“Company and Financial Reporting”

Executive Summary

This report is aimed to develop understanding of different AASB standards and their implications in accounting of certain transactions. In context of this, it is identified that in annual report of Telstra, different transactions like NBN definitive agreements, 4G voice services on small cells, venture capital investments and amortisation of software assets are recorded with the consideration of different AASB standards including AASB F, AASB 136, AASB 138 and AASB 101.


Part 1 is aimed to develop understanding of the accounting method of recognition and recording of ‘NBN Definitive Agreements’ by Telstra. In part 2, this report will explain the way of recording the transactions related to 4G voice services on small cells’ provided by Telstra in its annual report and accounting policy relating to research and development costs. Part 3 will discuss about the Telstra Ltd. Process of recording the venture capital of Ooyala. In addition to this, this assignment will also discuss the Ooyala write-down in 2016. This part 4 will discuss the requirement of observing the amortisation of software assets concept that lies under the Telstra Ltd. At the same time, it will also discuss the two of factors that are been recognized and that creates an effect on the choices of Telstra over the amortisation of software assets.

Part 1

Question 1 a)

Telstra entered a definitive agreement of $11 billion with the national broadband network company and the federal government. In this agreement, it is recorded that over the next 10 years, Telstra will provide its copper network and hybrid fibre-coaxial network to the large number of customers (Barns, et al., 2017). In this deal, NBN will pay $4billion over the next 10 years. In addition, Telstra will provide dark fibre, exchange space, lead-in conduits and ducts at $5billion to NBN over the next 35-40 years. Moreover, the federal government will pay $700 million to Telstra for its service obligations at universal level, and $300 millions for Greenfield fibre deployment and $1 billion for other commitments over 10 years (Li, 2012). This agreement value was recorded and recognised as post-tax net present value over the long-term life of the agreements. This agreement will also increase the value of free cash flow and offer the firm mire financial flexibility to make the balance sheet stronger (Annual Report, 2016). It will also help the firm to offset the decline in free cash flow because it can be expected that there may be inclination of the customers towards NBN. Apart from this, a cash payment is expected that will be amortised over three years after 2012.

Question 2 b)

In order to measure ‘NBN Definitive Agreement’, Telstra used the AASB accounting method with the consideration of different sections. According to AASB CF, it is required for the firms to show the proper objectives of financial statements and record the purpose of particular transaction with qualitative characteristics in relation to the information utility in financial statements and recognition and measurement of the elements. For recording this agreement, Telstra also adapted this conceptual framework and fulfilled all the requisites of this framework (Chircop and Kiosse, 2015).  Apart from this, AASB 101 is also considered by the firm to record this agreement value by presenting this value in all the financial statements including balance sheet, cash flow and change in equity, income statement in form of changes in respective elements (Annual Report, 2016). In addition, AASB 101 is also considered by the company by classifying the costs related to this agreement and share of net gain from NBN based on expense form. Moreover, in the annual report of the firm, AASB 136 is also preferred by the company to record this transaction in relation to impairment of assets through cash generating units (Annual Report, 2016). Along with this, AASB 138 is also considered by the company to record this transaction by showing intangible assets after this agreement with measurement of its carrying amounts and specified disclosures.

 Part 2

Question 2a)

The key transactions in the “4G voice services on small cells” are related to expenses, assets, liabilities revenues and profits. In recording these transactions, AASB CF will be crucial to consider the objective and qualitative characteristics behind this offering. Apart from this, all the changes in elements of different statements are also recorded in the respective financial statements as per the AASB 101. All the costs related to this offering are also considered to present the value in income statement. This offering may have a positive impact on the intangible assets as the goodwill of the firm may increase that will be recorded with its carrying amounts as per AASB 136 (Gozalvez, 2012). These services helped the firm to generate revenues and high profits that will be recorded in the income statement. However, these services caused high investment by the company on network development and installation of small cells in rural areas that will also recorded in the income statement as costs of goods sold in the income statement (Annual Report, 2016). All the costs related to cables, cloud networking and cyber security will be part of COGS. In addition, operational costs were 15.2% of total sales that will be recorded in the annual report of the firm.

Question 2b)

The research and development costs are recorded by Telstra as per AASB 138 in form of intangible assets. R&D costs are categorized in internally-generated intangible assets that are required to record to specific recognition criteria under AASB 136 and 138 (Richardson, et al., 2013).  According to AASB 136, intangible assets including benefits generated by R&D are the probable future economic benefits that are recorded by using the principles in AASB 136, impairment of assets. Telstra also consider AASB 136 and record these assets in cash generating units. All the expenses related to research and developments are recorded by the company by writing off to the income statement as expenses when incurred (Annual Report, 2016). All the expenditures undertake on the R&D are to be expensed in the income statement of the company.

 Part 3

Question 3 a)

There are various different kinds of investments which are included in venture capital. Additionally, a huge investment was initially made by venture capital of around $500 million. 98% of the total business was been acquired by the company out of which the value of write-down investment was around $246 million at its full year. It was clearly depicted that the value was decreasing and the reason behind it was the recurrent changing dynamics that took place in the video streaming market (ODARTEY, 2016). Moreover, it was found that Telstra has invested around $210 million in the start-ups but it became $300 million due to the upcoming investments. It can be further seen from the reports of Telstra Ltd that, small stakes are included in the venture portfolio in more than 20 of the technology start-ups which also contains unicorn, the DocuSign which is a electronic signature firm valued at $US3 billion in the private market. At the same time, currently Telstra has 5 portfolio enterprises including selling or investing in various public listed on the stock markets (Samudhram, et al., 2016). Thus, compared to the earlier investment the company value is write-down with investment. The company has also obtained 18 health-related enterprises by which the company moves towards generating revenues.


Question 3 b)

The accounting term Write-down is one which specifies the diminution of the assets in the book value and the main cause behind it could be the changes market trends, or the basic changes that are going in the assets value (Yang, et al., 2016). This is the ultimate cause which brings this situation of write-down to take place. The solution of write-down can be treated by making a reduction in the credits of the asset account inventory. Further, in the debit account there lays a requirement to record the entry of write-down inventory in order to exhibit loss for the company and also write-down as expenses in the account of the income statement. In addition to this, according to the reports it was seen that Telstra has made 11 fresh investments in various portfolios out of the vital investments are in the Telstra group of Software, the Telstra Health, the Telstra software business, etc. At the same time, it was seen that in the venture capital of Ooyala, Telstra observed that there was write-down of the value because of the economic changes that took place (Fleming, et al., 2011). Moreover in this current situation, the option left for Telstra to treat this write down value in the accounting book was through the following way. Initially, there was a need to reduce the credits from the assets which can be down by showing that the assets write down is in the debit account buy showing the reduction amount. By this entry the company will come to realise that which value is decreasing and after knowing the company can decide to make further investments.

 Part 4

Question 4a)

In accounting, amortization is a term which is related or similar to the term depreciation which is always applicable on the company’s tangible assets. In support of this, there is a requirement to observe the amortization of software assets by the Telstra Ltd. By doing so, the company and the accountant will be benefited to conduct accrual accounting (Bae, et al., 2013). Accrual accounting is a vital, important accounting and a tax payment method that will help to issue accurate accounting in context of the financial statements of the Telstra Ltd. Company. There can be an option for the company of recoding the transaction more closely if the Telstra Ltd. Company will consider the amortize expenses. The amortization is a concept which is also regarded as a part of the accrual accounting. One of the major benefits of viewing amortization is that it will provide the companies to take advantage of tax benefit. In addition to this, there is a requirement to consider the amortisation of assets by the Telstra Ltd. Company. The reason behind considering the amortization of assets by the company is that it will depict the actual value in the context of the assets in the financial statements of the company. Moreover to this, it will also focus the straight-line depreciation method that helps to reduce the value of depreciation from the value of the assets (Mayorga and Sidhu, 2012). Additionally, it is required by the Telstra Ltd. Company to consider the amortization to further represent the actual and true value of the software assets. It is seen from the 2016 annual reports of Telstra Ltd Company that, the value of the software assets is to be valued at $438 million so it makes necessary to consider the amortization of software cost.

Question 4 b)

Intangible assets –

The intangible assets are one of the main factors that will create an impact on the choices of Telstra over the amortisation of software assets. At the same time, it is seen that it is one main principle that amortisation is always related and also applicable in the context of tangible assets (Jenkins, 2017). However, in regard of Telstra, the software is intangible assets so it will cause an impact on the choice of amortisation of software assets.

Reduction of assets value –

There is a reduction in the value of the assets due to the amortisation of software assets. This will result in further creating an effect on the choices of Telstra for the amortisation of software assets (Sidgman and Crompton, 2016). The reason behind this is that there is no single company in the market place which want to have a reduction in there value of assets.


On the basis of the above discussion, it can be summarised that it is needed or the firms to record the transactions according to the standards of AASB to ensure fair accounting. Transactions related to “4G voice services on small cell” are recorded in different financial statements of Telstra. In addition, it can be summarized that AASB standards consider the expenses related to research and development under expenses in the income statement. It can be concluded that the company Telstra has made various kinds of investments in various portfolios. At the same time, the first huge investment was in the streaming video of around $500 million. The company records in the bookkeeping the write down entry by decreasing the credit from the assets and in the debit side it shows the write-down entry. Due to this the company has to face a reduction in its profits. Further, this made the company to make 11 new investments in different portfolios which are in the Telstra Health, and Telstra software business, etc. It can be concluded that amortisation plays an important role in the identification of the value of assets, especially that of tangible assets. The key major factors that cause an effect on the choices of Telstra for the amortization of software assets are the decreasing of the assets and the intangible assets.


Annual Report (2016) Telstra. [Online] Available at: (Accessed: 12 September 2017)

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