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Conceptual Framework of Financial Statements
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Added on 2019-09-16
Conceptual Framework of Financial Statements
Added on 2019-09-16
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Executive SummaryWe have taken the annual reports of the company belonging to food and beverages sector. FarmPride Food is a limited company which grades, packs, processes, supplies and markets shell eggsand process egg products with in Australia and exporting to Asia. Whereas Huon AquacultureCompany Limited is Vertically integrated Australian agriculture company. Its main aim ismanage risk, Driving sustainable and long term growth. Proper analysis of annual report of both the listed companies is done on the basis of elements offinancial statements. We have even understood the concept of conceptual framework its revisionto include prudence to address disparity in corporate reporting.Followed by conclusion andfurther recommendations. Table of content.1.Introduction.......................................................................................12.Analysis of annual report.........................................................................22.1.General purpose financial report.................................................................22.2.Analysis of items of balance sheet and profit and loss focusing on Inventory ,PPE ,Trade receivables ,Contingent liabilities, Taxation, Revenue and expenses...............22.3.Remuneration Structure............................................................................32.4.Proposed conceptual framework..................................................................42.5.Affect on reporting..................................................................................42.6.Benefits and criticism...............................................................................53.Conclusion and recommendation.................................................................64.Research requirement..............................................................................6IntroductionThe conceptual framework sets out the concepts which underline the preparation of financial statements for the external users. It is a system of concepts that flow from an objective of identifying the purpose of financial reporting. The need of conceptual framework is to see whether framework meets IASB requirements to provide more consistent and useful
pronouncements and sets of standards, it should be able to solve new and emerging practical problems, and should build confidence among the financial statements users. (Lexicon.ft.com, 2016)Analysis of annual reportGeneral purpose financial reports prepared by both the listed companies have been prepared inaccordance with the companies Act 2001,Australian Accounting standards and interpretations ofthe Australian Accounting standard board and International financial Reporting standards asissued by the International Accounting Standard board. The purpose of general purpose financialreporting is to provide information about the reporting entity to existing and potential investors,lenders and creditors in financial decision making.Difference in the annual reports on the basis of various elements taken from the financialstatements.1.Inventory of Huon Aquaculture Company Limited is valued at lower of cost (cost isdetermined on the average cost basis and comprises the cost of purchase includingtransportation cost).and Net realizable value(It is the estimated selling price in theordinary course of business less estimated cost of completion and cost necessary to makethe sales.) .Whereas inventory of Farm Pride Foods Limited is valued base upon costamortised over the productive life of the flock, which is between 50 & 60 weeks.2.Trade and other receivables of Huon Aquaculture Company Limited are carried at fairvalue of the amount received as due to their short term nature. Whereas Trade and otherreceivables of Farm Pride Foods Limited are initially recognized at fair value andsubsequently impairment loss is the receivable carrying amount compared to the presentvalue of estimated future cash flow, discounted at the original interest rate.3.Plant property and equipment of Huon Aquaculture Company Limited are valued atfair market value i.e. historical cost less accumulated depreciation and accumulatedimpairment looses. Whereas plant and equipment of Farm Pride Foods Limited isvalued at cost basis i.e. cost less accumulated depreciation less any accumulatedimpairment. 4.Huon Aquaculture Company LimitedandFarm Pride Foods Limited has nocontingent liabilities at the year end.5.In case of Huon Aquaculture Company Limited, Marine Farming leases are recordedat cost, Amortization is based on the term of lease and the expense is charged throughconsolidated income statement.All marine leases are held for a term of 30years.The groupeven has lease commitments relating to range of equipment and they are driven byoperating lease. Whereas Farm Pride Foods Limited lease payments for operating
leases where substantially all risk and benefits remain with the lessee are recognized asexpense in the period in which they are incurred.6.Revenue of Huon Aquaculture Company Limited is recognized to the extent that isprobable that the economic benefits will flow to the company and the revenue can bereliably measured, regardless of the payment being made. Revenue is measured at fairmarket value of the consideration received or receivable taking into account contractualdefined terms of the payment and excluding taxes or duty. Whereas Farm Pride FoodsLimited recognises revenue from the sale of eggs at the point of delivery as thiscorresponds to the transfer of significant risk and rewards to the ownership of the eggs,interest revenue is recognized using effective interest method. All revenue is stated net ofthe amount of goods and services tax. 7.There is no transfer pricing provision applicable to both the listed companies held undercomparison.8.As per Huon Aquaculture Company Limited current income tax expense charged toprofit and loss is the tax payable on taxable income and the deferred tax assets andliabilities are calculated at the tax rates that are expected to apply to the period they arerecovered or settled the carrying amount through sale. Whereas in case of Farm PrideFoods Limited current income tax expense charged to profit and loss is the tax payableon taxable income and the current and deferred tax balances attributable to amountsrecognized directly in equity are also recognized directly in equity.Remuneration structureThe remuneration structure is designed to meet the following outcomes:1.Retention and motivation of key executives.2.Attract high quality management to the company.3.Performance incentives which allow the executives to share in the success of the company. As per Huon Aquaculture Company Limited short term incentive component given for thecontribution to achievement of the company and business unit outcomes is paid in cash andshort term incentive is calculated on the basis of 40% target of Total financial remunerationto DCEO. and 30% target of total financial remuneration to CFO.Whereas as per Farm Pride Foods Limited the remuneration of executives is governed byservice agreements between the company, its controlled entity and each executive director, itincludes monthly fee to be paid by the company and there are no termination benefitsprovided but are able to participate in share option based incentive programmes.Proposed conceptual framework
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