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You have been randomly assigned an Australian publicly listed company (refer to the separate excel spreadsheet provided to identify your company). Using the financial reports for your company, you are required to prepare an essay that addresses the 7 requirements listed below.

  1. Introduction (Company’s main operation/ what the assignment is about/ Topics covered)
  2. (a) Select a non-current asset from the financial statements of your company. Provide details of this item (including identify the valuation method used for this item).
    • With reference to qualitative characteristics, provide an argument for using an alternative valuation method for this non-current
  3. (a) Provide details of the intangible assets reported by your
    • Evaluate how the company fulfilled its disclosure requirements in relation to intangible
  4. (a) Provide details of the provisions and contingencies recorded or disclosed by your company.
    • With reference to one specific contingency recorded or disclosed by the company, provide an argument for and against the inclusion of the contingency in the financial report.
  5. (a) Provide details of leased items that are recorded or disclosed by your
    • Discuss the classification and presentation requirements relevant to leased items, and in doing so provide an explanation for how the leased items of your company have been presented on the financial
  6. (a) Provide details of the revenue disclosed in the annual report of the
    • Justify the revenue recognition criteria for a specific (major) revenue of the company.
  7. Conclusion (final overview of the findings)

Non-Current Assets Evaluation

The assessment aims in evaluating the current financial position of Sims Metal Management, where different assets of the organisation has been evaluated. The overall lease, revenue and continent liabilities of the organisation has been analysed for identifying the level of operations and current financial position of the company. Sims Metal Management is one of the leading organisations in recycling, where its operations are to salvage metals and electronic products. In addition, the organisation deals in ferrous metal, non-ferrous metals, post-consumer electronic goods and municipal waste for recycling purposes. The operations of the organisation have been situated to United Sates, Australia and UK, where different division have been maintained for conducting their operations. The divisions such as metals recycling, electronic recycling and municipal recycling has been conducted by the management of Sims Metal Management for smoothly conducting its operations. During the fiscal year of 2017 the total revenue of the company has accounted for $5.1 billion, where the net income was at the levels of $120 million.

                                 

                                                                                   Figure 1: Depicting the Recognition Method

                                                                                                 (Source: Simsmm.com, 2018)

The non-current assets, which has been taken into consideration for Sims Metal Management is Property, plant and equipment that is adequately recognised in their annual report. After evaluating the annual report adequate recognition and measures has been used by the organisation, where the carrying value, deprecation, proceeds from sales and impairment is used by the organisation for evaluating its non-current assets. The company uses the historical values of the non-current assets, where straight line deprecation is used for reducing values of the assets and determining the correct valuation of the non-current assets. The proceeds from sales are recognised at the date of the unconditional contract sales, which has been conducted over the period, where the carrying amount is used for recognising the profit and loss. The impairment loss is also initiated by the company, when the overall carrying amount is greater than the recoverable amount (Dalnial et al., 2014).

Intangible Assets and Impairment

The different recognition method such as fair value accounting can be used for the non-current assets of the organisation, which might help in detecting the current values of their non-current assets. The fair value measure allows the company to accurately portray the current valuation of their noncurrent assets, which can help in detecting the current valuation of the organisation. The fair value measure can evaluate the non-current assets such as property accurately for depicting the current financial condition of the organisation.

                           

                                                                                  Figure 2: Depicting the Intangible assets

                                                                                            (Source: Simsmm.com, 2018)

The above figure indicates the level of different intangible assets, which are conducted by Sims Metal Management. The company uses intangible assets such as goodwill, supplier relationships, permits, licences/contracts, and trade names. The identified intangible assets have been used by Sims Metal Management for detecting the level of assets, which has been maintained by the management during the fiscal year of 2017. The relevant reduction in the current total intangible assets of the organisation is relevantly seen from 2016 to 2017. This decline is relevantly conducted by the organisation with the help of accumulated impairment, accumulated amortisation, amortisation expense and foreign exchange difference (DeFusco et al., 2015). The overall intangible assets of the organisation have mainly declined from the levels of 169.8 million in 2016 to 158.4 million in 2017. This decline in the intangible assts is relevantly conducted due to the measurements and valuation that has been conducted by the organisation.

After analysing the overall annual report of the organisation, it could be detected that Sims Metal Management has adequately fulfilled the requirements needed for the disclosure of the intangible assets. In addition, the entire intangible assets of the organisation have adequately depicted in the annual report, where the accurate financial performance of the company is detected from the evaluation. Fazzini (2018) mentioned that with the detection intangible assets organisation are able to mention the accurate financial condition and the recognition method used by the management.

Provisions and Contingent Liabilities

                                 

                                                                                          Figure 3: Depicting the Provisions

                                                                                                 (Source: Simsmm.com, 2018)

After analysing the annual report of Sims Metal Management, the contingencies are not recorded within the operations of the organisation. However, there are different provisions, which has been maintained by the organisation over the period, which has been used for supporting their activities. The provisions have been conducted on employee benefits, self-insured risk, onerous lease provisions, legal provisions, property make good, and other. These provisions are mainly segregated in two different segments such as current and non-current assets, which has helped in depicting the level of provisions that is being made by the company during the fiscal year of 2017. The overall decline in the current provisions of the organisation is mainly witnessed, which has helped in depicting the measure used by the company for supporting its operations.

From the evaluation of the annual report there is no specific contingency asset or liability, which is detected in their financial report. There are certain level of contingency assets and liabilities, which are conducted by the organisations in their annual report. Therefore, inclusion of the contingency assets and liabilities within the annual report has certain advantages, which allow the organisation to accurately depict their current financial position by deducting their liabilities. Grant (2016) mentioned that there are three different segments of contingent liabilities section, which needs to be evaluated by the organisation before depicting it in their annual report.

                                                                           

                                                                                               Figure 4: Depicting the lease

Lease and Onerous Lease Provision

                                                                                                  (Source: Simsmm.com, 2018)

The above figure indicates the level of leased item, which has been used by Sims Metal Management during the financial year of 2016 and 2017. The rent lease item is relevantly depicted in the annual report of Sims Metal Management, which has declined from the level of A$100.7 million in 2016 to A$84.4 million in 2017. In addition, the net asset acquired through the finance lease was A$3.7 million in 2017 as compared to 2016. The overall net book values of assets mainly declined over the period of one fiscal year. Onerous lease provision is mainly calculated during the financial year of 2016 and 2017, where the values have declined from the levels of A$47.2 million to A$36.4 million.

The relevant classification and presentation requirements of the leased items can be used for detecting the level of exposures, which the organisation has conducted. In addition, the Sims Metal Management has used the retail lease measures in its operations, where the AASB 16 Leases has been used for recognising its leased operations. the AASB 16 provision has highlighted the overall measure that needs to be taken into consideration for accounting the lease requirements of the organisation. The repayment of lease has been conducted by the organisation over the fiscal years. therefore, the leased item is adequately depicted in the annual report of the organisation, which has helped in detecting the level of expenses that has been conducted by the organisation for conducting their operations (Grimm & Blazovich, 2016).

                                                                   

                                                                                              Figure 5: Depicting the Revenues

                                                                                                    (Source: Simsmm.com, 2018)

Revenue Evaluation

The figure directly depicts the level of revenues, which has been obtained by Sims Metal Management during the fiscal year of 2016 and 2017. In addition, the figure indicates the level of incomes, which has been generated by the organisation from sales of goods, service revenue, interest income, rental income and dividend income. The main revenues that is generated by Sims Metal Management is from the sales of goods, which comprises of the maximum value. However, the increment in the current revenues of the organisation can be witnessed from the figure, which has allowed the organisation to improve its financial performance (Kaur, Aggarwal & Gupta, 2017).

Sims Metal Management has relevant recognition and measurement methods, which has allowed the organisation to adequate recognise the level of income that has occurred during the fiscal year. The sales revenue recognition method is different from other incomes, which is generated by Sims Metal Management, where the revenues from the goods is recognised, where adequate evidence is of the transfer is detected. On the other hand, the overall other income such as service revenue, interest income, rental income and dividend income is mainly recognised, when the actual truncation of cash is being conducted by the organisation.

Conclusion:

The assessment has mainly evaluated the financial position of Sims Metal Management, which can be used by investors in analysing the current financial position of the organisation. In addition, the evaluation of the annual report directly initiatives that the company has utilised adequate measure in recognising the Property, plant and equipment. In addition, the intangible assets, provisions, leases, and revenue has adequately depicted in the annual report of Sims Metal Management, which can help in understanding the current financial position of the company. The company has adequality utilised the AASB 16 for recognising the level of lease, which has been used for complementing their operations. The company has conducted its operations adequately, which allowed the management to accurately depict their current financial position in their annual report. Therefore, its could be detected that Sims Metal Management has accurately followed the financial reporting system for disclosing the items in their annual report.

References and Bibliography:

Dalnial, H., Kamaluddin, A., Sanusi, Z. M., & Khairuddin, K. S. (2014). Detecting fraudulent financial reporting through financial statement analysis. Journal of Advanced Management Science, 2(1).

DeFusco, R. A., McLeavey, D. W., Pinto, J. E., Anson, M. J., & Runkle, D. E. (2015). Quantitative investment analysis. John Wiley & Sons.

Fazzini, M. (2018). Financial Statement Analysis. In Business Valuation (pp. 39-76). Palgrave Macmillan, Cham.

Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Grimm, S. D., & Blazovich, J. L. (2016). Developing student competencies: An integrated approach to a financial statement analysis project. Journal of Accounting Education, 35, 69-101.

Kaur, M., Aggarwal, N., & Gupta, M. (2017). An Investigation into Returns from Financial Statement Analysis among High Book-to-Market Stocks. Indian Journal of Economics and Development, 13(2), 353-358.

Mohanram, P., Saiy, S., & Vyas, D. (2018). Fundamental analysis of banks: the use of financial statement information to screen winners from losers. Review of Accounting Studies, 23(1), 200-233.

Papanastasopoulos, G. A. (2018). JM WahlenS. P. BaginskiM. BradshawReview of Financial Reporting, Financial Statement Analysis and Valuation: A Strategic Perspective9th ed. 2018Cengage Learning978-1337614689 (995 pp., $228.25).

Pappa, A. (2015). Financial statement analysis of a multinational company and equity valuation of computer-based technology group.

Phillips, F. (2016). Withholding Financial Statement Analysis Formulas When Instructing and Testing: A Desirable Difficulty.

Simsmm.com. (2018). Sims Metal Management. Retrieved 23 September 2018, from https://www.simsmm.com/investors/reports/?cn-reloaded=1

Wahlen, J., Baginski, S., & Bradshaw, M. (2014). Financial reporting, financial statement analysis and valuation. Nelson Education.

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