ANALYSIS OF PRESENTATION AND
DISCLOSURE OF REVALUATION ASSET
BASED ON TAX REGULATION IN THE
FINANCIAL STATEMENT 2015
Agenda
Introduction
Introduction
Literature Review
Literature Review
Research Method
Research Method
Discussion and Analysis
Discussion and Analysis
Conclusion
Conclusion
Introduction
3
Revaluation of assets is a reassessment of the value of the
assets owned by the company.
Revaluation model and fair value would increase financial
statement relevance because the assets reflect the fair value or
actual value.
Treatment of revaluation of assets in Indonesia can be done
either in accounting or tax. Revaluation or reappraisal is usually performed on fixed assets
or investment properties.
Revaluation model is a
accounting policy for fixed asset and fair value model is
Introduction
4
TAX
• The revaluation are also regulated in the Income Tax Act Article 4
paragraph (1) letter m stating that “the excess of the revaluation of a fixed assets is the object of income tax”.
• Tax only recognizes the excess over the revaluation of fixed
assets. In other words, only the excess (gain) on revaluation of fixed assets are taxed but impairment not tax deductible.
• Further rules regarding the revaluation of fixed assets in the tax regulated in PMK 79/PMK.08/2008:
• Increasing of asset tax by 10% final and additional tax (tax statutory tax-10%) if company sale the asset
Introduction
• PSAK 16 in 1994, revaluation is not allowed for assessment
under the acquisition price, but a deviation from this provision may be carried out under the provisions of the Government.
• PSAK 16 (2007), Revaluation is an accounting policy choices
that must implement consistently.
• Changes in accounting standards have led to differences between the tax and accounting treatment of fixed assets
caused the decreasing incentive for tax revaluation
• To encourage domestic economy and provide incentives to companies, the government issued a new policy that PMK 191/PMK.010/2015 and was revised in PMK 233 / PMK.03 / 2015.
Introduction
• Piera (2007) found that the company in the Swiss tend to revalue fixed
assets because of the leverage and international stakeholders.
• Su Seng (2010) found the intensity of the assets, as the factors that
drive the company revalued the assets.
• The earlier study in Indonesia only conduct an analysis of the implications of the corporate income tax on revaluation.
• This research focuses on:
– How impact the new tax regulation on revaluation to the companies decision on revaluation
• Company characteristic • Type of asset
– What factors that impact of revaluation decision (size, capital
intensity)
Literature Review
Revaluation of Assets According to Accounting
• The accounting treatment for the revaluation of assetsdescribed in the revised PSAK 16, 2015.
• The Company can select measurement after the initial recognition of fixed assets, one of which is the revaluation model in order to provide more relevant information for decision-making companies.
• According to IAS 16 (2015), the revaluation conducted by the
company should be conducted regularly so that the carrying amount and the amount determined using the fair value is not materially different at the end of the period.
Literature Review
Revaluation of Assets According to Accounting
• The revaluation of assets in accounting is also set in IAS 13 Investment Property, which in IAS known as the revaluation of the fair value model.
• Investment property in accordance with accounting standards are the property of the company or tenant (whether in the form of land or
building, or both) to earn rentals or capital appreciation, or both, and not for production or supply of goods/services for administrative purposes and not for sale in everyday business activities.
• Gains or losses on the results of the change in fair value of investment
property are recognized in profit or loss in the period the change occurs. Revaluation of assets performed by the company is used to reflect the current asset value (Martani, 2012)
Literature Review
Revaluation of Assets According to Tax Regulation
PMK 79 / 2008
• Further rules regarding the revaluation of the assets company's is set in
the PMK 79 (2008).
• The types of assets that can be revalued in the PMK 79 (2008) is all
tangible fixed assets including land use rights that have certificates and buildings, as well as all fixed assets tangible excluding land located in Indonesia, owned and used to obtain, collect and preserve income into the taxable income.
• Revaluation according to this taxation can not be done before five years • The revaluation must be based on the fair value that performed by
certified appraisal.
Literature Review
Revaluation of Assets According to Tax Regulation PMK 191/ 2015
• The new government regulations that PMK 191//2015 and amended by
PMK 233/2015.
– Lower tariff 3% (end of 2015), 4% (June, 30, 2016), 6% (end of 2016)
• There are some differences between the PMK 79 (2008) with PMK 191
(2015),
– the taxpayer is able to perform revaluation are a corporate taxpayer,
Permanent Establishment (BUT), an individual taxpayer who does the
bookkeeping, including taxpayer which has obtained a license to keep books in English and the currency of the US dollar, as well as the taxpayer who is still in a period of 5 years from the revaluation regulated in PMK
79/PMK.03/2008.
– Fixed assets can be revalued, where the PMK 191 (2015) the company may
revalue some or all fixed assets are located in Indonesia.
Literature Review
• Revaluation of Assets According to Technical Bulletin 11 About
Assets Revaluation
• Issues raised in technical bulletins 11 is about five things:
– Relationships revaluation of fixed assets between tax and accounting,
– Approval DJP for submission of application for revaluation of fixed assets of the company,
– the accounting treatment of final income tax charged to revaluation of fixed
assets,
– current tax and deferred results from revaluation of fixed assets,
– the tax rate to measure the impact of deferred taxes as a result of the
revaluation of fixed assets (either for tax purposes or for the purposes of accounting and taxation).
• Companies are allowed to choose revaluation:
– only for tax purposes,
– only for accounting purposes or – for tax and accounting purposes.
Literature Review
• Revaluation of Assets According to Technical Bulletin 11 About
Assets Revaluation
• Tax purposes only
– it should get approval from the DJP within a certain time.
– DJP has the authority to reject or accept the proposal on the revaluation. For companies that have received approval from the DJP in doing the
revaluation
– the current tax expense (3%; 4% & 6% of the excess of revaluation) arising
from these events are recognized in profit or loss.
– the revaluation event temporary differences arise because the tax base is
larger than the amount recorded in accounting.
Literature Review
• Revaluation of Assets According to Technical Bulletin 11 About
Assets Revaluation
• Accounting purposes only
– the amount of taxes paid is recognized in other comprehensive income and
accumulated in equity in the revaluation surplus.
– No tax paid
– No temporary difference between tax and accounting because the
revaluation surplus did not recognize in tax purposes.
• Accounting and tax purposes
– Permit from ministry of finance – Tax paid according the regulation
– No temporary differences between the carrying amounts for accounting with
their respective tax bases.
– But if the company want to revalue asset before 5 year, the company will use
accounting only revaluation purposes.
Literature Review
Hypothesis 1
• The lenders use accounting information to analyze the company's
financial position and assess the risk of the company when the lender will approve the loan to be granted.
• Revaluation will increase the book value of total assets that would give effect to the creditors that the company's financial ratios well.
• With the report's strong financial position will have an impact on the confidence of creditors that the company can pay the debt. The
preparation of this hypothesis was based on previous research conducted by (Piera, 2007) and (Seng and Su, 2010).
• H1: Companies with high leverage level have a high probability to
revalue fixed assets
Literature Review
Hypothesis 2
• Borrowing capacity of a company depends not only on the level of
leverage but also on the company's ability to repay debt.
• The decline in cash flow from operations may cause lenders to be
concerned with the company's liquidity.
• An Australian study by (Cotter and Zimmer, 1995) argues that a
revaluation may help to convince debtholders about the company's ability to pay the debt through ownership potential value of the
company's assets are largely based on market value.
• Therefore, the revaluation undertaken will help the company to repay
the loan by the company (Seng and Su, 2010).
• H2: Companies that decreased cash flow operating activities more likely
to have a high probability to revalue fixed assets
Literature Review
• Hypothesis 3
• Lin and Peasnel, 2000b found a positive relationship between the
intensity of fixed assets by the manager's decision to conduct the revaluation.
• Tay (2009) found the influence of the revaluation of assets with fixed
asset intensity.
• Seng and Su (2010) also find the relation between the fixed asset
intensity and revaluation of asset.
• H3: Companies that have a high intensity of fixed assets that have a
high probability to revalue fixed assets
Literature Review
Hypothesis 4
• To reduce the adverse political influence, companies tend to avoid income/profit companies that are too high (Standish and Ung, 1982).
• The revaluation of an asset can be an effective way for companies to reduce profits through increased depreciation charges on the rise in assets that were revalued (Lin and Peasnell, 2000b).
• Seng and Su (2010) also find that the company has a large size will tend to revalue fixed assets of the company.
• H4: Companies with large size has a high probability to revalue fixed assets
Research Methodology - Framework
• Leverage
• Declining Cash
FlowFrom Operations
• Fixed Asset Intensity • Firm Size
Policy of Revaluation
18 Yi : Revaluation of fixed assets of companies listed on the Stock Exchange in 2015 (using
a dummy, one for the revaluation and zero for which no Revaluation)
LEVi : The level of leverage measured by the ratio of total debt to total assets
DCFFOi : Decrease in operating cash flow of the company is measured from the ratio of
decrease in cash flow from operating activities of the company in year t to the year t-1 to the decline in operating cash flow in year t
INTATi : The intensity or the proportion of fixed assets owned by the company measured from the ratio of total fixed assets to total assets (%)
SIZEi : The size of the company with natural logarithma measured from natural logarithma on total assets in year t
Research Methodology – Data and Sample
• Data from this study are all listed company listed in Indonesia Stock
Exchange until 2015. The number of companies listed on the Stock Exchange in 2015 was 525 companies with various types of industries.
• The sampling method the researchers did was by purposive sampling, with the characteristics of sampling are companies listed on the Stock Exchange until 2015 (1) and availability of data is a company's financial statements were audited in 2015 (2).
19
No. Description Company
1 Company listed on the Stock Exchange 525 2 The number of samples of the company that has first and
second criteria
406
Discussion and Analysis
- Descriptive statistics20
Company
Percentage
Not doing Revaluation
197
60.6
Doing Revaluation
128
39.4
Total
325
100
• There are 39.4% of the total sample used, revalued assets.
• Not many companies are using the revaluation model in measuring assets, both for fixed assets or investment properties.
Discussion and Analysis
- Descriptive statistics21
Industry % Total Asset Amount of CompanyRevaluation Listed TotalPercentageRevaluation
Consumer Staples : 13.84% 14 60 11% 23%
Food Product 13.57% 11 38 29%
Materials : 16.96% 21 69 16% 30%
Metals and Mining 6.17% 8 26 31%
Construction Materials 2.16% 1 6 17%
Chemical 3.94% 4 16 25%
Paper and Forest Product 1.98% 4 9 44%
Discussion and Analysis
- Descriptive statistics22
Industry % Total Asset Amount of Company Percentage
Revaluation Listed Total Revaluation
Infrastructure dan
Transportation : 20.06% 23 138 18% 17%
Construction and Technique 2.63% 4 17 24%
Trading and Distributor 0.99% 1 12 8%
Machine Equipment 0.77% 2 4 50%
Highway, Airports, and
Seaport 0.68% 2 7 29%
Airlines 1.47% 1 1 100%
Electric Equipment 1.35% 1 7 14%
Commercial services and
supplies 2.14% 2 7 29%
Road and Rail 1.87% 1 11 9%
Building Product 1.57% 1 6 17%
Real Estate 5.74% 7 50 14%
Shipping 0.85% 1 13 8%
Communication Service : 13.32% 6 12 5% 50%
Variety of Communication 7.42% 4 6 67%
Discussion and Analysis
- Descriptive statistics23
Industry % Total Asset Amount of CompanyRevaluation Listed TotalPercentageRevaluation
Information Technology : 1.09% 1 11 1% 9%
Software and Internet
Service 1.09% 1 3 33%
Health : 0.71% 3 15 2% 20%
Health care providers 0.71% 3 9 33%
Others : 13.71% 20 89 16% 22%
Automobile and auto
Components 1.67% 6 11 55%
Media 2.93% 2 14 14%
Hotel, restaurant and leisure 2.10% 4 7 57%
Household Goods 1.61% 3 5 60%
Textiles, apparel, luxury
goods 2.19% 2 17 12%
Specialty Retail 2.26% 2 11 18%
Distributors 0.95% 1 6 17%
Discussion and Analysis
– Types of Asset24 Various Asset Revaluation Company Percentage
Company Most of Fixed Assets
1 All of Fixed Assets 28 22%
2 Most of Fixed Assets 71 55%
Land 18 25%
Land and others 2 3%
Building 2 3%
Building and others 7 10%
Land and Building 21 30%
Land, building and others 8 11%
Others 13 18%
3 Investment Property 26 20%
4 Investment Property and Fixed Asset 3 2%
Data and Analysis – Accounting Policy
25
Company Percentage
Tax Only 35 27.3
Accounting Only 48 37.5
Tax and Accounting 45 35.2
Total 128 100
Company Percentage
Data and Analysis - Descriptive statistics
26
Variable Mean Std. Deviation Minimum Maximum
REV 0.39 0.49 0.00 1.00
LEV 11.93 10.76 0.02 76.80
DCFFO -0.31 7.54 -70.31 44.60
INTSY 6.14 2.63 -2.73 9.93
Data and Analysis – Regression Result
27
Variabel Exp. Sig. Coef. Odd
Ratio Sig. Level
Constant --- -58.696 0.000 0.000
LEV H1 + -0.030 0.971 0.118
DCFFO H2 + -0.001 0.999 0.949
INTSY H3 + 1.148 3.152 0.000**
SIZE H4 + 1.669 5.307 0.000**
Total (N) 325
Data and Analysis
28
Leverage
• Leverage variable has no significant influence with the dependent variable (revaluation).
• The results of this study not inline with the research (Piera, 2007). However, the results of this research together with research conducted (Seng and Su, 2010) found no significant influence between leverage the company revalued its
decision.
Declining cash flow from operation
• Declining cash flow from operation also do not have a significant influence on the revaluation.
• The results was the same with previous studies conducted by (Seng and Su,
2010) found no relation between the decline in cash flow from operating activities by the company's decision to revalued their assets.
Data and Analysis
29
Fixed Assets intensity
• Fixed asset intensity proved to have significant influence with the revaluation of assets.
• The results of this research have inline with the study by (Seng and Su, 2010), (Lin and Peasnel, 2000b), and (Tay, 2009) which says that the intensity of the fixed assets of the company influence the decisions of significant revaluation of assets.
• Intensity of fixed asset will create significant impact of revaluation on total expense and future earning.
Firm size
• Firm size also have the same results with previous studies (Seng and Su, 2010), and (Iatridis, 2012) which found a significant
influence between firm size and revaluation of the company's decision.
• The firm size has a significant influence on the decision of the company revalued or in other words the size of the company
Conclusion
30
Conclusion
• Companies that revaluation its assets is only 39.4% of the sample studied, or 128 companies, which dominate the financial sector (38 companies). This study also shows that 55% of companies carry out revaluation for the majority of fixed assets or 71 companies.
• Type of revaluation of the most widely used by the company is the revaluation for accounting purposes, with a percentage of 37.5% or 48 companies.
• The study also proves that there are two significant factors that influence the company's decision to revalue the company's assets, namely fixed asset intensity and size of the company but leverage and decreased cash flow operating activities were not significant.
Implication
• The accounting standard was considered by company when decide to follow the new tax regulation, so DJP must consider accounting standard when produce or revise the tax regulation.
• Revaluation will decrease of tax payment in the future 4-20 year, because of deductible depreciation expense of revaluation assets.