non-current assets and that is to check out the balance sheet of Qantas to gives us an idea of what we're looking at. Here, we're looking at the 30th of June 2016 consolidated balance sheet. There are 16.7 billion of assets of which 13.2 billion are non-current, the 2 largest are property, plan, and equipment with 11.7 billion and intangible assets with 909 million. If we turn to notes 11 and 12, we find more data on these assets. As you can see from note 11, aircraft and related components are the majority of property, plant, and equipment. Turning to note 12, software is the largest intangible asset, followed by goodwill. Note that brand names and trademarks are only worth $26 million. Given how prominent an airline Qantas is, this seems quite low, and we'll come back to that. At this point, I'm going to look at property, plant, and equipment and intangible assets separately. We'll look at the accounting for property, plant, and equipment first.