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Research Essay: Myer Holdings Limited Add in library

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1. With reference to the above statementdescribewhat you understand by the term liabilities and how they are measured. 
2. Discussliabilities and the problems of measurement in the context of the present IASB framework.
3. Select a company from the Australian Securities Exchange website and download the 2014annual report. Evaluate the categorisation and treatment of liabilities in the annual report.
4. Comment on the relationship between the measurementof liabilities and decision useful information with examples from your selected annual report.



The research topic of the definition of liabilities and their measurement with regard to an ASX listed company Myers Holdings Limited has been presented to us for the Summer Semester 14-15. Herein, the entire assignment has been segregated into four different components, wherein the first part of the assignment caters to the need of understanding the definition of liabilities as presented by the Australian Accounting Research Foundation (PSASB and AASB 1998). The second part of the assignment deals with the detailed discussion about liabilities and the existing issues with its measurement, with concern to the current IASB framework (Bullen, Johnson and Crook 2005). As we go on further into the study of this paper, we observe that the third part of the assignment completely takes into being the classification and treatment of liabilities from any company listed in the Australian Securities Exchange (ASX). We have selected the company of Myers Holdings Limited (Read as MYR on ASX) for the study of the classification and treatment of liabilities from the downloaded report of 2014 (ASX 2014). The fourth and the final part of the assignment revolve around the relationships between measurement of liabilities and decision-useful information along with selected examples from the 2014 Annual Report of the Myers Holdings Limited.

Overall, the assignment attempts at delivering the concept of liabilities, their measurement, presentation and utility for the key executives of any company in finalizing and concluding decisions about significant business operations. The reader comes to the accrued knowledge of what are liabilities as per the Australian Accounting Research Foundation, and how can the relevant knowledge of measurement be employed to the understanding of the facts mentioned in the 2014 Annual Report of Myers Holdings Limited.


Myer Holdings Limited has been into operations for over more than 100 years in Australia, into the style, fashion and lifestyle products. It is said to be the largest departmental store in the entire sub-continent of Australia and is said to have generated a whopping $3.1 billion turnover in 2014, and is the largest departmental retail chain across Australia with over 68 retail outlets and the most recent venture into the digital and mobile platforms with the revolution in internet. 11 core products are offered under the umbrella of this brand, which include the likes of menswear, women wear, lifestyle products and so on.

The categorization and treatment of liabilities in the 2014 balance sheet of the Myer Holdings corporation has also been analysed herein, and a small explanation given for the same. The definition of liabilities and calculation of liabilities are significant in the understanding of the business decisions which Myer undertakes for undertaking right business decisions. Certain issues with measurement of liabilities with the context to the IASB framework, which is still under the creation of standards from the 1989 framework it had created initially. Finally, the establishment of the relationship between the measurement of liability and the business decision-making has been taken in herein.



(1) In the most simplest of definitions, liabilities refer to the future sacrifices of economic benefits that is compulsorily obligated on the concerned entity to the other entities in the same business line, as a consequence of any past business transaction or past events (PSASB and AASB 1998). The Public Sector Accounting Standards Board (PSASB) of the Australian Accounting Research Foundation (AARF) and the Australian Accounting Standards Board (AASB) could not have been able to define ‘liabilities’ in any simpler language. Any entity in order to run its business operations are required to operate it under the credit model apart from the input of liquid cash (Department of Economic and Community Development 2010). This is so, considering the dynamic turnaround time businesses are adopting these days, with consideration to rapid globalization taking place across the world. Companies these days face the possibility of dynamic growth opportunities and hence they are willing to operate under the consideration of supplying credits, for a particular time period, either on good faith, or for the purpose of availing the existing business operations. These transactions occur on credit and hence this turns around to be the definition of liability (Baskerville 2011).

In totality, there are three different kinds of liabilities:

  1. Current Liabilities
  2. Non-current liabilities
  3. Contingent liabilities

The following are the various types of treatments to the above mentioned types of liabilities.

1. These are short term loans or liabilities which must be paid within a year of their birth. They are reflected under the current liabilities head of the liabilities section of the balance sheet of the company. On the successful payment of these short-term obligations, they are written off the company’s books of accounts, and the balance is debited then. Examples of current liabilities are payment due to suppliers, accrued taxes, rent and interest, and profitability materialised and collected in advance.

2. The examples of long-term liabilities are mortgages amount on property, bank loans and lease obligations for vehicles or any major business equipments. These are also written under the long-term obligation headings of the liabilities section and generally take more than one year to be paid off (The State of Queensland 2015).

3.The contingent liabilities are the company’s back-up funds for an emergency situation like a case law filed against the company or any environmental law suits slapped over the business operations of the company. Such contingent liabilities are however not noted under the liabilities (short or long term) section of the Balance Sheet of the company. Generally, companies create a separate fund for the same, and include the same under the Notes section of the Balance Sheet of the companies.


(2) It must be noted that after the creation of the business, profits can only be earned through transactions, and however, at the same time, earning these profits require certain capital inputs. At times, when the business houses are incapable of inserting a separate fund for the same, business take goods from the suppliers on credit in return of favour of delayed payments through cash, kind, or business goods (Baskerville 2011). Along with the owner’s fund (equity fund), the business also receives certain other funds from suppliers and creditors for the purchase of assets with which the business is intended to continue. These are termed as liabilities for any business house.

The concept of liability come from the “accounting entity assumption” and under such an assumption, it is taken into consideration that the business entity is completely a separate entity and all transactions of the business are identically different and separate from the personal transactions of the owners of these businesses. Through such an assumption, the credibility lies in the true reflection of the financial details and facts-figures of any business-house at any given point of time (Baskerville 2011). Speaking about the recognition of a liability, the following facts can be put forward. A liability is only recognised if and only if the following conditions are met:

1.There is a definite future compensation of economic benefits in order to repay for the present reaped benefits by the company in terms of goods or services, whatsoever be the case (IFAC 1996).

2.Secondly, the mannerism of the calculation of the liability amount must be fair and reliable. This means that the factors of inflation and other such relevant aspects must be taken care of prior to the birth of such a liability (Australian Accounting Research Foundation 1995).

Speaking about the IASB Framework, it must be mentioned and taken into consideration that in order to recognise a liability, it does not have to be an obligation which is due as per demand, rather than that, it stands out to be under a framework wherein, it becomes due as soon as the obligation arises (ACCA 2011). Thus, under the given frameworks of IASB, it is mandatory for the acceptance of liability to erect and come out as reflected under the financial statements as soon as it has arisen. Although this comes out to reflect the true and actual reflection of the financial health of any business, sometimes, it becomes adversely aggressive with the financial health of the business and the entity may not receive positive reviews from auditors and third-party clients who are even vaguely interested in the business operations and results of the entity in concern (Lott, Knubley and Clark 2013). Thus, for instance, IAS 37 (International Accounting Standard 37) of Provisions, Continent Liability and Contingent Assets is thoroughly in line with the IASB Framework and would require for the acceptance of the decommissioning cost of the rig oils in future. As soon as the rig oil locations are selected and the rigging procedure begins, the cost for decommissioning the same is arisen at the same time, and reflected as a non-current liability in the books of accounts of the concerned company, at the cost of the present value of money (Whittington 2008).

Another major factor which really affects the measurement of liability is the entire structure of creating frameworks by the IASB (Bence and Fry 2003). IASB still presently uses the 1989 ‘Framework for the Preparation and Presentation of Financial Statements’ which is deemed to be obsolete in the current accounting and business scenario. This leads to very limited guidance on the application of the 1989 framework to justify the appropriate measurement methods of the arising liabilities for any business.

(3) The treatment of liabilities is a multi-dimensional concept. Herein, one has to take care that the differences between the maturity of assets and liabilities are taken care of, and not huge differences exist (Holton 2014). The entire aspect of ensuring the right balance between the maturities of liabilities and assets requires the primary understanding of what liabilities a company incurs in its year long process of business operations. Although, it is a continuous process, and therefore the accounting managers must take care that as soon as liabilities are incurred, the cash flow from these liabilities are rightly invested in assets which give best maturity returns as well as within the stipulated time (Myer 2014).

Prior to segmenting the liabilities section of the 2014 financial report, it must be understood that the CEO considers Myers to be a complete store and product group, and has marked that the Myers Holdings Limited conducts its business operations in the departmental retail sector in Australia (Myer 2014).

The company selected herein is the Myers Holdings Limited, which is existing in the retail industry and is statistically Australia’s largest departmental store, with a turnover of around $3.1 billion Australian Dollars for the year ending 2014 (Myer 2014). The company mainly deals in 11 core products which include the likes of men-wear, women-wear, child-wear and so on. The consolidated Balance Sheet for Myers Holdings Limited for the year ending 2014 has been prepared as on July 26, 2014 and hence all the conclusions and findings are thoroughly based on such annual report of the Balance Sheet as on 2014 (Myers 2014). In the financial reports of the 2014 financial period, we observe that Myers Holdings Limited has segregated liabilities into two divisions, number one being current liabilities and the second being non-current liabilities. Under the current liabilities, we have various sub-headings which are termed as “trade and other payables, derivative financial instruments, current tax liabilities, provisions, deferred income and other liabilities” whereas on the other hand, under the non-current liabilities are mentioned sub-headings like “borrowings, derivate financial instruments provisions, deferred income and other liabilities (Myers 2014).

Under the current liabilities section, we notice that the derivative financial instrument of forward foreign exchange contracts has been applied (Myers 2014). A total current liabilities with respect to derivate financial instrument comes up to 5,253 ($’000) When it comes to this, we must validate the application of such a derivative program. US Dollars or other currencies are purchased in bulk against the maturity of the payment from the goods sold on credit. The total payables are calculated at the present value rates, and the exclusion of interests-bearing. The total trade payables have been calculated as an addition of trade payables and other payables, the amounts of which are 203,473 ($’000) and 224,593 ($’000). Under the provisions of the current liabilities, we have the addition of employee benefits, workers’ compensation, sales returns and other current liabilities, a sum total of 82,167 ($’000).

Under the non-current liabilities section, we notice that an amount of 3,401 ($’000) is present which accrued due to the interest rate swap contracts. We have the additions of employee benefits, fixed lease rental increases and other provisions, summed up to the total of 14,039 ($’000).


(4) The concept of accrual accounting is pretty much in the norms of the financial accountability of majority of the business organizations, in fact, in all organizations as such overall (Rowles 2004). The measurement of liabilities is in an important contributor to both the inner budgeting process, as well as, the external third party dealing aspect. They have been completely imbibed in the operations management of business organizations in nations like the UK, New Zealand and Australia, and in fact, have also become the jurisdiction laws in the States. The purpose of these measurements of liabilities is to provide a true reflection of the ongoing application of these sources of liabilities and their physical investment into assets for the organization, for sustaining the business operations in the long run (Rowles 2004). The correct measurement of liabilities and the application of these sourced funds in the long and short run for business operations are a clear and specific indication of the performance of business houses. The presence of these measured liability also paves the path for a definite investment model into assets, which further assists the decision making process overall.

In the concerned organization taken by us, which is the Myer Holdings Limited, we observe that the total payables amount of 428,066 ($’000), is used to create an inventory balance of 376,763 ($’000) and at the same time, the total receivables of 30,133 ($’000), apart from the cash transactions which were employed to create trade for Myer Holdings (Myer 2014). Thus, the relevant significance of the right investment channels is guided by these measurements of liabilities whether done through the fair value measurement or the present value measurement methods (Financial Accounting Standards Board 2013). Therefore, the management is continuously aware of which measurement methods are more practical and relevant to taking the right business investment patterns through the experimental study of a particular period. One can take the one-by-one study of the cash sales, and credit sales and the consideration of the turnaround period to gather vast information as to which is leading to higher generation of profitability and subsequently liquid cash-in-hand with Myer Holdings. Further, the investment into derivate financial instruments and their calculation are also assisting the management of Myer to calculate the expected foreign forward contract returns through the investment into US Dollars or other currencies. In order to safeguard the future rate of foreign currency and offset any unnecessary loss possible, Myers is involved with these foreign forward contracts wherein a certain amount of foreign currencies are purchased for the rightful investment patterns.

Taking into consideration the Government imposed tax liabilities for Myer or any corporate house whatsoever, it can be stated that the tax calculations are completely an important part of the entire business operations as they give the company an insight into, how much tax obligations are on their head (Rowles 2004). The calculation of tax considerations come up to 7,321 ($’000) for the accounting year of 2014, and Myer is now aware of the current tax obligations it has. This will further assist Myer in studying how much amount of business operations lead to the current tax obligation. Therefore, a further detailed study would assist Myer in undertaking tax planning activities in order to lessen the burden of income tax obligations.

Additionally, majority of the financial boards like AASB and CFA are recommending the application of Fair Value as the right measurement methods of financial liabilities, as they reflect a true figure on the economic reality of the business organizations (CFA Institute 2010). The fair value measurement of liabilities will lead to the right decision making with respect to the future amounts, timing and riskiness of liabilities which might arise in future. For instance, in the 2010 balance sheet of Myer Holdings Limited, we notice that the borrowings of 422,030 ($’000) are valued at fair value (market value) which otherwise would under-compute the total non-current liabilities, leading to the reflection of an untrue figure. This might induce Myer Holdings to take in more borrowings, leading to higher debt obligations in future.


In order to conclude the assignment I would like to restate the facts, figures and points mentioned above, in the individual sections of the assignment. Primarily, the definition of liabilities and their measurement have been spoken about, wherein; we have defined liabilities as the future compensation of economic benefits which are reaped at present.

In the second part of the assignment, we have further discussed as to what are liabilities and the existing issues with the current framework advocated by IASB have further been discussed. The framework does not stand to have any authoritative stand on the guidance on how these standards for the measurement of liabilities are to be formulated; rather they follow a 1989 framework as such, with slight modifications in the 2010 framework.

The selected company from the Australian Securities Exchange is the Myer Holdings Limited which has categorized and segmented liabilities based on the current standing and long term standing. Herein, we have observed how the liability amounts are computed and treated, for the fair view of financial health of Myer.

Last, but not the least, the concluding topic of discussion was the right relationship between measurement of liability and the useful decision making by business entities, so as to enhance the number of productive business decisions. The assignment proved helpful in attaining the knowledge of liabilities and decision-making.



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