Financial Statements Visualizing Aggregate -Myassignmenthelp.Com

Question: Discuss About The Financial Statements Visualizing Aggregate? Answer: Introduction The issue presented in the question is that the nature of expenses that have been incurred by the operations of Woolworths for the financial year of 2016 has been asked to clarify. In order to answer the presented questions, the financial report for 2016 has been chosen. In order to answer the presented question, at first, the concept of the categorization of expenses on the basis of nature or function should be understood. The categorization of expenses on the basis of nature can be described as the expenses that have been included in the income statement of the organization, that have essentially been disclosed according to their nature. The particular instance of the accounts that have been classified on the basis of nature are wages and salaries and rent expenses etc (Kanapickien? Grundien?, 2015). On the other hand, the expenses that have been classified on the basis of function are the cost of goods sold account, selling expenses and administrative expenses. It should be noted here that the classification of the expenses on the basis of nature does not exclude the need for disclosing the expenses on the basis of nature (Mignolet, 2017). Now, in the case of the chosen organization, Woolworths Group the expenses that have been disclosed in the financial statements have been classified on the basis of function. This is because the expenses that have been included in the income statement have been disclosed depending on the function that the particular expense serves like cost of sales, branch expenses, administration expenses, and financing costs. Moreover, the gross profit has been calculated from the income statement of the Group signifying the fact that the expenses have been disclosed on the basis of their function. The possible reasons for the different methods of classification of expenses used, are as follows: The expenses are classified on the basis of their nature when the number of expenses that have been incurred by the firm are less. The expenses are classified on the basis of their function when the number of expenses that have been incurred by the firm are more. In case of Woolworths Limited, there have not been a varied degree of expenses which have enabled the management of the corporate entity to segregate the expenses on the basis of nature (Bunsis, 2015). Moreover, the particular action of classifying the expenses also results in the clarified representation of the financial statements of the company thus, facilitating the fair image of the financial condition of the company (Bunsis, 2015). Accounting policy Before the identification of the three issues from the annual report of Woolworths Limited, the particulars of the AASB 108 have to be understood. The AASB 108 defines the accounting policies that should be mandatorily complied with by the organizations. Accounting policies are the specific principles, procedures and the regulations that are utilized by the corporate entities for preparing the financial statements of the company. The AASB 108 standard also defines the change in accounting estimate that may be utilized by the management of the company for adjusting the carrying amount of an asset or liability. The changes in the accounting estimates may be undertaken by an organization for the new developments in the accounting principles or the rectification of the accounting errors that have may occur at the time of preparation of the financial statements (Kanapickien? Grundien?, 2015). Another major accounting terms that has been mentioned in the AASB 108 is impracticable. A certain requirement is considered impracticable when the entity is unable to apply it after making every reasonable effort to do so. In case of Woolworths, the management of the corporate entity has provided the required disclosure in the accounting statements of the company in regards to the change in the accounting estimates or policies. One of the major critical accounting estimates that have been undertaken by the company is in regards to the determination of the useful life of assets. It has been mentioned in the annual report of the company in the financial year of 2016 that the process of estimation of the remaining useful lives requires enhanced management and reviewing at an annual interval. The useful lives have been altered, the net value of the asset that has been written down is depreciated since the date when the revised accounting policy had been published. This is done in order to adhere to the AASB 116. However, an interesting fact that has been mentioned in the annual report of the company is that the depreciation that has been recognized in the prior financial years has not been changed (Mignole t, 2017). The second issue that has been provided in the annual report of the company is in regards to the significant accounting policy disclosure. This has been presented in regards to the other financial liabilities. The total amount in other financial liabilities for the financial year of 2015 represents a value of $1075 and that for the financial year of 2016 reflects a value of $180 . This unprecedented fall or rise in the borrowings has been explained in the accounting disclosure in regards to significant accounting policies. The unprecedented rise has been due to the valuation of the put option liability in Hydrox. The third issue has been identified in regards to the valuation of the intangible assets like brand names, liquor and gaming licenses. It has been further mentioned in the provided disclosure that the group recognizes the impairment of the intangible assets of $320 million in relation to continuing operations and $119.4 million for discontinued operations. Notes to the 2016 financial statements It has been produced in the annual report of the company that the property, plant and equipment have been measured at cost that has been reduced by the accumulated depreciation or amortization and the accumulated impairment losses. It has been further disclosed in the annual report that the cost in regards to the self-constructed assets essentially includes the material costs, direct labor costs and a portion of the overheads (Rodriguez Kaczmarek, 2016). Moreover, it has been disclosed in the financial report of the company, the assets of Woolworths Limited have been depreciated on a straight-line basis. The useful lives of the different fixed assets of the company have been mentioned as follows: Buildings 25 to 40 years Plant and Equipment 2.5 to 10 years Leasehold improvements up to a maximum of 25 years Furthermore, it has been disclosed in the annual report of the company that the revenue that have been derived from the sales of the assets are recognized on the date of the sales of the asset. The particular gain or loss derived from the sale of the asset has been included in the Consolidated Statement of Profit or Loss. The impairment of the property, plant and equipment, intangible assets and the assets designated for sales have been done on the basis of the continuing operations and the discontinued operations. The impairment of the assets that are to be carried out are tested either annually or when there is an indication in regards to the impairment of the asset. The impairment essentially reveals the recoverable amount and helps the assessor to determine whether the impairment will lead to a potential gain or loss (Minnis Sutherland, 2017). References Biddle, G. C. (2015). The Role of Financial Statements in Reporting Financial Performance. InAccounting Finance/IASB Research Forum. Bunsis, H. (2015). Analyzing University and College Financial Statements. Journal of Collective Bargaining in the Academy, (10), 7. Hoyle, J. B., Schaefer, T., Doupnik, T. (2015). Advanced accounting. McGraw Hill. Israelsen, C., Feuz, D. (2014). Farm and Ranch Financial Statements. Jurez, F. (2015). Chaos and complexity in financial statements. Chaos and complexity theory for management: Nonlinear Dynamics, 1-33. Kanapickien?, R., Grundien?, Ã… ½. (2015). The model of fraud detection in financial statements by means of financial ratios. Procedia-Social and Behavioral Sciences, 213, 321-327. McInnis, J. M., Yu, Y., Yust, C. G. (2018). Does Fair Value Accounting Provide More Useful Financial Statements Than Current GAAP For Banks?. The Accounting Review. Mignolet, F. (2017). A study on the expected impact of IFRS 17 on the transparency of financial statements of insurance companies. Minnis, M., Sutherland, A. (2017). Financial statements as monitoring mechanisms: Evidence from small commercial loans. Journal of Accounting Research, 55(1), 197-233. Moroney, R., Trotman, K. T. (2016). Differences in Auditors' Materiality Assessments When Auditing Financial Statements and Sustainability Reports. Contemporary Accounting Research, 33(2), 551-575. Rodriguez, J., Kaczmarek, P. (2016). Financial Statements. Visualizing Financial Data, 183-215. Rouxelin, F., Wongsunwai, W., Yehuda, N. (2015). Aggregate cost stickiness in GAAP financial statements and future unemployment rate. The Accounting Review. Woolworthsgroup.com.au. (2018) Retrieved 3 February 2018, from https://www.woolworthsgroup.com.au/icms_docs/185865_annual-report-2016.pdf