The issue that would be discussed in the report deals with a large departmental store situated in Australia. In the report, there would be an assessment of financial accounting of an Australian company. The company has a properly defined ethics for its business and practices a definite and individualized strategy for running the business smoothly. As regards the accounting responsibilities of the company, it adopted the straight-line method for calculation of depreciation of its assets. As a result of using this depreciation method, the company witnessed a commendable increase in the profits, as recorded in the year 2015. But, for the next financial year, the method adopted in calculation of depreciation underwent a change from the straight line to the sum of year’s digits method (Berk and DeMarzo, 2012). This decision was taken considering the fact that this change would be more beneficial to the company for that financial year. The expectations of those involved in the management of the company following the profit enhancement in the previous year. In the opinion of great economic analyzers and strategists like the economist, inventive steps such as the change of depreciation method would sufficiently boost the profits in the years to come. According to the standard accounting principles, the constituents of the financial statement of Sunshine Ltd are the equity, profits, reliabilities of assets and the available capital. The board of directors and the management together has the responsibility to take over the leadership and supervision of the growth in marketing opportunities for the company. Most importantly they are responsible for presentation of the financial report (Bhimani and Dai, 2008). The governing body or the administrative body is concerned with the company's efficient operation and protection of shareholder rights as well as their value enhancement. The change of the method practiced for calculating depreciation gave rise to an imbalance in the model for cost and that for revolution included in AASB16. Also, the stockholders are disillusioned and unsatisfied with this change and may possibly resort to legal proceedings against the company too.
Present financial condition of the company
Statements dealing with compliance on financial matters that are in accordance with the financial statements of Sunshine Ltd have been designed by the Australian secretarial standards. The report published by the Queensland Treasury depicted minimum supplies of financial systems and a few other pronouncements that are reliable. With respect to the non-profitable statutory bodies applicable for non-profitable entities, the standard methods and the definitions compete with Australian accounting methods (Bodnar and Hopwood, 2013). The new rules or amendments made in the monetary matters have not yet been adopted explicitly. The equal opportunities and liabilities in the Coast Hospital of Sunshine Ltd include in some cases all expenses, values of property and revenues. An accounting that can be adjusted is required at the end of a financial year. The particular department offered financial support within a fortnight after being requested. Some transactions, as well as balances, have not been included in the documents containing the financial statements. It is a criterion for measuring the extent to which the operations are trustable with respect to accounts. Some of the other liabilities such as property and others are included in statements relating to accounting positions and notes on them. Others fall within the confidential status in the form of non-current data. Property falls under investments and that for cultural practices are evaluated with respect to present values after reports with expected provisions (Bragg, 2013). The assets kept for fulfilling cultural objectives, preserving the valuable heritage and those used as equipment in manufacturing plants are evaluated in terms of fair values. A few of the recorded liabilities and also some proceeds at a standard value given for acquiring material goods are accepted as satisfactory debt in the usual business proceedings.
Ethics and governance of the company
Having some authorization of punishment law is the inner power of a self-governing Governance company. Officially authorized processor servants observing by the private-public are done by the Governance. The wealthy life is against any action of any state. That system is acceptable as fair and right to help or maintain the country’s legal system, which leads people intelligent participatory. The behavior of ethical is a responsible of each in the society that they are supported well-organized better social host (Holton, 2012). Forcing into some situation provides an inducement that was considered as necessary to some immunity who might be the giver backhander. Executing in his task and action will mainly leading to the improved system of governance, but in order of behavior, such official will go faster with some better management. Legal communities arise to make an arrangement or some contract that must have to create legal obligations or some intentions that will be developed by some social contract which is the vast enforcement which culminates into some contract (Horngren, 2011). Multiparty Agreements are intended to some faceplate to some trade agreements of aim into some reducing level that is liberalized or a phased manner. Some benefits of the increasing value of commerce are to regulate and provides with all parties. By technology or some computer information expansion of software, communication has changed the lifestyle almost so the gear of business processing that are under processing with some of the lots of rate advantages to the severe parties.
Role that Accountants Play in Changing the Depreciation Method
The concerned authority dealing in revenue services in the country sets guidelines which determine the depreciable lifetime of the fixed assets. The different methods adopted for reduction affect the balance sheet and assets in a variety of ways. The reduction can be described in simple terms as the expense that is required for businesses having fixed amount of assets. The depreciation method that is chosen by any company affects the statement of income as well as the value of the property as given on the balance sheet (Horngren, 2013). The assets here are considered as excluding land. In this case, the company Sunshine Ltd had decided to change the depreciation method from the straight line to sum-of-digits' years. As to as direct those profits in the year 2018 and 2019, the company's objective was to reduce the benefits during the next biennium, when there is a chance of an economic slowdown. For this purpose, the company had approached the accountant Maria Mars. In other words, Maria changed the pace of accumulation of the depreciation, which in turn affected the assets carrying value. Applying an accelerated methods of reduction would be suitable in this case, and Maria did exactly so. The method of depreciation called straight line method is characterized by the same expense in depreciation throughout the period when the asset is useful. The result is the reduction percentage of the property during each year. For instance, if the fixed asset were supposed to last for five years, the depreciation value would be calculated by adding the digits 1, 2, 3, 4 and 5 and then diving each number by the sum i.e. 15 (Kew and Watson, 2012). This is a signal for some changes in the principle of accounting followed by the company. As a result of the change from straight line to accelerated method, there was a shift in accounting estimate of the depreciation of all assets.
Significant Aspects of the Financial Statements
For the incensement of the business confident in the year of 2015, the company wanted to go through the reversal process in the condition of the infrastructure. These issues had an impact on the annual financial presentation of the company Sunshine Ltd (Mott, 2008). For the opportunities of business, and employability, the growth of the company’s financial condition was contributed by the regional project of the company. The company was interested in investing in several sectors like universities, entertainment, hospitals, and in the airports also. In the year of 2014, there were identified many funding resources, and many highly valued employees are found who had a great contribution to making a milestone of the company (Libby, Libby and Short, 2014). Many projects are found to be completed in the next years like power generation, water treatment, and storage, infrastructure related projects, water well, plants for oil and so on.
At the end of the year of 2016, the company Sunshine Ltd had to face a huge decrease in economy. The different organization had been done many agreements for investing their shares. A group named Bright Hope had already contributed their shares which were bought by the company Sunshine Ltd. At the beginning of the year 2017, the company had done many agreements in return for payment (Rosen, 2005). Through the various agreements, the company tried to enhance and revalued their capital assets. During March 2017 they have introduced the assessment of the funds and the income. Sometimes they revised their funds for the incensement of some particular product like Bitumen.
Effects on stockholders and AASB16 of the changing of depreciation method
For the sustainability of the performance of the company the stakeholders always try to contribute a significant part of their investments. The stakeholders and the employees always should have a payment as a part of the success of the company. The valuable advice for the improvements of the performances of the company is always offered by their stakeholders and their employees. The company always tries to achieve their goal by the affecting stakeholder management, adopting few strategies and influencing their employees in different factors. The change of the depreciation method has a huge impact on their stakeholders (Schroeder, Clark and Cathey, 2011). The changing of depreciation method can be the reason of the change of the income and the balance record. So it affects the overall financial performance of the company. The shareholders become worried about the changing financial programs of the company, so they want to take some steps and advised the company for the better financial result in future. The stakeholders of the company Sunshine Ltd become interested in the change from straight to the sum of years' depreciation method (Waterston, 2006). The stakeholders were assured that by the application of the sum of years' method can be profitable for the company in coming few years. AASB16 set the accounting standard of the country and helps in the implementation of the decision.
Intention of the changing of the depreciation method
The accounting process straight-line depreciation method was the first accounting process of the company which was profitable for them till 2015. It was known by the record of the financial report of 2015. The expectations of the managements become increased day by day from the company. As per the opinion of the economist, the report of 2018-2019 can show a great fall for the effect of the markets of the coming years. As per the request of the accountant the management takes the decision to change the straight line depreciation method to the ‘sum-of-years digit method for at least one year for more profit (Wolf, 2010). For the profit of the company the Sunshine Ltd includes the changing of the straight line depreciation method to the ‘sum-of-years digit method which can be profitable for the upcoming few years. As the result of adopting this strategy when the companies will have a loss running the business, then this company will achieve the first position in the market of Australia. To gain more profit was the main target to changing the accounting process from straight line depreciation method to sum of years’ method.
The recommendations that can be provided in this case of the Sunshine ltd are provided in the following points:-
- The straight line depreciation method undertaken by the company must be used for the betterment of the structure.
- The sum-of-years digit method is being used for showing the appropriate calculation of the process for the purpose of showing the running loss of the company and also the recovery can be easily made by implementing this method.
The economic report of 2015-2016, it was noticed that the company Sunshine Ltd was the second highest performing company in the Queensland of Australia. In 2014 Sunshine Ltd gave the highest level of business to the west area of the Queensland with the profit of 56%. In 2015 the profit increased 15.6% by the income of the last years. Many key issues like alternative funding sources, proper investment plan, making good marketing strategies are significantly prioritized by the company's progress report. For getting more profit, the company should adopt a policy by changing the straight line depreciation method to the sum of years’ digit method. This strategy was completely agreed by the accountant and the economist of the company Sunshine Ltd (Schroeder, Clark and Cathey, 2011). Through this process, the company can achieve the top position in the market. To achieve the long-term goal for 2033, the company should prioritize their partners and their stakeholders and adopt more strategies which can be profitable for the company.
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