Business reports are practical learning tasks where students apply the theories they have been studying to real world situations. The students are required to select a topic or work on a topic provided by the lecturer, collect information (Primary and/or secondary) or work on the information provided by the lecturer, and prepare a report describing a business problem or incident.
Explain the nature of the business, transaction records, preparation of financial reports, financial reports formats and extend of disclosure.
How different are the nature two businesses, recording transactions, financial reports preparation and formats.
- Use the language of financial accounting and financial reporting.
- Explain the purpose, content, format and practical applications of the following financial statements, the Profit and Loss Statement, the Balance Sheet, the Statement of Cash Flows and the relationship between these financial statements
- Analyse and interpret financial reports
- Explain the role of management account and use cost management techniques and tools
- Apply the accounting cycle and the business process of accounting information systems and their ethical implications
- Apply the accounting cycle and the business process of accounting information systems and their ethical implications
- Apply the Principle of Double entry system efficiently
Optus – service business
The present report will select two kinds of business that is the retail business and the service business and will select two companies from each sector that is the retail sector and the service sector. Then the two companies will be compared based on their financial statement presentation, way they records their transactions, financial statement components and the disclosures they make with regard to their financial statements. Further, the differences and similarities of two firms will be discussed based on the mentioned areas. For this report, the selected companies will be Optus that carries on the business related to the service sector and Wesfarmars that belongs to the retail sector. These two companies have been selected to confirm with the requirement of the task to select two companies each from the retail sector and from the service sector. Therefore, the report will focus on the nature of business, records for the transactions, disclosures requirement and the presentation of financial reports (Lafond, McAleer and Wentzel 2016).
Optus provides various services related to the communication services that involve the distance service, international and local telephony, services related to business network, satellite services, digital media services, mobile services and long-distance services. During the past years the the market position of the company has not been changed much and it retain the position of number 2 in providing the telecommunication services. The fact that the majority of their market share are based on the mobile services also not been changed over the past years. However, they made a significant move towards the new markets through introduction of streaming entertainment that included the purchase of British Premiere League Football. Their entry to the market received immediate criticism from the football lovers as they indicated that the football fans will have to pay for double subscription, one is for Optus UK league and another is for Foxtel for other football tournaments. Though the other telecommunication sectors are continuously improving their services, it is not very clear that when and how Optus will make the necessary changes and participate in the innovation procedures (Birt et al. 2015).
The company transacts their purchase, sales and repayment of borrowing at the same time when the transactions are carried out and the credit sales are transacted at the time when the final payment are received by the company. Further, the trade and other receivables are are initially recognised at fair values except those that are recognised as the equity instrument and later on it is measured at the amortised cost through the method of effective interest and the impairment allowance is deducted from that. Moreover, the allowance for inventories is provided only after it is established that the company will not be able to receive the amounts. Further, the inventories are recorded at the lower among the net realisable value and cost and the cost is computed based on the weighted average method. Further, the plant, property and equipment are recorded at the value of cost less accumulated impairment losses and accumulated depreciation (Optus.com.au 2017). The provision is accounted as there is present constructive and legal obligation owing to the past results and it is expected that the outflow of resources will have to be sacrificed to satisfy the obligation. Further, the reliable estimates of the amount of obligation can be made to recognise it. However, for operating losses in the future, no provisions are recognised and the provision for liquidated damages with regard to the contract of information technology is accounted based on the best estimates of the management related to the anticipated liability.
Transaction records
As Optus are engaged to the service related business, its main focus is on the inventories that includes the work-in-process raw material and the finished goods. The work-in-process further involves the cost of raw material, cost of labour and other costs that are required to prepare the products for delivery. As Optus belongs to the service industry, it uses extensive level of human services for providing services to the customers. It also accounts for the cost of finished services that include the cost required to make the product ready for use. The amounts under each heads are individually presented in the financial report of the company.
They prepare five types of statements under the financial reports that are the consolidated cash flow statement, consolidated other comprehensive income statement, consolidated statement for changes of equity, income statement, and consolidated financial position statement. The various formats are shown as below:
It is recognized from the income statement that operating expenses of the company are deducted from the operating revenue to compute the gross profit. Thereafter, the other operating expenses like amortization and depreciation and the exceptional items are deducted to get the amount of earning before tax and interest (EBIT). Then from EBIT, the income for investment and interest and finance costs are adjusted to arrive the figure of Proft before tax (PBT). Lastly, tax expenses are deducted from the PBT to get the figure of net profit that are attributable to the company’s shareholders.
It can be recognized from the statement of financial position that the company divided their liabilities as non-current liabilities and the current liabilities and the assets are divided as non-current assets and the current assets. Moreover, the amount of total liabilities is subtracted from the amount of total assets to obtain the figure of net assets. Lastly, value of the total equities is added to the value of net assets, to match with the amount of the total assets.
It is recognized from the above that the allowance for inventories is provided only after it is established that the company will not be able to receive the amounts. Further, the inventories are recorded at the lower among the net realisable value and cost and the cost is computed based on the weighted average method. Further, the plant, property and equipment are recorded at the value of cost less accumulated impairment losses and accumulated depreciation. The provision is accounted as there is present constructive and legal obligation owing to the past results and it is expected that the outflow of resources will have to be sacrificed to satisfy the obligation. Further, the reliable estimates of the amount of obligation can be made to recognise it. However, for operating losses in the future, no provisions are recognised and the provision for liquidated damages with regard to the contract of information technology is accounted based on the best estimates of the management related to the anticipated liability.
Preparation of financial statements
Established in 1914, Wesfarmers was initially formed as the Western Australian Farmers Cooperative and grown into one of the largest among the listed organizations in Australia. They have their headquarters in Western Australia and their wide range of business includes convenience stores, hotel business, liquor business and office supplies are few to name. They also provide services related to the chemicals, coal, energy and fertilisers, safety and industrial products. Their main objective is to provide the customers with superior services that will satisfy their requirements as per their preference and create the value to their shareholders through providing quality services throughout Australia. Further, they are committed towards reducing the environmental impacts that can be generated from their operation and assure a healthy environment to the people in the area in which they operate (Wesfarmers.com.au 2017).
Looking into the financial statement of the company, it is recognized that the Revenue of the company is accounted on the basis of fair values of the total consideration that are receivable or already received. The impairment expenses are accounted to the amount by which the carrying amount of the assets is exceeds the recoverable amount. Further, the finance costs are accounted only after it is incurred and the amount of payables and provisions are discounted at the present value. Moreover, the borrowing cost are recognised based on the weighted average rate of interest. The carrying amount of the plant, property and equipment are recorded at the value of cost less accumulated impairment losses and accumulated depreciation. The provision is accounted as there is present constructive and legal obligation owing to the past results and it is expected that the outflow of resources will have to be sacrificed to satisfy the obligation. Further, the reliable estimates of the amount of obligation can be made to recognise it.
As Wesfarmers are engaged to the retail business, its main focus is on the inventories that includes the work-in-process raw material and the finished goods. The work-in-process further involves the cost of raw material, cost of labour and other costs that are required to prepare the products for delivery. It also accounts for the cost of finished services that include the cost required to make the product ready for use. The amounts under each heads are individually presented in the financial report of the company. The amounts of each haed are individually presented in the financial statement clearly (Palepu, Healy and Peek 2013).
Format of financial report
They prepare five types of statements under the financial reports that are the consolidated cash flow statement, consolidated other comprehensive income statement, consolidated statement for changes of equity, income statement, and consolidated financial position statement. The various formats are shown as below:
It is recognized from the income statement that total expenses of the company are deducted from the revenue to compute the gross profit. Thereafter, the other operating expenses like amortization and depreciation and the exceptional items are deducted to get the amount of earning before tax and interest (EBIT). Then from EBIT, finance costs are adjusted to arrive the figure of Proft before tax (PBT). Lastly, tax expenses are deducted from the PBT to get the figure of net profit that are attributable to the company’s shareholders (Jones and Caruana 2014).
It can be recognized from the statement of financial position that the company divided their liabilities as non-current liabilities and the current liabilities and the assets are divided as non-current assets and the current assets. Moreover, the amount of total liabilities is subtracted from the amount of total assets to obtain the figure of net assets. Lastly, value of the total equities is added to the value of net assets, to match with the amount of the total assets (Christensen, Cottrell and Baker 2013).
Looking into the notes to the financial statement of Wesfarmers, it is identified that the impairment expenses are accounted to the amount by which the carrying amount of the assets is exceeds the recoverable amount. Further, the finance costs are accounted only after it is incurred and the amount of payables and provisions are discounted at the present value. Moreover, the borrowing cost are recognised based on the weighted average rate of interest. The carrying amount of the plant, property and equipment are recorded at the value of cost less accumulated impairment losses and accumulated depreciation (Hartley 2014).
From the above, it is recognized that Optus is engaged in the business related to service industry whereas; Wesfarmers are engaged in the business related to the retail industry. It is identified that both the companies provide for the impairment expenses are to the extent of the amount by which the carrying amount of the assets is exceeds the recoverable amount. Further, the finance costs are accounted only after it is incurred and the amount of payables and provisions are discounted at the present value (Bull 2014).
Conclusion
It is concluded that, Optus provides various services related to the communication services that involve the distance service, international and local telephony, services related to business network, satellite services, digital media services, mobile services and long-distance services. While Wesfarmers provides various ranges of business that includes convenience stores, hotel business, liquor business and office supplies are few to name. They also provide services related to the chemicals, coal, energy and fertilisers, safety and industrial products. Their main objective is to provide the customers with superior services that will satisfy their requirements as per their preference and create the value to their shareholders through providing quality services throughout Australia. Only the difference in their financial report presentation found with respect to the preparation of the the income statement where the revenues are accounted in different way.
Reference
Birt, J., Chalmers, K., Maloney, S., Brooks, A., Oliver, J. and Janson, P., 2014. Accounting: Business Reporting for Decision Making 5e.
Bull, R.J., 2014. Accounting in business. Butterworth-Heinemann.
Christensen, T., Cottrell, D. and Baker, R., 2013. Advanced Financial Accounting (No. 2013). McGraw-Hill.
Hartley, W.C., 2014. An introduction to business accounting for managers. Elsevier.
Jones, R. and Caruana, J., 2014. A perspective on the proposal for European public sector accounting standards, in the context of accruals in UK government accounting. Accounting, Economics and Law, 4(3), pp.265-282.
Lafond, C.A., McAleer, A.C. and Wentzel, K., 2016. Enhancing the Link between Technology and Accounting in Introductory Courses: Evidence From Students. Journal of the Academy of Business Education, 17.
Optus.com.au., 2017. Optus - Annual reports - Investors. [online] Available at: https://www.optus.com.au/aboutus/investors/financial-information/reports [Accessed 30 May 2017].
Palepu, K.G., Healy, P.M. and Peek, E., 2013. Business analysis and valuation: IFRS edition. Cengage Learning.
Wesfarmers.com.au., 2017. Wesfarmers Group: Quality Brands and Trusted Retailing. [online] Available at: https://wesfarmers.com.au/ [Accessed 30 May 2017].
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