National Australia Bank Limited (NAB) is one of the leading banks providing banking

services in Australia in various fields like education, community banking, agribusiness,

health, education, community banking and others. NAB commenced its operation in 1982 in
Australia as a public limited company, shares of the company traded publicly in Australian
Securities Exchange. The bank was formed with the merger of two banks National Bank of
Australia and the Commercial Banking Company of Sydney. It has extended its operation in many
countries like India, New Zealand, China and many other countries including Australia.[CITATION
www \l 1033 ]

Telstra Corporation Limited (also called as Telstra), is the largest telecommunication and

Media Company of Australia. Since 1975, Telstra has been conducting various operations such
as telecommunication networks, pay TV, mobile, internet access and other amusement items and
administrations. Telstra is the private and more customers focused Telecommunication Company
comprising 41.1 percent of the telecommunication industry. [ CITATION Tel \l 1033 ]

AASB 101- Presentation of Financial Statement:

Under AASB 101 Presentation of Financial Statements, it is necessary to reflect an entity’s normal
operating cycle while defining whether assets should be categorized as current or non- current for the
purpose of presentation in the statement of financial position. According to paragraph 66 of AASB
101, an asset is classified as current assets when:
(a)It is expected to be realized in, or intended for sale or consumption in, the entity’s normal operating
cycle
(b) It is held primarily for the purpose of being traded
(c) It is expected to be realized within 12 months after the reporting date; or

(d) It is cash or a cash equivalent (under AASB 107 Statement of Cash Flows) [CITATION Dee12 \p
150 \l 1033 ]

As per the financial report of NAB and Telstra, following information has been obtained.

 Both the companies, NAB and Telstra are for-profit companies.

 The financial report of both companies are prepared as per requirements of the
Australian Accounting Standards Board (AASB), also complies with International
Financial Reporting Standards (IFRS) and International Accounting Standards Board
(IASB).
 The financial statements of both companies are prepared as per historical cost
convention which is further adjusted by use of fair value measurement approach.
 The financial data of both corporations are presented in Australian dollar taking
accounting policies into consideration.
 NAB uses liquidity presentation approach whereas Telstra uses current/non-current
approach for presentation of financial statement.
 Financial instruments are initially recognized at fair value and any profits and losses
are recognized in income statement.

Comments on Assets:
Cash and liquid assets: NAB holds higher amount of cash and liquid assets so as to maintain
high liquidity where Telstra providing communication services do not require to hold huge
amount of cash.

Receivables: NAB deals with loan and financial instruments so its receivable is almost 10
times greater than Telstra.

Inventories: Telstra has to maintain its inventory level because it is telecommunications and
Media Company.

PPE: Telstra provides media and entertainment services so it has to

AASB 116 – Property, plant and equipment (PPE):

Issues related to the recognition, measurement and release of Property, plant and equipment are
described by AASB 116. Property plant and equipment are considered as tangible assets and
recognized as non-current assets as they are used in organization for next 12 months or beyond
normal operating cycle of the firm. According to AASB 116 the property, plant and equipment are
considered as an asset if following conditions are satisfied:
(a) If the probable economic benefits generated from assets will flow to the company.
(b) The cost of the asset or, when the asset is carried at a revalued amount, the fair value of the
asset can be measured reliably.[CITATION Dee12 \p 159 \l 1033 ]

Paragraph 29 of AASB 116 states that the firm should use either the cost model or the revaluation
model as its accounting policy and whole class of property, plant and equipment should applied to that
policy.

 Property, plant and equipment (PPE) are depreciated following straight line method at
the rates on the basis of estimated useful life by both companies where the freehold
land is not depreciated.
 For valuation of land and building, NAB uses fair value method which is revalued in
each three successive years by directors to arrive at fair values. Valuation is
undertaken on an open market basis between market participants on the date of
measurement.[CITATION Ann16 \p 94 \l 1033 ]
 For NAB, the rates of depreciation for various assets differ. Buildings are depreciated
at 3.3 %, furniture, fixtures, fittings and other equipment are depreciated from 10% to
20%, motor vehicles at 20%, personal computers at 33.3%, and other data processing
equipment from 20% to 33.3%. [CITATION Ann16 \p 94 \l 1033 ]
 For Telstra, the depreciation are reviewed each year to match the technological
change as per international trends. Capital lease are turned to account on start of lease
at lower of fair value of the assets and present value of lowest possible payments.
Properties and its improvements cost are capitalized as leasehold improvements and
amortized over the useful life of the advancement and term of lease. [CITATION
NAB16 \p 97 \l 1033 ]
 Other intangible assets (except goodwill or the assets having indefinite life) are
amortized on systematic basis following straight line method over estimated life.

AASB 138 – Intangible Assets:

AASB 138 Intangible assets, deals with determining the cost of assets such as trademarks, patents,
customer’s list and development expenditure. Intangible assets are measured at cost according to
AASB 138. The cost of an internally generated intangible asset comprises all expenditure that can be
directly attributed to it and is necessary in preparing the asset to be capable of operating in the manner
intended by management. [CITATION Dee12 \p 158 \l 1033 ]

 Goodwill and other assets having indefinite life are not amortized but are assessed for
impairment annually or when there is an existence of impairment indication.
 The redeemable amount of an assets is greater of its market value less costs to sale or
its value in use.
 An asset is carried at more than its recoverable amount if its carrying amount exceeds
the amount to be recovered through use or sale of the asset.
 For purpose of undertaking impairment testing, cash generating units (CGUs) are
identified and determined according to the smallest group of assets that generate cash
inflows which are largely independent of cash inflows from other assets or group of
assets.[CITATION Ann16 \p 100 \l 1033 ]

AASB 136 - Impairment of Assets:

AASB 136 Impairment of Asset states that the carrying amount of an asset is deducted from its
recoverable amount if recoverable amount of an asset is less than its carrying amount. This reduction
is known as impairment loss.[CITATION Dee12 \p 146 \l 1033 ]

 For the calculation of recoverable amount of CGU, value in use method of

impairment assessment is used.
 Cash flow forecast as well as selection of growth rates, terminal rates and discount
rates based on past experience and expectation for future.
 Cash flow projections are based on 5 years management approved forecast.
 We recognize any reduction in the carrying value as an expense in the income
statement in the reporting period in which the impairment loss occurs.
 NAB, implements a 3-stage methods for computing expected credit losses (ECLs),
which are not stated at fair value through profit and loss for the sets of financial assets
mentioned below:
o debt instruments measured at amortised cost and fair value through other
comprehensive income;
o loan commitments; and
o Financial guarantee contracts.

No ECL is recognised on equity investments. [CITATION NAB16 \p 71 \l 1033 ]

 NAB has an impairment loss of only $6 million as it comprises of less amount for
PPE in comparison to Telstra which has an impairment loss of $482 million.
Bibliography
Deegan, C. M. (2012). Australian Financial Accounting. Waterloo Road, North Ryde: McGraw-Hill
Australia Pty Ltd.

NAB Limited. (2016). Annual Financial Report of NAB. 800 Bourke Street Docklands VIC 3008
Australia: NAB Group.

Telstra Corporation Limited. (2016). Telstra Annual Report. Level 41,242 Exhibition Street Melbourne
Victoria 3000 Australia.

Telstra-Our Company. (n.d.). Retrieved from www.telstra.com.au:

https://www.telstra.com.au/aboutus/our-company

The- Australian-NAB Profile. (n.d.). Retrieved from www.nab.com.au:

http://markets.theaustralian.com.au/shares/NAB/national-australia-bank-limited