Woolworths Ltd Financial Analysis and Leasing

The assignment provides a comprehensive financial analysis of Woolworths Ltd, covering its consolidated statements, tax effects arising from intra-group transactions, and leasing arrangements. The report concludes that the BOD of Woolworths Ltd is highly qualified and able to fulfill their obligations efficiently, with a good and growing profitability aspect. It also suggests that Woolworths Ltd should lay emphasis on innovation for gaining competitive edge over others and consider optimal capital structure while taking decision about equity issuance.

Corporate Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1..................................................................................................................................1
PART1. BOARD COMPOSITION.................................................................................................1
1. Stating the number of independent directors in Woolworths Ltd............................................1
2. Assessing the number of directors as per gender.....................................................................1
3. Presenting the qualifications of 3 directors.............................................................................1
4. Presenting the experience of three directors............................................................................2
5. Other boards of the directors in Woolworths Ltd....................................................................3
PART 2: REPORT...........................................................................................................................4
1. Evaluating the current profitability aspect of Woolworths Holding Ltd.................................4
2. Assessing the extent to which company’s equity is growing as compared to the past years. .6
3. Identifying the opportunities for future growth.......................................................................7
4. Stating challenges pertaining to the current business activities...............................................7
5. Presenting company’s contribution in social and environment sustainability.........................8
QUESTION 2: LEASE....................................................................................................................8
1...................................................................................................................................................8
a. Assessing the kind of lease that Spotless Group Holdings use for their offices......................8
b. Stating the kind of lease undertaken by Spotless Group Holdings for equipments.................9
2. Presenting the reasons behind undertaking each kind of lease................................................9
3. Stating the manner in which leases recorded in the Annual Report of Spotless.....................9
4. Advantages and disadvantages of using different types of lease agreements..........................9
5. Giving reasons behind the introduction of lease standard (AASB 117)................................10
PART 2: CLASSIFICATION OF LEASES..................................................................................11
1. Stating the lease arrangement undertaken by Orion Ltd.......................................................11

2. Critically evaluating the accounting treatment undertaken by Orion Ltd.............................11
QUESTION 3: CONSOLIDATIONS...........................................................................................11
1. Explaining the need for making adjustments related to intra-group transactions in
consolidated financial statements..............................................................................................11
2. Presenting tax effects arising from intra-group transactions.................................................11
3. Explaining the manner through which unrealized profit of intra-group transaction become
realized.......................................................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Corporate accounting is highly concerned with the rules which are undertaken by the
firms for the preparation of balance sheet, income and cash flow statements. Aspects of corporate
accounting are highly significant which in turn helps in interpreting financial results and
accounting related to the events such as amalgamation, absorption and consolidation. The present
report is based on different case situations which will provide deeper insight about the areas of
accounting. For the present report, Woolworths Holding Ltd has been selected which is one of
the leading retailers operating throughout in Australia and New Zealand. In this, report will
highlight the information pertaining to directors and financial position as well as performance of
the firm. It also depicts different types of leasing used by the firm for the purpose of office and
equipments. Further, it will shed light on AASB 117 and AASB 10 that is highly associated with
the field of accounting.
QUESTION 1
PART1. BOARD COMPOSITION
1. Stating the number of independent directors in Woolworths Ltd
Annual report of Woolworths Ltd related to 2016 clearly shows that during such period
number of independent director was 6.
2. Assessing the number of directors as per gender
In the Woolworth Limited company, total 7 directors are there where proportion of male
and female is 3 and 4 respectively.
3. Presenting the qualifications of 3 directors
Directors Qualifications
Jillian Broadbent, AO BA (Maths & Economics)

(Independent non-executive director)
Holly Kramer
(Independent non-executive director)
BA (Hons), MBA
Brad Banducci
(MD and CEO)
MBA, LLB, BComm (Annual report of
Woolworth Holding, 2016)
4. Presenting the experience of three directors
Directors Experiences
Jillian Broadbent, AO
(Independent non-executive director)
Jillian has experience in corporate banking and
finance sector in both Australia and global
level.
Holly Kramer
(Independent non-executive director)
Ms Kramer has experience of more than 20
years in the field of general management,
marketing and sales. She also worked with the
leading companies namely Ford Motors,
Telstra etc.
Brad Banducci
(MD and CEO)
He worked as a CEO of Cellarmasters from the
period of 2007 to 2011. Further, prior to this,
Brad was acted as CEO, director and non-
executive director in Tyro Payments (Annual
report of Woolworth Holding, 2016). In
addition to this, Brad was vice president and
director of Boston Consultancy Group. All
such aspects clearly show that he was the core
member of retail group from 15 years and

having great experiences in such sector.
5. Other boards of the directors in Woolworths Ltd
Directors Other boards & kinds
Jillian Broadbent, AO
(Independent non-executive director)
 Chancellor of the University of
Wollongong
 Member of the Board of the Reserve
Bank of Australia (1998 to 2013)
 Director of ASX Limited, Coca-Cola
Amatil Limited
 Director of Qantas Airways Limited
 Director of Westfield Property Trusts
and Woodside Petroleum Ltd
Holly Kramer
(Independent non-executive director)
 Non-executive Director of Nine
Entertainment Corporation (from May
2015)
 Non-executive Director of AMP
Limited (since October 2015)
 Member of Chief Executive Women
 Group Managing Director at Telstra
 Chief Executive Officer of Best & Less
(South African retail group Pepkor)
Brad Banducci
(MD and CEO)
 Managing Director of Woolworths
Food Group (March 2015 – February
2016)
 Director of Liquor (2012 – March

2015)
 Chief Executive Officer of
Cellarmasters (2007 – 2011)
 Chief Financial Officer and Director,
and later a Non-Executive Director at
Tyro Payments
 Vice President and Director in The
Boston Consulting Group (15 years)
PART 2: REPORT
1. Evaluating the current profitability aspect of Woolworths Holding Ltd
Years Gross profit Net profit Return on
equity (ROE)
Earnings per
share (EPS)
2013 13553 2597 26.25% 3.22
2014 15498 2888 25.43% 3.50
2015 23150 3017 20.35% 3.37
2016 26386 4344 -12.79% 4.54

2013 2014 2015 2016
0
5000
10000
15000
20000
25000
30000
Gross profit
Net profit
2013 2014 2015 2016
-100.00%
0.00%
100.00%
200.00%
300.00%
400.00%
500.00%
Return on equity (ROE)
Earnings per share (EPS)
Interpretation: The above depicted table clearly presents that gross profit of Woolworths
Ltd inclined from AUD $13553 to $ 26386 respectively. Along with this, NP margin of
Woolworths Ltd also increased from AUD $2597 to $4344 at the end of accounting year 2016.
This aspect shows that, during the period of 2013 to 2016, firm has made effectual control on
direct as well as indirect expenses. In addition to this, EPS is also showing increasing trend
which in turn presents that company has provided shareholders with higher return. However,
ROE of Woolworths Ltd is showing declining trend and accounted for -12.79 % at the end of
2016 (Annual report of Woolworth Holding, 2016). It presents that in the year of 2016 business
unit failed to generate higher returns from the amount invested by shareholders. Thus, firm is

required to develop sound strategic framework that helps in enhancing margin and thereby
contributes in the organizational success. On the basis of the outcome of overall evaluation, it
can be stated that profitability aspect of the company is good and increased over the past years.
2. Assessing the extent to which company’s equity is growing as compared to the past years
Years DPS Shareholders’
equity
2013 .62 5619
2014 1.36 6629
2015 1.70 14251
2016 1.66 19826
2013 2014 2015 2016
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
DPS
DPS

2013 2014 2015 2016
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
Shareholders’ equity
Shareholders’ equity
Interpretation: Graphical presentation shows that DPS offered by Woolworths Ltd to its
shareholders increased significantly over the past years from .62 to 1.66. It is good indicator that
assists company in attracting the large number of investors. Moreover, usually investors prefer to
invest money in the shares of firm that offers high dividend to the shareholders. Along with this,
shareholders equity is also showing inkling trend which in turn presents that company has issued
shares during 2013 to 2016 for meeting monetary requirements. The main reasons behind the
issuance of equity are that it helps in reducing the fixed financial obligations such as interest.
Moreover, in shares firm offers dividend to the shareholders only when it attains enough profit
margin. However, high level of share issuance has direct impact on the capital structure of firm.
Thus, company should consider ideal solvency ratio while taking decision in relation to raising
funds from equity source.
3. Identifying the opportunities for future growth
From assessment, it has been found that through the means of strategic acquisitions and
franchising Woolworths Ltd can expand its operations in the emerging economies like India etc
(Woolworths SWOT Analysis, USP & Competitors, 2017). By doing this, firm would become
able to offer products or services to the large number of customers which in turn maximizes both
productivity and profitability.

4. Stating challenges pertaining to the current business activities
Retail sector of Australia is filled up with the high level of competition which in turn
imposes challenge in front of Telstra. Moreover, with the motive to attract more customers’
competitors such as Tesco, Aldi, Walmart, Macro Wholefoods Ltd etc are offering high
discounts which in turn create difficulty for Woolworths Ltd. Moreover, if company will not
make changes in its own pricing policies as per competitors then it may result into loss of
customer base. Along with this, increasing cost of raw material and economic recession also has
significant influence on the current business practices as well as growth of Woolworths ltd.
5. Presenting company’s contribution in social and environment sustainability
Annual report of Woolworth Holding ltd shows that in the year of 2016 it has taken
several initiatives for making contribution in social and environmental sustainability. Corporate
and sustainability report presented by Woolworth clearly exhibits that its solar power generation
accounts for 1560 MWH. In addition to this, company recycled 247930 tones waste material or
diverted the wastage from landfill. Further, by offering employment opportunity to 805000
people company indirectly contributed in Australian economy. Along with this, Woolworth has
introduced or offered its own 1300 branded products with health starrating. It presents company
makes focus on providing customers with healthy and high quality food. Apart from this, direct
community investment of the company implies for AUD $ 31 million, whereas customers
fundraising implies for $19.49 m. In addition to this, total shareholders dividend payout is $1
billion which entails that firm has fulfilled its responsibility towards the society or shareholders
to a great extent (Corporate sustainability report of Woolworth, 2017). All the above depicted
aspects clearly show that contribution made by Woolworth Holding Ltd for the welfare of others
is highly significant and commendable.

QUESTION 2: LEASE
PART 1
1.
a. Assessing the kind of lease that Woolworths Holding Ltd use for their offices
In order to uses offices of the company, the cited firm Woolworths Ltd considers
operating lease. In this method, assets are generally given on rent to the another party and not
transacted in the books of financial position of the firm. Further, ownership of the asset is not to
be transferred to another party because it works for the short period of time (Rohan, 2016.).
b. Stating the kind of lease undertaken by Woolworths Ltd for equipments
The Woolworths Ltd enterprise considers financial lease with respect to the equipments
and machinery within workplace. It works in the firm as a loan where residual value of the risks
is not applicable. Apart from this, transactions of financial lease are mandatory to show in the
balance sheet. In this ownership remains with the company itself and not transfer to another
party.
2. Presenting the reasons behind undertaking each kind of lease
The Woolworths Limited entity considers operating lease because option of renew is
available with it. When talking about the reason of using financial lease then it has chance to buy
the equipment while taking decisions at the market price. Another justification is for using such
leasing kinds is that, ownership of both office and equipment remains with the company itself
rather than transferring to another party (Dou, Hu and Wu, 2017). The financial leasing under
equipments is supportive for the cited firm in order to preserve cash flows in the profitable
direction. Along with this, facilities of tax deductible are also allowed in this case.
3. Stating the manner in which leases recorded in the Annual Report of Woolworths Ltd
In the annual report of Woolworths Ltd, operating lease is recorded as an expenses and
financial lease as the liabilities. Further, straight-line method is taken into account by the
company after considering to the lease term. On the other side, operating lease is not recorded in
the statement of financial position at the end of year of the company (Galina, 2017). Further, as

per the accounting standards, financial lease expenses are necessary to record in the balance
sheet of firm at the liabilities side.
4. Advantages and disadvantages of using different types of lease agreements
As per the selected company Woolworths Ltd, behind considering various kinds of lease
agreements there are some benefits and drawbacks are available with the company. Lease
agreements are highly supportive for the entity in order to balance and reduce their cash outflow
up to the greater level. When outflows of liquid managed within workplace then helps to increase
cash position at the end of an accounting period. Apart from this, management become more
capable to afford high quality of the assets and utilise capital within working environment
(Advantages and Disadvantages of Leasing, 2017). Therefore, sale and revenue influences up to
the higher extent. In addition to this, lease agreements are beneficial in terms of tax relaxation,
reduce capital expenditure, and eliminate risk of obsolescence, effective planning etc. for the
company. The company which provides equipment and any asset on lease then has rights for
terminating the contract in certain conditions.
However, several types of the lease agreements have some limitations like it limits
benefits of the company in terms of financial for the company. Further, return for the
shareholders who purchased equity shares is reduced from the various leases. Due to this,
number of stockholders and image of entity both declines in the market. Along with this, wealth
maximization purpose of the shareholders is not achieved. When period of the leasing agreement
completed then ownership of relevant asset transferred to the lessee (Tong, Karim and Munir,
2016). The process of leasing and document formalities are little complex and typical which is
another major disadvantage for the entity. Apart from this, the Woolworths Ltd firm faces issue
related to the expenses of transforming various initiatives taken in the workplace. Due to this,
business risks incur for the company which is another demerit of using various types of lease
agreements.
5. Giving reasons behind the introduction of lease standard (AASB 117)
Transactions occurred with both the parties like lessee and lessor in the lease agreements
which are treated in their books of accounts. In order to make accounting treatments of such
transactions, Australian Accounting Standard Board AASB 117 is introduced and followed
within business. Moreover, in order to make effective and proper treatment of the operating and

financial leasing transactions there is AASB 117 is required (Australian Accounting Standard
Board 117, 2010). It helps to follow appropriate accounting policies while preparing financial
statements.
PART 2: CLASSIFICATION OF LEASES
1. Stating the lease arrangement undertaken by Orion Ltd
Cited case situation presents that lease arrangement undertaken or followed by Orion Ltd
is recognized as operating one. Moreover, operating lease is the one in which lessor provide lesse
with the right in relation to making use of assets for the specific time period which is less than
the life of an asset. Hence, in the given case, length of lease is 5 years which is less than the
economic life of a machine such as 8 yrs. By considering such aspects it can be said that through
operating lease arrangement machine is given by Orion to lesse.
2. Critically evaluating the accounting treatment undertaken by Orion Ltd
From assessment, it has found that firm should classify lease on the basis of time and
transfer sustainability of risk and rewards. Moreover, financial lease contains transfer
sustainability, whereas operating does not. As per AAS 127, operating lease must be recognized
as expenses in accordance with the straight line basis (Leases AASB 117, 2017). Such standard
shows that lease payment except maintenance and insurance are considered as expenses for the
purpose of accounting.
QUESTION 3: CONSOLIDATIONS
1. Explaining the need for making adjustments related to intra-group transactions in consolidated
financial statements
As per AASB 10 and 137 intra-group transactions related to dividend, distributions,
receivables, liabilities and assets must be eliminated on consolidated statements because it is
assumed that they do not occur. Thus, it is one of the main reasons due to which intra-group
transactions are eliminated while preparing consolidated statements.

2. Presenting tax effects arising from intra-group transactions
From assessment, it has been identified that as per AAS B 112, income tax is applicable
on the differences arising from the elimination of profit or loss pertaining to intra-group
transaction.
3. Explaining the manner through which unrealized profit of intra-group transaction become
realized
By carry forward the concerned amount business unit can make unrealized profit related
to inventory etc become realized significantly.
CONCLUSION
From the above report, it has been concluded that BOD of Woolworths Ltd are highly
qualified and able to fulfill their obligations efficiently. Besides this, it can be inferred that
profitability aspect of the company is good and growing continuously. It can be seen in the report
that level of shareholders equity increased in 2016 over the past years. Thus, higher management
team of Woolworths Ltd should keep in mind the ratio of optimal capital structure while taking
decision about the issuance of equity. Further, it has been articulated that Woolworths Ltd should
lay emphasis on innovation for gaining competitive edge over others. It can be seen in the report
that different types of lease arrangements having varied benefits and drawbacks. Thus, firm
should consider such aspects when taking decision pertaining to lease. Beside this, it can be de
depicted from the project that, Woolworths Holding Ltd considers operating and financial lease
for its offices and equipments within workplace.