Advance Financial Accounting: A Study on AGL Energy Ltd's Annual Report for 2017-18

This study analyzes AGL Energy Ltd's annual report for 2017-18 based on accounting standards AASB 16 and AASB 117. It discusses the significant accounting policies, principles, and activities involved in preparing the financial statement. The study also examines the impact of the accounting standard on the company's lease transactions and the disclosure made by the company. The study concludes with the importance of following accounting policies and principles for maintaining transparency and enhancing the financial performance of the company.

Running head: ADVANCE FINANCIAL ACCOUNTING
ADVANCE FINANCIAL ACCOUNTING
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ADVANCE FINANCIAL ACCOUNTING 1
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
In Response to Question 1......................................................................................................2
In Response to Question 2......................................................................................................4
In Response to Question 3......................................................................................................6
Conclusion..................................................................................................................................9
References................................................................................................................................10

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Introduction
The assignment actually deals with the chosen company which is the AGL energy ltd
where the annual report of the company for the year 2017-18. The AGL energy ltd is
basically the Australian Gas Light company which was actually formed in the region of
Sydney situated in Australia. The company which is AGL is the Sydney Stock Exchange or
rather falls under the top 200 ASX listed companies. Based on the accounting standard which
is AASB 16 and AASB 117 the transition of the accounting leases have been depicted in the
performed study. Based on the rules in the accounting standard the significant decisions in
that case are taken by the board of directors of the company.
Discussion
In Response to Question 1
There are actually some of the significant accounting policies which are actually
involved while preparing the annual report in the financial statement of the company in the
year 2018. The shares limit the shares of the entity in the business since its incorporation in
the business of the company. There are certain accounting activities which are further
associated with the chosen company in this case which are the AGL energy ltd. The
accounting activities in this case statement of compliance, basis of preparation, interpretation
of the new accounting standard, basis of consolidation, segment reporting, investments in
equity related features, joint operation and foreign currency transaction which are associated
in that case.
The principles of accounting is simply applied in many segments which is further
listed in the financial statement which is prepared by the company1. Some of the items in that
case are given bellow which are the trade and receivables, inventories, financial assets, loan
and receivables and impairment of financial assets in the business. The impairment of assets
1 Jones, M, Accounting. in , Chichester, England, Wiley, 2018.

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plays significant role in the evaluation of the techniques used in the accounting principle. The
senior level management of the company must take the significant initiative at time of
evaluating the accounting principle which is involved in this case.
At the time of the financial review it is quite important for the business to compare the
figures based on the comparative figures by implementing the new standards which is
involved in this case. Following the financial standard in the business of the company will
take the performance of the business to the next level. The principle activities which is
actually related to the business of the investments and business energy. The significant
changes in the principle activities of the company in that case is needed for various purposes
which are the gas storage electricity generation, gas to residential and wholesale customers
approach in the business of the company.
The senior level management of the company actually follows the rules which are
related to the numerous accounting policies involved in that case. The main accounting
principle which is used in this case in the annual report of the company which is going
concern concept of the business. The generally accepted accounting principle is used in order
to make the transaction successful and it is also to follow the rules and regulation related in
that case. The accounting standards is basically complied in order to ensure that the financial
statement of the company is free from all sorts of material misstatement. The basics of the
management system of the company is further adjusted with the main tools and techniques
involved in that case. The principles, which is adjusted in that case, are further depended on
the certain norms associated with it.
The accounting policies actually creates impact on the operations in case of the equity
and accounting statement of the disclosure in the accounting policies in the statement of the
company. The investment, which is made in the business of the company, is further taken

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care of by the senior level management involved in the main operations in the business.
Based on the financial statement of the company the overall interpretation of the business in
that case is made accordingly. It further eases the accounting related adjustments in the
business transaction which takes place in the company along with the significant factors
which is involved in that case.
In Response to Question 2
The accounting standard, which is used by the company at the time of providing lease,
is recognized as the assets of the company AGL. As per the lease standard of the AASB 16
which actually deals with the existing lease requirements AASB 117 which contains a lease
and related interpretation in that case. The AASB 16 will require lessee to actually deal with
all the leases based on the balance sheet model which is quite similar to the model of the
finance lease which is in pursuant with the AASB 117.
The most typical example in this case is regarding the exemption which is actually
based on the low value asset and short term leases. The liability regarding the commencement
of the obligations in order to make the future lease payments2. The underlying assets of the
company is further based on the lease terms. The Lessee in such a situation will further be
required separately recognize the interest expenses on the liability of the lease and further the
depreciation expenses based on the ROU assets rather than enhancing the operating lease
agreement.
The recognition pattern in case of the lease expenses is needed to be accelerated in
comparison to the current business prospect of the company. The significant balance metric,
which is utilized in this case, are the earnings before interest and tax which actually creates
impact in the business of the company. 3The accounting, which is related to lease, is basically
2 Bodie, Z, & R Merton, Finance. in , Upper Saddle River, NJ, Prentice Hall, 2001.
3 Brealey, R, S Myers, & F Allen, Principles of corporate finance. in , New York, McGraw-Hill Education,
2019.

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dependent on the classification of the principle enlisted in the AASB 117. The lessor in that
will further classify the lease based on the classification of the principle which is realted to
the AASB 117. The financial lease, which is actually conducted in the business, are actually
two type which are the finance and operating lease. Basically the standard in that case lessee
along with the lessor to disclose more extensive requirement which is further based on the
principle of the AASB 117. The rules and regulation actually creates impact on the AGL’s
financial report including the decrease in the earning and profit of the company which
actually took place in the year 2017. The management system in that case needs to adopt
some of the significant business strategy in order to rectify the problems which are associated
in that case.
The perfect example of the AGL energy ltd is based on the two perspective which is
the AGL as a lessor and as a lessee. The leases are further classified as the financial lease
which is effected in terms of the lease transfer which is further related to the rewards and risk
of ownership associated with the business. Finance lease is basically referred to as the
constant periodic return associated with the net investment on AGL’s where the outstanding
assets are aligned with the leases in that case. When AGL energy acts like the lessee in that
case assets, which are held by the company in terms of the lease further, gets depreciated
based on the expected life which is involved in that case4. The incentives, which is related to
the operating leases, are recognized as the liability in the business. The benefits, which are
associated with the business, is related to the incentives which is recognized as the reduction
in the rental expenses based on the straight line method5.
The significance of the accounting policies is to maintain the accounting disclosure in
the financial statement, balance sheet and cash flow statement of the company. The
accounting policy of the company is basically are of various type which are the internal
4 Palmer, A, Finance. in , London, G. Bell & Sons Ltd., 1922.
5 Maher, M, C Stickney, & R Weil, Managerial accounting. in , Mason, Ohio, Thomson/South-Western, 2006.

6ADVANCE FINANCIAL ACCOUNTING
policy and external policy. It is further significant for the potential investors in the business to
go through the accounting policies at the time of making the potential investment in the
business. The overall operation, which is conducted by the company, is further based on the
impact it creates on the net profit, assets, accounting statement which is produced by the
company. The standard, which is followed by the company, is completely based on the
International accounting standards along with the accounting policies which must be
disclosed at the time of preparation of the financial reports by the company.
The accounting standard policies which is AASB 16 is complied with the rules or
norms related to the lease in the financial statement of the company. The accounting
treatment of the company is based on the polices followed by the companies and the other
factors associated in that case6. The lease related accounting policy of the company is further
based on the features of the AASB 16 in case of both the lease and the lease. The
circumstances in both the case of the lessee and lessor have been depicted in the conducted
business prospects.
In Response to Question 3
The disclosure, which is made by the company, is based on the leases of the
accounting which further includes the provision related to the transitional provision. The
effect on the transaction is based on the principle which is the laid on the AASB 16 and
AASB 117. The improvements, which are related to the leasehold, are basically amortized
over a certain part involved in that case. The lease in the accounting is basically related to the
principles which is involved along with the certain business features. 7The effect regarding
the provision of the company’s act is further considered as one of the core accounting
entities. The amount of lease must be considered by the company along with the potential
changes which must be adopted by the company. There are certain risk, which is involved in
6 Kimmel, P, Accounting. in , New York, Wiley, 2018
7 Belal, A, S Cooper, S Giordano-Spring, J Maurice, & C Cho, Sustainability accounting. In.

7ADVANCE FINANCIAL ACCOUNTING
the disclosure of the accounting principles, and further the upper level management of the
company must identify the effect of it. The business of the company is further dependent on
the accounting principle along with the various facts which is involved by the company8.
In case of the financial review in the business it is needed for the company to adopt
the lease settlement based on the financial instrument AASB 16 and it further reflects the new
standards which is implemented at the time of adopting the recent developed in that case. The
financial statement of the company on the other hand is completed based on the adoption of
the strategy involved in the AASB 15 which is actually about the contracts with the
customers and the impact material on adoption of the policies involved in that case9.
Most of the basic principle, which is involved at the time of the risk associated with
the business, which are the accrual principle, doctrine of conservatism, cost principle and
many more are actually involved in that case. Some of the significant examples of the lease is
provided in this case. The depreciation, is basically related to the straight-line method of
depreciation. The estimated value of the life of machine along with time of depreciation
which is 50 years in case of the freehold building along with the leasehold improvement
which is lesser in case of the lease period of 20 years. In case of the plant and equipment the
lease, agreement is basically ranged from 3 to 35 years. The profit and loss statement in the
balance sheet of the company further involves the depreciable value in such a situation. The
system in that case must be upgraded based on the interval basis and certainly it enhances the
value of the organization at the same time.
The AGL energy ltd financial statement of the company is further related to the
energy related facets and the other factors associated with it. The example in that case is
provided in respect to the financial statement of the company along with the financial facets
8 Stickney, C, & C Stickney, Financial accounting. in , Mason, OH, USA, South-Western Cengage Learning,
2010.
9 Northington, S, & G Gerard, Finance. in , New York, Ferguson's, 2011.

8ADVANCE FINANCIAL ACCOUNTING
of the company. The provision is based on the company’s act of the along with the other
factors which is involved in that case. The doctrine of principle must be utilized based on the
certain circumstances and any changes must be adopted by the company with the purpose of
enhancing the prospects of the business.
The performance of the industry in that case is particularly based on the accounting
framework which is likely the treatments and reporting of the business transactions. The
accrual basis of accounting in that case plays the significant role in the business along with
the other features which is associated in that case. Based on the financial report it can be said
that the financial performance of the business is satisfactory and accordingly it is needed for
the company to take care of the significance loopholes in the business. The upper level
management of the company must take care of the business features and further it is needed
by the company10.
The individual business performance in that case plays significant role in enhancing
the overall business prospect which will automatically increase the financial performance of
the company. The reliability principle is another principle which is used in case of the
measuring the significant business transaction along with the principles which are linked to
each other in that case11. The financial statement of the company is based on the disclosure of
the related information which is needed in order to prepare the financial statement of the
company. The situation, which is involved in that case, are based on the systematic features
of the business.
Conclusion
From the above discussion it can be concluded that the chosen company which is
AGL energy ltd. actually follows the principles which is associated with the business of the
10 Wang, Y, T Olofsson, Q Shen, & Y Bai, ICCREM 2015. in
11 Watson, D, & A Head, Corporate Finance. in , Harlow, United Kingdom, Pearson Education Canada, 2019.

9ADVANCE FINANCIAL ACCOUNTING
company. The internal aspects of the company in that case must be evaluated by the
management of the company along with the other factors which are associated with it. The
IFRS and the other accounting standard is followed by the company which is AGL energy
ltd. This allows the transparency in the system which further helps the overall business
prospect of the organization to proceed accordingly. It further helps the financial positioning
of the company to enhance based on the parameters which is taken into consideration by the
company. The overall decision of the company is completely based on the certain perspective
which is needed to be taken into consideration by the company.
References
Belal, A, S Cooper, S Giordano-Spring, J Maurice, & C Cho, Sustainability accounting. In.
Berk, J, & P DeMarzo, Corporate finance. in , , 2018.

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Bodie, Z, & R Merton, Finance. in , Upper Saddle River, NJ, Prentice Hall, 2001.
Brealey, R, S Myers, & F Allen, Principles of corporate finance. in , New York, McGraw-
Hill Education, 2019.
Donaldson, E, J Pfahl, & P Mullins, Corporate finance. in , New York, Ronald Press Co.,
2016.
Jones, M, Accounting. in , Chichester, England, Wiley, 2018.
Kimmel, P, Accounting. in , New York, Wiley, 2018.
Maher, M, C Stickney, & R Weil, Managerial accounting. in , Mason, Ohio, Thomson/South-
Western, 2006.
Northington, S, & G Gerard, Finance. in , New York, Ferguson's, 2011.
Palmer, A, Finance. in , London, G. Bell & Sons Ltd., 1922.
Ross, S, R Westerfield, & J Jaffe, Corporate finance. in , , 2018.
Stickney, C, & C Stickney, Financial accounting. in , Mason, OH, USA, South-Western
Cengage Learning, 2010.
Wang, Y, T Olofsson, Q Shen, & Y Bai, ICCREM 2015. in .
Watson, D, & A Head, Corporate Finance. in , Harlow, United Kingdom, Pearson Education
Canada, 2019.