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Advanced Financial Accounting: Comfort DelGro

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Question:

Discuss about the Advanced Financial Accounting for Comfort DelGro.

 

Answer:

Introduction 

Comfort DelGro Corporation Limited is identified to be the market leader of the private coach services and the public scheduled bus sectors in the Singapore. The public listed subsidiary SBS Transit Ltd is depicted to be operating at the fleet of about 3448 buses and 255 bus routes are considered. It also comprises of the 205 bus services, 23 niche bus services and 25 premium bus services (Welch, 2014). The Comfort DelGro Corporation Limited consists of the 350 fleet buses with including the buses that are belonging to the subcontractors.  Comfort DelGRo Corporation Limited operates in seven countries such as Singapore, China, UK, Australia, Vietnam, Malaysia, and Ireland.  The company always tries to maintain a good relationship with their investors and with shareholders by providing them with the correct information at the correct time. The literature which is being explained in this report is consisting of the changes to the accounting requirements is affecting the company or the not along with the judging the effects revealed on the financial statements as presented by the company (Bacon, 2010). The pros and the cons are also discussed at the end of this report which justifies the effect created by the company. Henceforth the primary objective is being defined in the form of the literature as provided in this report.

 

Changes to Accounting Requirements 

The most important thing which is being observed in the form of the changes in the IAS 17 and IFRS 16 is that the way of bringing the operating lease into the account of the balance sheet which is being produced by the companies. As under the IAS 17, a lessee is not obligated to be presenting the report of the assets and the liabilities from the operating leases. But in the case of the IFRS 16, a lessee is obligated to be presenting the report of the assets and the liabilities in the financial statements in the form of the operating leases (Arnold, 2012). IFRS-enabled this for the purpose of recognizing the arising rights and the values of the assets and the liabilities as it is being represented on the balance sheet.

IAS 17: It shows operating lease which is presented off balance in the form of the single expenses. The finance lease is only being represented in the balance sheet.

IFRS16: It shows the recognition of the operating lease which is being used for recognizing the assets and the liabilities on the balance sheet. The operating lease is being presented in the form for the purpose of reporting the depreciation and the interests separately (Correia, 2005).

 

Effects on Financial Statements 

The new lease rules stated in the IFRS 16 will impose a significant impact on the financial statements of the ComforDelGro. The financial statement should show recognition, measurement and disclosures of the leases. The company has to disclose the financial information about the leasing of the assets. The company has to recognize the values of the leasing, impairment losses and depreciation charges (Besley, 2016). The company has to recognize the value of the items on the basis of the transfer of rewards and risks. The financial statements of the company show the details of the leases and also all the details of transaction. The lessee has to recognize all the assets and liabilities and the lessor has to classify leases as finance or operating.  The value of both the group and company has been decreased from the year 2015 to 2016 which means that some of the assets have been removed or dismantled. Thus, according to the new lease standard, the company has to show the changes in their balance sheet (Dauber, 2005). The company has to evaluate under the recognition principle of the costs of the assets and liabilities.

The assets, liabilities, capital, income, cash flow, are included in the financial statements. The shareholders would be able to determine and evaluate the valuation of the lease account. These new amendments drop significant impact on the preparation of the financial statements of the companies, and the ComfortDelgro is also affected by these new changes.  The new standard can be beneficial in both accounting and operational aspects of ComfortDelgro (Emery, Finnerty and Stowe, 2011). The arrangement of the new leases can be more competitive and can decrease the risk of the companies.  The effects of the changing accounting standards are related to the management processes and the adjustment mechanism of the company. The effect is also linked to the investors, before investing money they will be able to know about the value of the company due to the implementation of the new lease standard.

The balance sheet should show the value of the asset which will provide appropriate information. Financing leases and the focus to the real cost of the lease assets is the effect of the International Financial Reporting Standard 16 (IFRS16).  The auditors represent the income statement, balance sheet, cash flow statement and they have to follow the standard. The audit evidence obtains the sufficient and appropriate information to provide a fair view of financial statement (Helbæk, Lindset, and McLellan, 2010). The implementation of the new leases has a significant effect on the preparation of the financial statements. It is effective in the identification of the compound and judgmental leases arrangement. Based on the figure of the business the new standard is useful in the making of significant differences in the assets ratio. In the case ComfortDelgro, the effects of the new standard will be felt across and have an impact on the risk management plans. According to the financial declaration of the ComfortDelGro Company, the board of director represents the financial position as per the report. It affects the non-parametric analysis of the financial ratio and the calculating other ratio. Without depending on the leases intensity, the International Financial Reporting Standard 16 (IFRS16) affects the assets value of the companies. The effect of IFRS16 may be more than the expected value which is considered as the minimum lease payment declared by IFRS16 (Horngren, 2013). It is useful in the risk management, financial, operational control and in the other processes. It has an impact on the advanced financial accounting which facilitates the analysis of the financial results. So in the application of the new leases IFRS16 rather than the old one, IAS17 is more profitable than before. The investors will be able to get the appropriate value of the leases and classification of lease. The calculation of the financial ratios will be changed on the basis of new standard requirements, and the shareholders will get an accurate result of the financial statements.

 

Effects on ComforDelGro

The changes in the standard will impose significant impact on the financial statements of the company. It evaluates the items on recognition of the lease costs and its classification. The price of the items of ComfortDelgro can be measured reliably. The impact of the changes in new lease requirements in retail is expected to be mostly significantly, and it impacts ComfortDelgro substantially (Mott, 2008). The new standard has brought the biggest change in the making of financial reports according to the standards if the assets are bought and financed with debt, the assets and liabilities arising from the lease must be brought onto a lease balance sheet. Hence, the company ComfortDelgro’s material off-balance sheet leases that IFRS 16 is projected to better results in an increase of financial liabilities and lease assets. According to the IASB expects key financial ratios derived from a ComfortDelgro reported to some assets and liabilities to change. Hence, the lease the finance lease receivable along with the vehicles procured under finance lease plans are considered as finance lease of the company ComfortDelGro. The arrangement of the expenditure related to leases and other some effects (Oppermann, 2009). The new standard removes the differentiation of operating lease and finance lease and all lease are treating as the finance lease. The appreciation of the expense is related to rent and own lease and as well as the portfolio of contracts. The dimension of the increase in service of profit and finance costs that depends on the suggestion of leasing to ComfortDelgro and measurement or the discount rates applied (Rahman, 2015).

The new IFRS 16 standard has brought the principles that are used for detection, measurement plus disclosure of the lease. The reduction of the leased asset will be documented on a straight-line basis that outflow decreases over the contract terms as upon the rent due to responsibility decreases. Under at the new normal, a lease is agreement or part of a contract that conveys to use the right asset for an extended period in replace for reflection. Reduction operating cost and interest expenses cannot be collective in the income declaration. Attention expenditure is presented based on an accounting policy election that by IAS 7 Statement of cash flows. To obtain all of the economic benefits from the utilization of the identified asset, the use of the directly identified asset significantly made. Lesser are required to apply IFRS 15 to distribute the consideration in the agreement. Many contracts of ComfortDelgro contain a lease engaged with a concurrence to obtain or sell other goods or services. It is required to originally be familiar with lease liability for the responsibility to make lease payments and use of right assets to use the underlying asset for the lease term (Parrino, 2015). Use of safe assets is subjected to mutilation testing under IAS 36 Impairment of assets. The new lease rule effect on the gearing ratio of ComfortDelgro as it changes the liabilities of the company, so the debt ratio of the is also changed. Moreover, due to the changes in debt the financial position of ComfortDelgro is also changed. Lessees create the contractibility to reflect concentration and decrease the liability and to imitate on lease payments made. For an individual off balance sheet lease, the expenditure recognized was typically the same in each of the periods throughout the lease term that ComfortDelgro known as operating lease expenses characteristically on a straight line basis. The related use of a true asset is depreciated in agreement with the depreciation requirements of assets.  Lessees premeasured the contract obligation upon the incident of individual actions. Use of right assets presented unconnectedly from the other assets on the balance sheet or disclosed separately in notes (Rayman, 2013). For operating leases, lesser continues to be familiar with the underlying asset.  The new standard will require ComfortDelgro to do more than just exchange its obtainable operation lease commitments that exposé to reproduce lease assets and liabilities. These actions will need participation from a selection of departments across ComfortDelgro. The cost to put into practice and carry on to meet the terms of new leases standard could be substantial for most lessees. 

 

Conclusion

The change in the lease standards is representing that the company had to show all the details of the leases in the balance sheet as per the standards of the IFRS 16 (Schroeder, Clark and Cathey, 2011). The pros and the cons of the changes are surrounding the discussion which is revolving around the effect on the financial statements and the effect on the selected company is depicted to be showing that the investors are benefitted by this a lot since, they can have each and every detailed information of the company's assets which will be listed on the balance sheet (Tracy, 2013). The values and classification of the leases will be determined and evaluated by the shareholders.

 

References

Arnold, G. (2012). Corporate financial management. Harlow, England: Pearson.

Bacon, F. (2010). Corporate financial management. Acton, MA: Copley Custom Textbooks.

Besley, S. (2016). Corporate finance. [Place of publication not identified]: Cengage Learning.

Correia, C. (2005). Corporate financial management. Cottesloe, W.A.: Skystone Investments.

Dauber, N. (2005). 2006 Auditing standards. Canada: Thomson.

Emery, D., Finnerty, J. and Stowe, J. (2011). Corporate financial management. Morristown, NJ: Wohl Publishing.

Helbæk, M., Lindset, S. and McLellan, B. (2010). Corporate finance. Maidenhead, Berkshire: Open University Press/McGraw-Hill Education.

Horngren, C. (2013). Accounting. Frenchs Forest, N.S.W.: Pearson Australia.

Mott, G. (2008). Accounting fro Non-Accountants (7th Edition). London, GBR: Kogan Page, Limited.

Oppermann, H. (2009). Accounting standards. Lansdowne: Juta.

Parrino, R. (2015). Corporate Finance. Singapore: John Wiley & Sons.

Rahman, N. (2015). Corporate Finance. North Ryde: McGraw-Hill Australia.

Rayman, R. (2013). Accounting Standards. Hoboken: Taylor and Francis.

Schroeder, R., Clark, M., and Cathey, J. (2011). Financial accounting theory and analysis. Hoboken, NJ: Wiley.

Tracy, J. (2013). Accounting for dummies. Hoboken, N.J.: Wiley.

Welch, I. (2014). Corporate finance. Los Angeles: Ivo Welch.

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