5. Consider the items included in property, plant and equipment. Illustrate whether these items are measured according to cost or fair value in the report. Explain, supporting your answer, which model between cost or revaluation is to be preferred to provide a true and fair representation of the Harvey norman's holdings assets (annual reports for FY 2017-18)
INCOME STATEMENT FOR THE YEAR ENDED 30JUNE 2018 CONSOLIDATED June 2017 $000 2018 Note Sales revenue Cost of sales Gross profit 3 1,993,760 1326,339 667,421 1,833,123 1,235,602 597.521 Revenues and other income items Distribution expenses Marketing expenses Occupancy expenses Administrative expenses Other expenses Finance costs Share of net profit of joint ventures entities Profit before income tax Income tax expense Profit after tax 3 240.703 1,305,344 36,189 (384,885) (226,994) 92,453 107.666 20,072 41 4.3 (241,220) 4 4 4 4 37 585 114 26,344 5.200 5,792 530,172 (150,122) 380,050 639.806 186.840) 452,966 5(a) & 5(c) Attributable to: Owners of the parent Non-controlling interests 448.976 3,990 452,966 4,672 380,050 Earnings Per Share: Basic earnings per share (cents per share) Diluted earnings per share (cents per share 6 33.71 cents 33.67 cents 40.35 cents 40.30 cents 26 30.0 cents Dividends per share (cents per share) 26.0 cents STATEMENTOF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2018 CONSOLIDATED June 2018 June 2017 S000 Profit for the year 380,050 452.966 Items that may be reclassified subsequently to profit or loss: Foreign currency translation Net fair value (losses)/gains on available-for-sale investments Net movement on cash flow hedges Income tax effect on net movement on cash flow hedges 6.94 4,050 (1.830) 16 18 Items that will not be reclassified subsequently to profit or loss: Fair value revaluation of land and buildin ncome tax effect on fair value revaluation of land and buildin 25,467 5,362 15,553 2,693) 10,821 Other comprehensive income for the year (net of tax) 17.225 Total comprehensive income for the year (net of tax) 390,871 470,191 Total comprehensive income attributable to: Owners of the parent Non-controlling interests 385,067 5,804 390,871 467,496 2.695 470,191 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018 Attributable to Equity Holders of the Parent Foreign Available for Cash Flow Employee Acquisition TOTAL e controllingEQUITY ContributedRetained Non- Profits e Reserve Equity Equity Revaluation CurrencySale Reserve Translation Reserve Reserve Benefits Reserve Interests $000 $000 $000 $000 $000 $000 At 1 July 2017 386.309 2.229.200 131,304 42.374 13,732 9.611 22.051 362 12,860 Revaluation of land and buildings Reverse expired or realised cash flow hedge reserves Currency translation differences Fair value of forward foreign exchange contracts Fair value of available for sale financial assets 13.222 20 20 .494 715 (1830) 1,830) (1,830) 10,821 715) 1,132 4,672 13,222 12 Profit for the year Total comprehensive income for the 380,050 375,378 12 5,804 390,8 745 Cost of share based Shares issued Dividends paid 745 2,072 (268,313) 2,072 976 350 67,33 At 30 June 2018 388,381 2,337.241 40,659 11,902 10,356 22,051 26,926 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018 (CONTINUED Attributable to Equity Holders of the Parent Foreign Available for Cash Flow Employee Acquisition Non-controlling TOTAL Contributed Equity Retained Asset Revaluation CurrencySale Reserve Hedge Reserve Equity Benefits Reserve Interests EQUITY Reserve Translation Reserve 0 111,199 At 1 July 2016 385,296 48,021 9,682 8,995 22,051 22.378 2,688,674 2,125,186 Other comprehensive income: Revaluation of land and buildings Reverse expired or realised cash flow hedge reserves Currency translation differences Fair value of forward foreign exchange contracts Fair value of available for sale financial assets Other Profit for the Total comprehensive income for the year 20.105 20,105 32 32 (6.942) 5,64 1,295 (20) (20) 4,050 17,225 452.966 4,050 4.050 5.64 295 3,990 20.105 12 448,976 470.191 448,976 20,105 (5,647) 12 2,695 4,050 Cost of share based payments Shares issued Dividends paid Distribution to members 616 1013 616 1,013 (645) 1,980 344,962 1.980) 2,051) At 30 June 2017 386.309 2,229,200 131,304 42,374 13,732 20 9,611 22,448 2,812,907 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2018 CONSOLIDATED 2018 2017 $000 Note Cash Flows from Operating Activities Net receipts from franchisees Receipts from customers Payments to suppliers and e Distributions received from joint ventures GST paid nterest received Interest and other costs of finance paid Income taxes paid Dividends received 947,058 2,134,595 (2388,310) 882.476 992,891 252,918 11,546 44,621 4,971 9,420 152,454 2,669 ees 10.125 (661 5,871 (25.619) (166,161 2.713 425.140 Net Cash Flows From Operating Activities 454,170 Cash Flows from Investing Activities Payments for purchases of property. plant and equipment and intangible assets 93.895) 5,661 89,366 752 ents for purchase of investment rties Proceeds from sale of property, plant and equipment and properties held for resale Payments for purchase of units in unit trusts and other 2,422 28,592 investments 161 Payments for purchase of equity accounted (4.256) investments 947 Proceeds from sale of/(payments for purchase of) listed securities Proceeds from insurance claims Loans granted to joint venture entities, joint venture 10,436 2.458 6,5 7,594) partners and unrelated entities Net Cash Flows Used In Investing Activities 198,765 48 Cash Flows from Financing Activities Proceeds from shares issued Proceeds from S Dividends Loans (repaid to)/received from related parties Repayment of other borrowings 2,072 210,000 1,013 70,000 344962 2.075 15,250 ted Facili 67 (6,573) 6.266 Net Cash Flows Used In Financing Activities 68,1 (287124 Net Increase/ Cash and Cash Equivalents at Beginning of the Year rease) in Cash and Cash Equivalents 82,581 42,882 60,749 103.631 28(a) 125,463 Cash and Cash Equivalents at End of the Year 42,882 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED 4. PROPERTY. PLANT AND EQUIPMENT (continued) CONSOLIDATE June 2018 $000 June 2017 $000 Reconciliation of the carrying amounts of property, plant and equipment (continued) Leased plant and equipment at cost Opening balance Additions Disposals Closing balance Leased plant and equipment accumulated depreciation: Opening balance Depreciation for the year Disposals Closing balance 6,313 195 1,467 4,872 26 6,313 6,475 847 72 1,280 2,120 847 Net book value 4,355 Lease make good asset at cost Opening balance Additions Disposals Net foreign currency differences arising from foreign operations Closing balance 5,083 1,094 (2 5,526 288 343) 388 5,083 369 6,257 Lease make good asset accumulated depreciation: Opening balance Depreciation for the year Disposals Net foreign currency differences arising from foreign operations Closing balance 2,907 644 2,883 603 343 36 2,907 263 3,525 Net book value 176 Total plant and equipment 227,876 Total property, plant and equipment 660.337 625,112 NOTES TO THE FINANCIALSTATEMENTS (cONTINUED 14. PROPERTY, PLANT AND EQUIPMENT (continued) (d) Sensitivity information Impact on fair value for significant increase in input Impact on fair value for significant decrease in input Key unobservable inputs Decrease Increase Net market rent Capitalisation rate Terminal yield Discount rate Decrease Increase Decrease Increase Decrease Increase Decrease Price per square metre Increase The net market rent of a property and the capitalisation rate are key inputs of the income capitalisation valuation method. The income capitalisation valuation method incorporates a direct interrelationship between the net market rent of a property and its capitalisation rate. This methodology involves assessing the total net market income generated by the property and capitalising this in perpetuity to derive a capital value. Significant increases (or decreases) in rental returns and rent growth per annum in isolation would result in a significantly higher (or lower) fair value of the properties. There is an inverse relationship between the capitalisation rate and the fair value of properties. Significant increases (or decreases) in the capitalisation rate in isolation would result in a significantly lower (or higher) fair value of the properties The discount rate and terminal yield are key inputs of the discounted cash flow method. The discounted cash flow method incorporates a direct interrelationship between the discount rate and the terminal yield as the discount rate applied will determine the rate in which the terminal value is discounted to present value. Significant increases (or decreases) in the discount rate in isolation would result in a significantly lower (or higher) fair value. Similarly, significant increases (or decreases) in the terminal yield in isolation would result in a significantly lower (or higher) fair value. In general, an increase in the discount rate and a decrease in the terminal yield could potentially offset the impact on the fair value of the properties. (e) Highest and best use For all owner occupied property that is measured at fair value, the current use of the property is considered the highest and best use INCOME STATEMENT FOR THE YEAR ENDED 30JUNE 2018 CONSOLIDATED June 2017 $000 2018 Note Sales revenue Cost of sales Gross profit 3 1,993,760 1326,339 667,421 1,833,123 1,235,602 597.521 Revenues and other income items Distribution expenses Marketing expenses Occupancy expenses Administrative expenses Other expenses Finance costs Share of net profit of joint ventures entities Profit before income tax Income tax expense Profit after tax 3 240.703 1,305,344 36,189 (384,885) (226,994) 92,453 107.666 20,072 41 4.3 (241,220) 4 4 4 4 37 585 114 26,344 5.200 5,792 530,172 (150,122) 380,050 639.806 186.840) 452,966 5(a) & 5(c) Attributable to: Owners of the parent Non-controlling interests 448.976 3,990 452,966 4,672 380,050 Earnings Per Share: Basic earnings per share (cents per share) Diluted earnings per share (cents per share 6 33.71 cents 33.67 cents 40.35 cents 40.30 cents 26 30.0 cents Dividends per share (cents per share) 26.0 cents STATEMENTOF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2018 CONSOLIDATED June 2018 June 2017 S000 Profit for the year 380,050 452.966 Items that may be reclassified subsequently to profit or loss: Foreign currency translation Net fair value (losses)/gains on available-for-sale investments Net movement on cash flow hedges Income tax effect on net movement on cash flow hedges 6.94 4,050 (1.830) 16 18 Items that will not be reclassified subsequently to profit or loss: Fair value revaluation of land and buildin ncome tax effect on fair value revaluation of land and buildin 25,467 5,362 15,553 2,693) 10,821 Other comprehensive income for the year (net of tax) 17.225 Total comprehensive income for the year (net of tax) 390,871 470,191 Total comprehensive income attributable to: Owners of the parent Non-controlling interests 385,067 5,804 390,871 467,496 2.695 470,191 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018 Attributable to Equity Holders of the Parent Foreign Available for Cash Flow Employee Acquisition TOTAL e controllingEQUITY ContributedRetained Non- Profits e Reserve Equity Equity Revaluation CurrencySale Reserve Translation Reserve Reserve Benefits Reserve Interests $000 $000 $000 $000 $000 $000 At 1 July 2017 386.309 2.229.200 131,304 42.374 13,732 9.611 22.051 362 12,860 Revaluation of land and buildings Reverse expired or realised cash flow hedge reserves Currency translation differences Fair value of forward foreign exchange contracts Fair value of available for sale financial assets 13.222 20 20 .494 715 (1830) 1,830) (1,830) 10,821 715) 1,132 4,672 13,222 12 Profit for the year Total comprehensive income for the 380,050 375,378 12 5,804 390,8 745 Cost of share based Shares issued Dividends paid 745 2,072 (268,313) 2,072 976 350 67,33 At 30 June 2018 388,381 2,337.241 40,659 11,902 10,356 22,051 26,926 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018 (CONTINUED Attributable to Equity Holders of the Parent Foreign Available for Cash Flow Employee Acquisition Non-controlling TOTAL Contributed Equity Retained Asset Revaluation CurrencySale Reserve Hedge Reserve Equity Benefits Reserve Interests EQUITY Reserve Translation Reserve 0 111,199 At 1 July 2016 385,296 48,021 9,682 8,995 22,051 22.378 2,688,674 2,125,186 Other comprehensive income: Revaluation of land and buildings Reverse expired or realised cash flow hedge reserves Currency translation differences Fair value of forward foreign exchange contracts Fair value of available for sale financial assets Other Profit for the Total comprehensive income for the year 20.105 20,105 32 32 (6.942) 5,64 1,295 (20) (20) 4,050 17,225 452.966 4,050 4.050 5.64 295 3,990 20.105 12 448,976 470.191 448,976 20,105 (5,647) 12 2,695 4,050 Cost of share based payments Shares issued Dividends paid Distribution to members 616 1013 616 1,013 (645) 1,980 344,962 1.980) 2,051) At 30 June 2017 386.309 2,229,200 131,304 42,374 13,732 20 9,611 22,448 2,812,907 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2018 CONSOLIDATED 2018 2017 $000 Note Cash Flows from Operating Activities Net receipts from franchisees Receipts from customers Payments to suppliers and e Distributions received from joint ventures GST paid nterest received Interest and other costs of finance paid Income taxes paid Dividends received 947,058 2,134,595 (2388,310) 882.476 992,891 252,918 11,546 44,621 4,971 9,420 152,454 2,669 ees 10.125 (661 5,871 (25.619) (166,161 2.713 425.140 Net Cash Flows From Operating Activities 454,170 Cash Flows from Investing Activities Payments for purchases of property. plant and equipment and intangible assets 93.895) 5,661 89,366 752 ents for purchase of investment rties Proceeds from sale of property, plant and equipment and properties held for resale Payments for purchase of units in unit trusts and other 2,422 28,592 investments 161 Payments for purchase of equity accounted (4.256) investments 947 Proceeds from sale of/(payments for purchase of) listed securities Proceeds from insurance claims Loans granted to joint venture entities, joint venture 10,436 2.458 6,5 7,594) partners and unrelated entities Net Cash Flows Used In Investing Activities 198,765 48 Cash Flows from Financing Activities Proceeds from shares issued Proceeds from S Dividends Loans (repaid to)/received from related parties Repayment of other borrowings 2,072 210,000 1,013 70,000 344962 2.075 15,250 ted Facili 67 (6,573) 6.266 Net Cash Flows Used In Financing Activities 68,1 (287124 Net Increase/ Cash and Cash Equivalents at Beginning of the Year rease) in Cash and Cash Equivalents 82,581 42,882 60,749 103.631 28(a) 125,463 Cash and Cash Equivalents at End of the Year 42,882 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED 4. PROPERTY. PLANT AND EQUIPMENT (continued) CONSOLIDATE June 2018 $000 June 2017 $000 Reconciliation of the carrying amounts of property, plant and equipment (continued) Leased plant and equipment at cost Opening balance Additions Disposals Closing balance Leased plant and equipment accumulated depreciation: Opening balance Depreciation for the year Disposals Closing balance 6,313 195 1,467 4,872 26 6,313 6,475 847 72 1,280 2,120 847 Net book value 4,355 Lease make good asset at cost Opening balance Additions Disposals Net foreign currency differences arising from foreign operations Closing balance 5,083 1,094 (2 5,526 288 343) 388 5,083 369 6,257 Lease make good asset accumulated depreciation: Opening balance Depreciation for the year Disposals Net foreign currency differences arising from foreign operations Closing balance 2,907 644 2,883 603 343 36 2,907 263 3,525 Net book value 176 Total plant and equipment 227,876 Total property, plant and equipment 660.337 625,112 NOTES TO THE FINANCIALSTATEMENTS (cONTINUED 14. PROPERTY, PLANT AND EQUIPMENT (continued) (d) Sensitivity information Impact on fair value for significant increase in input Impact on fair value for significant decrease in input Key unobservable inputs Decrease Increase Net market rent Capitalisation rate Terminal yield Discount rate Decrease Increase Decrease Increase Decrease Increase Decrease Price per square metre Increase The net market rent of a property and the capitalisation rate are key inputs of the income capitalisation valuation method. The income capitalisation valuation method incorporates a direct interrelationship between the net market rent of a property and its capitalisation rate. This methodology involves assessing the total net market income generated by the property and capitalising this in perpetuity to derive a capital value. Significant increases (or decreases) in rental returns and rent growth per annum in isolation would result in a significantly higher (or lower) fair value of the properties. There is an inverse relationship between the capitalisation rate and the fair value of properties. Significant increases (or decreases) in the capitalisation rate in isolation would result in a significantly lower (or higher) fair value of the properties The discount rate and terminal yield are key inputs of the discounted cash flow method. The discounted cash flow method incorporates a direct interrelationship between the discount rate and the terminal yield as the discount rate applied will determine the rate in which the terminal value is discounted to present value. Significant increases (or decreases) in the discount rate in isolation would result in a significantly lower (or higher) fair value. Similarly, significant increases (or decreases) in the terminal yield in isolation would result in a significantly lower (or higher) fair value. In general, an increase in the discount rate and a decrease in the terminal yield could potentially offset the impact on the fair value of the properties. (e) Highest and best use For all owner occupied property that is measured at fair value, the current use of the property is considered the highest and best use
