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Determination of Expenses

Discuss About The Future Making In Farm Management Accounting.

Ansell ltd is identified as a global leader in terms of providing various types of production solutions. The main design and development and manufacturing activities of the company is seen to include range of production solutions which is based on the increasing demand of the customers. Some of the main products of the company includes industry gloves and sleeve, medical grade glove, “protective clothing and medical safety devices” (Ansell.com 2018). The important discussions of the study have focused on an analysis of the expenses which has determined the nature of the expenses for Ansell ltd. Some of the other depictions of the study has been able to provide possible reasons on different methods of classification of expenses. The second part of the report have provided the relevant disclosure of information on accounting policies, changes in the accounting estimates and existence of any error. The last part of the study is use the notes to financial statements for showing relevant treatment of depreciation.

Based on the depiction of annual report for Ansell Ltd. it needs to be discerned that the company has followed the preparation of income statement by function of expenses. Henceforth, the expenses are disclosed relevant to their function such as “distribution, cost of goods sold, selling, general and administration expenses”. The aforementioned method of calculation of expenses is used with a multistep format along with disclosing the individual expenses under each function (Bott 2014).

The main reason for following other method of expenses is mainly discerned with simplicity of presentation of the information. Smaller companies tend to prefer disclosing the expenses as per single step income statement. Henceforth, in such a case disclosing the expenses by nature is more appropriate rather than following expenses as function method (Needles, Powers and Susan V. Crosson 2014). The main reason for the classification of these expenses as per functional role in larger corporations is more suitable for monitoring of the direct unit which is immediately assigned to the individual outputs, material consumption, premium, rewards which are directly linked to outputs. In addition to this, the use of simple method of single step income statement is able to present the information of expenses with individual items such as “beginning inventory, purchases, rent expense, depreciation expense, supplies expense, utilities expense, interest expense and purchases” (Zhng and Li 2017).

The statement of compliance with the accounting policy for the company is identified with principles as stated under “Australian Accounting Standards adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001”. In addition to this, it is further identified the group conforms with the “International Financial Reporting Standards (IFRS)” and explanations accepted by the “International Accounting Standards Board (IAS)” (Smyth and Whitfield 2017). The three issues in the annual report has been discussed with “principles of consolidation”, “foreign currency” and “recoverable amount on noncurrent asset”. During a consolidation process there are many possibilities that the effect of transaction between entities in the groups are not fully eliminated. Some of the important issues in the foreign currency has been depicted with differences in recording of foreign currency translation reserve. The main issue for recoverable amount on the noncurrent assets valued at cost basis is seen with changes pertaining to the carrying amount of noncurrent assets (Kallamu, Ashikin and Saat 2015).

Reasons for Different Method of Expense Classification Used by the Company

The “property plant and equipment” along with the “intangible assets” other than those having “indefinite life are depreciated/amortized” as per “straight-line basis over their useful economic lives”. The management of the company is responsible for reviewing the useful economic life of such assets at least once in a year and any changes pertaining to the useful life will take the necessary prospective effect on the depreciation rates and carrying value of the assets (Australian Academy of Business Leadership 2017).

The disposition of classification of depreciation amount for Ansell Ltd. has been discerned with several overheads such as “freehold buildings, leasehold land and buildings, plant and equipment, building and building under construction”. The total amount for depreciation in 2016 is depicted as $ 29 million. The accumulated depreciation on the overheads has amounted to $ 361.5 million in 2016. In addition to this, the deposition amount added under the non-cash items has been discerned as $ 29 million. Based on the information available on deferred tax liabilities the total depreciation amount on plant and equipment stood $ 85.2 in 2016 (Vafaei, Ahmed and Mather2015).

It is discerned that depreciation is generally charged based on “straight-line basis” for writing off the net cost incurred on individual items of property plant and equipment excluding land as per the estimated useful life. The “expected useful lives” in the present and previous years are considered with 20 to 40 years for freehold buildings, lesser than 50 years or life of lease for leasehold buildings, 3 to 20 years for plant and equipment. It needs to be further understood that the rates associated to the position and amortization are considered for review every year for more appropriateness (Jack 2015).

The application of depreciation method for recognition and measurement of fixed assets such as “property, plant and equipment” is duly stated by the company by the use of “cost less accumulated depreciation and impairment losses”. It used to be further understood that the cost under this consists of several types of expenditures which are seen to be directly attributable to the “acquisition of the items”. In addition to this, the subsequent costs are also included with the “carrying amount” of the assets which are recognized separately only when there is probably “future economic benefit” associated with the life of assets. In such a case the assets will be measured by the company in a reliable manner (Supriyanto, kharis raharjo 2016).

Accounting Policy

The impairment is applicable to the non-tangible assets such as goodwill. The goodwill and “intangible assets with indefinite life” are treated under impairment at least once in a year. It is to be further understood that the carrying amount for such assets execute the defined benefit for “fund assets, deferred tax assets and financial assets” which are reviewed with the relevant indicators of impairment (Abhayawansa and Guthrie 2014). In case such gauges exist, the asset is considered for impairment as per the carrying amount. It needs to be further understood that the “recoverable amount” of such an asset is determined by high cost of disposal and value. The recoverable amount of the “CGU” is generally depicted with “value in use calculation” utilized with the “five-year cash flow projections”. It is further understood that the cash flows used for value in use are estimated with the current condition and henceforth it does not include the cash outflows are cash inflows to enhance the asset performance are such elements which may arise from future restructuring. Moreover, the average annual sales growth rates are applicable as per the discounted cash flow model which ranges between 2% to 4%, whereas the growth in the terminal year is depicted as 2% to 3% (International Accounting Standards Board 2016).

The “impairment loss” is documented by Ansell whenever the “carrying amount of an asset or its CGU exceeds its recoverable amount”. This loss is recognized in the income statement under cost of “goods sold and selling, general and administration expenses”. In case there is no amount which can be related to the objectivity of an event the impairment loss is reversed (Muhammad and Scrimgeour 2014).

Conclusion

Determination of classification of expenses by the company's discerned with preparation of income statement by function of expenses. Henceforth, the expenses are disclosed relevant to their function such as “distribution, cost of goods sold, selling, general and administration expenses”. The rationale for following different classification method of expenses is mainly discerned with the differing size of organization, presentation and simplicity. Some of the important issues in the foreign currency has been depicted with differences in recording of foreign currency translation reserve. The main issue for recoverable amount on the noncurrent assets valued at cost basis is seen with changes pertaining to the carrying amount of noncurrent assets.It is further observed that depreciation is generally charged based on “straight-line basis” for writing off the net cost incurred on individual items of “property plant and equipment” excluding land as per the “estimated useful life”.

References

Abhayawansa, S. and Guthrie, J. (2014) ‘Importance of intellectual capital information: A study of australian analyst reports’, Australian Accounting Review, 24(1), pp. 66–83. doi: 10.1111/auar.12012.

Ansell.com. (2018). Mission and Values. [online] Available at: https://www.ansell.com/en/About/Corporate/Mission-and-Values.aspx [Accessed 17 May 2018].

Australian Academy of Business Leadership, S. (2017) ‘Australian Academy of Accounting and Finance review.’, Australian Academy of Accounting and Finance Review, 1(1), pp. 44–68. Available at: https://www.aaafr.com.au/index.php/AAAFR/article/view/3.

Bott, R. (2014) Accounting, Igarss 2014. doi: 10.1007/s13398-014-0173-7.2.

International Accounting Standards Board (2016) ‘IAS 36 Impairment of Assets’, IFRS Green Book 2016, pp. B2459–B2570. doi: 10.9780/22315063.

Jack, L. (2015) ‘Future making in farm management accounting: The Australian “Blue Book”’, Accounting History, 20(2), pp. 158–182. doi: 10.1177/1032373215579423.

Kallamu, B. S., Ashikin, N. and Saat, M. (2015) ‘Asian Review of Accounting’, Asian Review of Accounting Asian Review of Accounting Asian Review of Accounting, 23(3), pp. 232–255. doi: 10.1108/ARA-11-2013-0076.

Muhammad, N. and Scrimgeour, F. (2014) ‘Stock Returns and Fundamentals in the Australian Market’, Asian Journal of Finance & Accounting, 6(1), p. 271. doi: 10.5296/ajfa.v6i1.5486.

Needles, B. E., Powers, M. and Susan V. Crosson (2014) Principles of Accounting, Financial Accounting. doi: 10.1037/h0092877.

Sc-cdn-prod.azureedge.net. (2018). [online] Available at: https://sc-cdn-prod.azureedge.net/-/media/Corporate/MainWebsite/About/Investor-Center/Annual-Report-2017/Ansell-Annual-Report-2017-FINAL.PDF?la=en&modified=20170823225606 [Accessed 17 May 2018].

Sc-cdn-prod.azureedge.net. (2018). [online] Available at: https://sc-cdn-prod.azureedge.net/-/media/Corporate/MainWebsite/About/Investor-Center/Annual-Report-2016/Annual-Report-to-Shareholders-2016.pdf?la=en&modified=20160826151358 [Accessed 17 May 2018].

Smyth, S. and Whitfield, D. (2017) ‘Maintaining market principles: Government auditors, PPP equity sales and hegemony’, Accounting Forum, 41(1), pp. 44–56. doi: 10.1016/j.accfor.2016.06.003.

supriyanto, kharis raharjo,  rita andini (2016) ‘Journal Of Management, Volume 2 No.2 Maret 2016’, Accounting, 2(2), pp. 1–19.

Vafaei, A., Ahmed, K. and Mather, P. (2015) ‘Board Diversity and Financial Performance in the Top 500 Australian Firms’, Australian Accounting Review, 25(4), pp. 413–427. doi: 10.1111/auar.12068.

Zhong, Y. and Li, W. (2017) ‘Accounting Conservatism: A Literature Review’, Australian Accounting Review, pp. 195–213. doi: 10.1111/auar.12107.

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