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Annual Report of Wesfarmers Limited

   

Added on  2020-05-16

10 Pages3139 Words119 Views
PART APart (i)Wesfarmers Limited is the company that has been available for the analysis purpose andthroughout the study the annual report of the Wesfarmers Limited will be discussed with regardto the impairment testing. The company is Australia based and is listed in the Australian StockExchange having second largest place in the retail chains business and is big competitor to theWoolworths Limited. For making the deep analysis and current analysis, the annual report for thefinancial year ending 30th of June 2017 has been considered. The financial statements have to be read with the notes to the accounts of the company andtherefore, the following assets of the company have been tested for the purpose of theimpairment if any during the year:Note number 5 has laid down the impairment test for the trade receivables. The tradereceivables are those from whom any amount is receivable and that too in the ordinarycourse of business not any special transactions.Note number 7 has laid down the second major head comprises of the property plant andequipment. It includes freehold lands, buildings, leasehold land improvements, plantvehicles and equipment and Mineral lease and development. Note number 8 has laid down the third major head for impairment testing is the Goodwilland other intangibles. The other intangibles include brand, contractual and noncontractual relationships, software and gaming and liquor licenses. Note number 17 has laid down the other major head namely Non financial assets and notenumber 18 on Associates and joint Ventures and accordingly impairment is tested for theloss in investment 1

Part (ii)Yes, the company has conducted the testing for impairment and that too in accordance withAustralian accounting standard and has provided the details explanation of each and everytesting done by them. As per the seventeen note of the financial report of the company for the financial year ending 30thof June 2017, following test has been done for the impairment:The group of the whole company tests the property plant and equipment, goodwill andother intangibles on an annual basis. The testing becomes more frequently in case of theintangibles having indefinite lives and accordingly the testing on at least annually orfrequent basis have been mentioned. The testing is also required when an indication isthere that the impairment that has been charged in the earlier period might have beenchanged in the current financial year. The group will identify and prescribe the cash generating units. The need of identifyingthe cash generating units will arise only when the individual assets will not be able togenerate the cash flows on its own on independent basis rather uses the other assets togenerate the profits. Also when the assets value in use so calculated cannot be simulatedwith the figures as obtained with the fair value. Thereafter, the recoverable amount of each of the asset or the cash generating units as thecase may be is identified. Recoverable amount of an asset or the cash generating unit isthe higher of the fair value of asset less cost of the disposing off the same which isdefined as FVLCOD and the value in use. Value in use is nothing but the present value ofall the cash inflows that the company estimates for future for at least five years. Thepresent value is calculated by using the discounted rate or the cost of capital of thecompany. In case the cash flows are required for more than five years then the same isestimated using the growth rate of the company. For the calculation of the FVLCOD, thediscounted cash flow way has been used instead of other methods. Now the recoverableamount so calculated is contrasted with the carrying amount of the asset and in case thecarrying amount exceeds the recoverable amount of the assets or the cash generatingunits as the case may be then the impairment is booked otherwise the asset inconsideration is not impaired and is recorded at the carrying value only. 2

The other item of the asset which is tested for the impairment is the trade receivables.These include the balances of the sundry debtors and other loans and advances made inthe normal routine of business. The trade receivables are check with different kinds ofrisk like liquidity risk, credit risk and financial risk. The test for the impairment isongoing. It does not require being waiting for the balance sheet date of the year end. Thetest includes the checking and verification of the creditworthiness of the debtors as towhether they are in a position to generate the income and disburse the outstanding andaccordingly impairment is booked. In the given case recoverable amount is identifiedusing the discounted cash flow technique and this will exclude the short term debtors asthe discounting effect in this case will not be so significant or material.This, in this mode, the company does the impairment testing. Part (iii)The accounting treatment of the impairment is similar to the depreciation and accordingly on theone hand it is charged to the consolidated statement of profit and loss account and on the otherhand the impairment is deducted from the value of the assets so impaired as on balance sheetdate. On looking of the annual report of the company, the note number two of the annual reportof the company, following amount have been charged as the impairment and clubbed under thehead of the expenses in the consolidated statement of profit and loss:S. No.ParticularsAmount ($Million)1Plant, equipment and other assets272Freehold Property223GoodwillNILPart (iv)3

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