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BFA742 Advanced Financial Accounting

tag 0 Download 0 Pages / 0 Words tag 18-06-2022
  • Course Code: BFA742
  • University: University Of Tasmania
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  • Country: Australia

Answer:

Introduction:

Toyota Australia is a very famous automobile company and is the subsidiary of the Toyota Corporation that is based in Japan. The company has started its operation in 1963, and in the years to come the company has grown to be the best in the business. The company is listed in Australian Stock Exchange and the financial statements of the company can be found on the official website of the company. The company has its operation in many other countries, and the overall revenue of the company runs into billions. The financial statements of the company are prepared as per the IFRS regulation and important disclosures related to the financial statements of the company are given in the notes to account (Maynard, 2017). The same about the company are mentioned in the annual report of the company. The books of the company are properly audited and shows a true and fair view of the overall financials of the company as per the given audit report along with the annual statement of the company. In this Assignment, there are three independent cases that are being analyzed and important disclosure regarding the same is given with regard to the above company. 

1 a) While buying shares of an investment company, there are certain financial information about the holding of the investment company that will be most relevant to the shareholders like-

Earnings of the company – As a shareholder the investor must be aware about the earnings of the company so that the investor can make an estimation of the total return that they will earn. In this case the investor has invested in a company that has further invested in the shares of some other company, thus in that respect the shareholder must be aware about the financial performance of the companies that the investing company has invested into. Therefore, it is important that detailed knowledge about the earnings of the company must be obtained, and that can be found in the financial statements of the company (Arnott, et al., 2017). 

Earnings per share – The shareholder will receive the earnings based on the number of shares that they hold. The dividends that the shareholder will receive will be based on their earnings and the overall earning will be reflected on the financial statement of the company (Feng & Koch, 2010). The overall earnings ratio and the dividend payout can be compared with the previous year to judge whether the company is performing well and the shareholder should go forward with their investment in that company. All this information will be available on the financial statements that the company will issue.

 Detail about the related parties – The overall detail about the related party of the investing company, with which they have had transactions or in which they have invested their money will be important for the shareholders. This will make them aware about the other companies the other company is related to and they can make an analysis of the overall income that the company will earn and the financial viability of the company can also be judged with the same (Tian & Slocum, 2016).

So, if people are investing in Toyota and Toyota is further investing in some other companies. The revenue of the company will be influenced by the position of its shareholding and as the revenue of the company gets affected the overall earnings of the shareholder will also get affected. Thus, people who investing in Toyota needs to have details about the earnings of the company, the overall EPS of the company and relevant details about the related parties of the company. This share can be found in annual report of the company. 

1b) The conceptual framework lays down the basic guidelines for the preparation of the financial statements and the company needs to work as per the same. All the relevant accounting standards and regulations must be followed while preparation of the financial statement. It must be seen that proper IFRS standards are applied that will reflect the overall appreciation in the amount of investments of the company. In case there are appreciation in the investments of the company the same must be reflected in the financial statement of the company under respective schedules and the overall increment in the earnings must also be shown (Rodriguez & Kaczmarek, 2016). Proper notes to account must be provided stating about the appreciation and the shareholders who have invested in the company can get the knowledge about the same from the financial statement of the investing company. The shareholders must analyze what effect the overall appreciation of the investment holding of the company will have on their net earnings. It must also be seen that the financial statements that the company is providing must be properly audited and audit report in respect of the same is attached with the financial statement (Pape, 2017).

Thus, in case of Toyota the shareholders can see the annual report to fin whether the company has applied the relevant standards and have taken necessary steps to make sure that they are applying all the relevant accounting policies and principles. So, in case there is any appreciation in the shareholdings and investments of Toyota, the investors can analyze the same through the financial returns of the company and then can take important decisions in that regard. This will be helpful for the investors in case the company runs into losses they can redeem their investments (Tian & Slocum, 2016).

2) The main aim of the IAS 1/ AASB 101 is to present the financial statements of the company in such a way that it would help the other parties in analyzing the financial position of the company and comment on the validity of the same. It would also help the other parties to make comparison of the company with their peers. These standards form the basis on which the financial statements of the company are prepared. In this case the director the company is facing some issue because the impairment losses that the company had recorded as per IAS 36 are temporary losses and eventually that will get reversed. Impairment losses are the kind of losses that occur when the net carrying amount of the assets is less than the future cash flow that the asset will generate in the times to come. Thus, this will result in a temporary loss and difference can be reversed in the future. So as per IAS 36, the company needs to show the effect of the same, but the same is not shown in the financial statement of the company (Bergh, et al., 2017). This will lead to a problem as the financials of the company will get affected, and the true picture won’t be shown. So, in case the company is not able to showcase the same in the financial statements the overall financials of the company will get affected.  Thus, the director needs to look for ways by which this temporary difference can be highlighted and presented in the financial statements of the company in such a way that the other people can analyze the effect of the same on the financials of the company (Lavassani & Movahedi, 2017). It is very important for the correct presentation of the financial information on the financial statements of the company. As per AASB 101, the profit and loss section of the financial statements of the company, will include the line items that will show the impairment losses that are determined with relevance to the IAS 36. That will show the overall effect of the same on the financials of the company. Thus, the director can make use of the same to show the impairment losses on the financials of the company. And since it is a temporary loss the same will be reversed while calculating the deferred taxes that the company need to pay. This will show the overall effect on the financials of the company and the effect will be highlighted when the books are prepared as per the IAS 1 (Lavassani & Movahedi, 2017). This is the only resort that the director has in case of temporary losses. The effect of the same can be seen in the statement of profit and loss and once it is accrued in the years to come, it can be reversed. This is how the director can deal with the situation. The main aim of any financial statement is to show the true position of the financials of the company and the people who are dependent on the financials of the company can have a clear idea about the same (Dowding, 2017).

So, in case of Toyota if the company has any impairment loss that will lead to a temporary timing difference and should be part of the financial statements of the company. And in future when the loss gets reversed the same treatment must be shown to reverse the overall effect of the timing difference. This is how the directors can deal with impairment losses and make sure that they are part of the financial statements as they are affecting the overall financial position of the company and the earnings of the investors are affected by the same (Arnott, et al., 2017).

Case 3: Accounting estimates

Capitalizing of expenses to the overall cost of the asset is done when the expense brings any improvement in the present state of the asset. In the given case, we see that the directors are ascertaining that they will change their policy of capitalizing cash flow hedge loss or gains and will now include the same in the statement of income. The books of the company must be prepared as per the relevant accounting policies and standards that has been stated in the IFRS guidance and proper audit of the same must be done. In the given case, the company is changing the way it is recording an expense. This is a change in the accounting policy of the organization and for this the directors need to give proper disclosures in the notes to account and any material effect because of the same must be taken into effect and should be shown in the books of account (Mayntz, 2017). In this case it is said that the company has lost all its data that was related to the prior years and thus have no data related to the same. In this case the company needs to mention the same in their books of account and include the same in their director report. With respect to the accounting disclosures the company needs to mention these things-

  • The change in the accounting policy of the company and its effect on the financials of the company.
  • The reason that there is no prior year available data and what the company is doing in that regards.
  • The overall ways the company is going to adjust the prior period items and what effect it is having on the overall revenue of the company(Minnis & Sutherland, 2017).

These are few accounting disclosure that the company needs to make in their notes of account regarding the hedge fund loss and gain.

In case of Toyota if the company makes in changes in the accounting policy, the company needs to give specific disclosure in the notes to account of the company. The annual report of the company must consist of details from the same and effect of the same must be highlighted. This is how the company will disclose the same in their books of account (Gartland, 2017).

The name of the company is Toyota Australia. The annual report of the company can be downloaded from the http://www.toyota-global.com/investors/ir_library/annual/ 

The share price of the company is 6932 JPY. The main holding company is listed in Japan Tokyo. 

References

Arnott, D., Lizama, F. & Song, Y., 2017. Patterns of business intelligence systems use in organizations. Decision Support Systems, Volume 97, pp. 58-68.

Bergh, D., Sharp, B., Aguinis, H. & Li, M., 2017. Is there a credibility crisis in strategic management research? Evidence on the reproducibility of study findings. Strategic Organization, 15(3).

Dowding, K., 2017. Australian exceptionalism reconsidered. Australian journal of Political Science, 52(2), pp. 165-182.

Feng, M. & Koch, A., 2010. Once Bitten, Twice Shy: The Relation between Outcomes of Earnings Guidance and Management Guidance Strategy. The Accounting Review, 85(6), pp. 1951-198.

Gartland, D., 2017. The importance of audit planning. Journal Of Accountancy.

Lavassani, K. & Movahedi, B., 2017. Applications Driven Information Systems: Beyond Networks toward Business Ecosystems. International Journal of Innovation in the Digital Economy.

Maynard, J., 2017. Financial Accounting, Reporting, and Analysis. SECOND ed. s.l.:Oxford University Press.

Mayntz, R., 2017. Networked Governance. s.l.:Springer.

Minnis, M. & Sutherland, A., 2017. Financial Statements as Monitoring Mechanisms: Evidence from Small Commercial Loans. Journal of Accounting Research, 55(1), pp. 197-233.

Pape, T., 2017. Value of agreement in decision analysis: Concept, measures and application. Computers & Operations Research, Volume 80, pp. 82-93.

Rodriguez, J. & Kaczmarek, P., 2016. Visualizing Financial Statements. s.l.:s.n.

Tian, X. & Slocum, J., 2016. Managing corporate social responsibility. Organizational Dynamics, Volume 45, pp. 39-46

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