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Key Topics
- Requirement
- Solution
- Introduction:
- Contingencies and provisions:
- Contingency recorded:
- Plant and equipment that have been acquired under financial leases:
- Treatment of leases:
- Reclassification of the leased item:
- Non- current impairment method:
- Valuation method for non-current assets:
- Conclusions:
- References
Requirement
1- Write a report on Billabong international limited in 1500 words with reference to APA.
Solution
Introduction:
In the present report, an effort has been made to ensure that the financial statements that have been prepared by Billabong Limited are in accordance with the guidelines that have been issued by the accounting standard bodies. The guidelines must be followed by every entity that has been issued by the AASB and the IFRS for ensuring the reliability of the financial statements that have been prepared by the entity (Muda et al., 2018). The various significant components of the financial statements are being analysed. The main purpose of the report is to develop a better and deeper understanding in respect of the preparation of the financial statements of the company.
Contingencies and provisions:
The contingencies that have been disclosed by the entity in its financial statements are being segregated into several financial components. Contingency refers to all the assets and the liabilities whose existence depends on the happening and non- happening of a future uncertain event. Guarantee is the first financial component that has been included under the head contingencies in the financial report prepared by the entity. The guarantee that is given by the company is a liability having a financial nature and is recognised at the time of the issuance. As per the guidelines that have been issued by the Australian Accounting Standards Board, the same has to be recorded at fair value. AASB 137 is the accounting standard that is responsible or lays down the guidelines in respect of the contingent assets and contingent liabilities of the company (Tracy& Tracy, 2014).
Letters of credit is the next contingent liability that has been shown in the financial statements of the entity. The company has made sure that enough disclosures are made in its respect. The amount involved in the letter of credit that was being issued by the group amounted to $2.4 million. It is disclosed by the company that the letter of credit of the company are not limited to the leases and the insurances.
Terminated agreement is the next contingent liability that has been disclosed in the financial statements of the company for the year. As per the information that has been provided by the company in its annual report, the entity has incurred contingent liability in this respect amounting to $3.5 million.
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The criteria used by the entity in respect of the recognition and measurement of the contingent liabilities that have been stated in the financial statements.
The criteria that are used for the purpose of recognising and the measurement FO the contingent liabilities and the assets of the company are as follows:
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a) Guarantees: The criteria that have been sued for the purpose of recognising and measuring the guarantee in the financial statements of the company are that the company is following the guidelines that have been issued by the AASB 137. As per the guidelines issued by the standard is that the recording has to be done at the fair value of the transaction (Schürmann, 2016).
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b) Letter of credit: For the purpose of recognising and the measurement of the letters of credit, the company records the amount that are concerned with the undrawn letters and the amount to be recorded in this respect is not limited to the leases and the insurances.
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c) Contingent liabilities: At present, the company discloses no information in respect of the contingent liabilities of the company.
As per the estimate that is, being made by the management in respect of the outflow of resources of the company for meeting the current obligations is termed as provision. For determining the present value of the future cash outflow of the cash, the rate that is considered by the company will be the pre-tax. The discounting rate has to be used by the management must factor in the various market circumstances that are present and are affecting the entity (Weir et al., 2015). The interest expense that the company will have to incur for the period will also have to be factored in by the company.
Contingency recorded:
The contingency that has been recorded is in respect of the guarantee that has been given by the company to its customers. The financial statements FO the company have laid emphasis on the fact that the guarantee that has been given by the company to the customers is recorded as a liability from the day the company had issued it. The liability in respect of the guarantee has been measured at its fair value (Sasono et al., 2015). The contingency that has been recorded will not be used for other contingent liabilities due to the reason that there might be severe fluctuations in the amount due to the uncertainty involved in the treatment of the liability of the company due to the accounting practice that has been adopted by the company. The result will be that the qualitative feature of the financial statement of the company will get affected severely. The qualitative features of the financial statements of the company include reliability, understandability and comparability. The concept of reliability refers to the acknowledgement on thepart of the company that the data that has been stated in the financial statements of the company are showing the true and fair view of the company’s financial performance and the position of the company (Caruana&Farrugia, 2018). The understandability of the statements refers to the fact that the information that has been disclosed by the company is easily understood by the users of the financial statements of the company and the same is used for the purpose of decision making by them. The concept of the comparability refers to the fact that the financial statements prepared by the entity for a particular period is comparable with the data of different periods and with the reports of other entities too.
Plant and equipment that have been acquired under financial leases:
The amount of the plant and equipment that has been acquired by the company under financial leases amounted to $1189 and $1253 for the year 2017 and 2016 respectively. As per the information that has been given out in the reports the rental expenses in respect of the operating leases of the company was divided into three parts namely, minimum lease payments, contingent rentals, and sub-leases.
Treatment of leases:
The accounting standard of AASB 116 has been utilised by the company for disclosing the various leases that are being included in the financial statement of the company. The standard has been set by the Australian Accounting Standard Board. As per the terms of the lease, the recognition of the interest is being carried out (Muda et al., 2017). The short term and the low value leases are the exceptions that have been recorded in the financial report.
Reclassification of the leased item:
The reclassification that is done by the company in respect of the leased item can be highlighted by different examples:
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a) At the end of the period of the lease, the lessor is bound to transfer the rights of the assets to the lessee.
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b) The lessee has the option with him to purchase the assets at the end of the lease period at an expected price that is generally less than the fair value.
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c) The nature of the leased assets is such that the lessee is able to utilise the asset without making any significant modification in it.
Non- current impairment method:
For conducting the impairment, testing the account that has been chosen is a receivables account that amounted to $7351. The present amount represents the amount that can be recovered from the debtors in this respect. The amount is included for receivables of the company. The receivables of the company also accounts for the amount that the company has transacted for credit sale (Lang&Stice-Lawrence, 2015). As per the information in the annual report of the entity, the segregation of the receivables is done based on the pre-payments, other receivables and the prepaid costs of borrowing.
Valuation method for non-current assets:
For valuing the non-current assets that are being held by the company, it has various alternatives that are present before it like the fair value consideration or valuation based on the historical cost. Both the revaluation method would lead to the increase in the value FO the assets and this would turn be negative for the company (Gigler et al., 2014). In addition to this, the fair value method is more preferred by the entities than the historical cost method. The reason being that according to the guidelines issued by the accounting board the fair value of technique is recommended (Sullivan et al., 2014).
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Place Your OrderConclusions:
The conclusion that can be derived after conducting an in depth analysis of the various elements of the financial statements of the company is that the company has adhered to the regulations regarding the accounting treatment of the assets. This suggests that the preparation and the presentation of the financial statements of the entity have been done with much care and diligence on the part of the company. The accounting statements that are being prepared by the entity place due emphasis on the fact that due disclosures must be made to enhance the understandability of the financial statements of the company.
References
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Caruana, J., &Farrugia, B. (2018). The use and non-use of the government financial report by Maltese members of parliament. Accounting, Auditing & Accountability Journal, (just-accepted), 00-00.
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Gigler, F., Kanodia, C., Sapra, H., &Venugopalan, R. (2014). How frequent financial reporting can cause managerial short?termism: An analysis of the costs and benefits of increasing reporting frequency. Journal of Accounting Research, 52(2), 357-387.
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Lang, M., &Stice-Lawrence, L. (2015). Textual analysis and international financial reporting: Large sample evidence. Journal of Accounting and Economics, 60(2-3), 110-135.
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Muda, I., Dharsuky, A., Siregar, H. S., &Sadalia, I. (2017, March). Combined Loadings and Cross-Dimensional Loadings Timeliness of Presentation of Financial Statements of Local Government. In IOP Conference Series: Materials Science and Engineering (Vol. 180, No. 1, p. 012099). IOP Publishing.
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Muda, I., Harahap, A. H., Ginting, S., Maksum, A., &Abubakar, E. (2018, March). Factors of quality of financial report of local government in Indonesia. In IOP Conference Series: Earth and Environmental Science (Vol. 126, No. 1, p. 012067). IOP Publishing.
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Sasono, A. D., Alimudin, A., Kamisutara, M., &Inayati, I. (2015). Development of accounting information system (SIA-UMKM) with waterfall approach to standardize UMKM financial report based on standard of accounting financial entity without public accountability (SAK-ETAP). J. Basic. Appl. Sci. Res.
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