Background(both accounting standard and company)
BWP Company
Established and listed on the Australian Securities Exchange (“ASX”) in 1998 (see prospectus), BWP Trust (“BWP” or “the Trust”) is a real estate investment trust investing in and managing commercial properties throughout Australia.
The majority of BWP’s properties are large format retailing properties, and 92.8% of the rent come from Bunnings Warehouse, one of the biggest retailers in Australia and New Zealand which provide the home improvement and outdoor living products.
BWP is managed by an external responsible entity--BWP Management Limited, and Both Bunnings and the responsible entity are wholly-owned subsidiaries of Wesfarmers Limited (“Wesfarmers”), one of Australia’s largest …show more content…
1, The operating leases will be on balance sheet as a lease liability, which means the distinction between operating lease and the finance lease will no longer exist.
2, A corresponding asset will be recognised, separately on balance sheet, which offsets the operating lease liability.
3, Operating cash flow will no longer include cash outflow on rent, and instead, rental cash flow will be in the financing activities category as “ principal and interest expenses”.
4, the expenses of rent will no longer exist, instead, will be replaced with depreciation and interest expenses.
All the 4 changes above are more than likely to bring the impact on the lessees, which in our case is the Bunning warehouse, Bunning warehouse has to expense the theoretical amortisation and financing cost, and this will increase the EBIT, tax and etc. on the other hand, the change will decrease the net profit and so on. For example, as we know both BWP and Bunning are wholly-owned subsidiaries of Wesfarmers Limited, and Westfarmer has $4 billion in net debt, and NPV of its lease liabilities is around $15 billion, and therefore, under the new standard, the totally debt will rise to $19 billion. According to Morgan Stanley, the new standard will bring the considerable effect to the retailers, especially the retailers with long-term
BWP Company
Established and listed on the Australian Securities Exchange (“ASX”) in 1998 (see prospectus), BWP Trust (“BWP” or “the Trust”) is a real estate investment trust investing in and managing commercial properties throughout Australia.
The majority of BWP’s properties are large format retailing properties, and 92.8% of the rent come from Bunnings Warehouse, one of the biggest retailers in Australia and New Zealand which provide the home improvement and outdoor living products.
BWP is managed by an external responsible entity--BWP Management Limited, and Both Bunnings and the responsible entity are wholly-owned subsidiaries of Wesfarmers Limited (“Wesfarmers”), one of Australia’s largest …show more content…
1, The operating leases will be on balance sheet as a lease liability, which means the distinction between operating lease and the finance lease will no longer exist.
2, A corresponding asset will be recognised, separately on balance sheet, which offsets the operating lease liability.
3, Operating cash flow will no longer include cash outflow on rent, and instead, rental cash flow will be in the financing activities category as “ principal and interest expenses”.
4, the expenses of rent will no longer exist, instead, will be replaced with depreciation and interest expenses.
All the 4 changes above are more than likely to bring the impact on the lessees, which in our case is the Bunning warehouse, Bunning warehouse has to expense the theoretical amortisation and financing cost, and this will increase the EBIT, tax and etc. on the other hand, the change will decrease the net profit and so on. For example, as we know both BWP and Bunning are wholly-owned subsidiaries of Wesfarmers Limited, and Westfarmer has $4 billion in net debt, and NPV of its lease liabilities is around $15 billion, and therefore, under the new standard, the totally debt will rise to $19 billion. According to Morgan Stanley, the new standard will bring the considerable effect to the retailers, especially the retailers with long-term