Financial Accounting of West Ltd

Financial Accounting

EXECUTIVE SUMMARY
Financial accounting is method of accounting system that follow the guideline of the
accounting standard which is provided by the AIAS. The study report is concise the main
framework of the accounting processes and accounting standard that is applicable on the given
case study. To better understand the concept of the financial accounting this report includes
virtual calculations and its recommendation in context to company West Ltd. Systematic
accounting treatment of the financial aspects also covered in this report.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................2
MAIN BODY ..................................................................................................................................2
TASK...............................................................................................................................................2
AASB 136: Impairment of Assets:.............................................................................................3
AASB 138 Intangible Assets:......................................................................................................4
Effect on income statement and balance sheet by this proposal to West Ltd: ............................5
RECOMMENDATION...................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
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INTRODUCTION
Financial accounting is branch of accounting that keeps the record of the business
transaction by following the standard guideline of IAS. It is also defined as recording, analysing,
interpreting, reporting of the monetary transaction in order to prepare of the financial statement.
The business transaction are recorded in a summarizes form that provides the financial situation
of a company (Chen and et.al, 2016). It enables to ascertain the financial position of the company
in order to generating profit and loss from income statement and provides the data related to
financial situation from balance sheet. This report covers the case study of West Ltd and
provides recommendation to chairman of the West Ltd. In further to, it covers the certain
accounting standard and effect on the financial statement with this proposal.
MAIN BODY
TASK
As per the information in the case study, West Ltd is involved in selling the frozen and
canned fish products. The product are sold under different brand names. As those fishes caught
from southern Australian ocean are sold under the name of Artic fresh trade name. This brand
name is developed when the operation business started and still sold with the same name.
Another brand is 'tropical taste'. Those fishes caught from northern sea are sold with the brand
name of tropical taste. This brand is developed by the Fishy tales Ltd. West Ltd is acquire the
business of the fishy tales Ltd certain year prior. West Ltd is marketed its products in
environment friendly manner. And public recommended this company as dolphin friendly
company and marketing manager ascertained the efforts of ship, Steve Irwin, to potentially
prevent the whalers attempts in the southern-oceans and received the publicity (Al-Shaer, Salama
and Toms, 2017).
It is recommanded to the management body that West Ltd can enhance the
environmentally accountable image by assuring that if any hurt caused to Steve Irwin, It may
result as guaranty to repair the damages. As the management thinks this initiative can enhance
the public images of West Ltd and increase the goodwill too. He provides the guarantee that it
would not affect financial condition of West Ltd. He further discussed as if any damages to the
Steve Irwin fall out, West Ltd can capitalize the repair expenditure on carrying money of the
brands. All the expenses will be incurred by the company for marketing purpose. In this given
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situation the net assets position of the company may be increased but there is no effect on the
income statement of the company. This is the good situation for company to grow in the future.
So as per content conferred by managers of the West's Ltd. here is a further discussion on
importance, relevance of accounting standards as well as specific treatment of accounting
standards in presented case scenario (Brusca and Martínez, 2016).
Accounting standard are the common set of principles, regulation, rules and standard
that defined the fundamental business practice and policies of financial accounting. Accounting
standards improves the quality of the financial statements and enrich the transparency of
financial reporting. Financial statements are presented by the management of a firm by following
certain rule and processor and the accounting standard guide the whole financial report in such as
systematic and well defined manner. These are the fundamental rule that needs to be adopted by
the business organisation to present a better understanding through the financial system. As the
business situated in the Australia so in the financial statement of the West Ltd are prepared by
considering the rules and regulation of the Australia accounting standards. AAS are developed
by the Australian accounting standards boards. The main purpose of the AAS is to elevate the
structure of the financial accounting. The financial reports are being prepared by the West Ltd in
accordance with the norms of the AAS. If they fails to adopt the financial regulation provided by
boards, it needs to be pay for it (Gimbar, Hansen and Ozlanski, 2016). Accounting measure
enable managers to provide data in a significant way so it can be easily processed and interpreted
by internal as well as external stakeholder of the firm through annual reports of the business. The
business data and information needs to be provided in a systematic manner and accurate to the
internal management of the company so they can easily make the decision regards in future. Well
designed data and followed by the accounting standards surge the trust of the external user of the
business. The company needs to appoint a accountant in the firm to records and check the
operational activities of the firm. An accountant's obligation is to provide accurate, positive,
appropriate and systematic data to the management. Financial reports that are prepared with
compliance of the accounting standards inflate investor belief. Here is described some key
relevant accounting standard that applicable on case study of West Ltd-
AASB 136: Impairment of Assets:
This is the accounting standard related to financial structure of a firm that provides a
framework to the business model in order to ensure the non financial assets are not carried the
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amount from its recoverable amount. This is basically defines the class of assets and net
recoverable value from it. AASB asses the value of the assets that is not to be over from its
recoverable amount or fair value of the assets. In case, a assets can be diminished in the present
scenario is needs to be ascertain the current value of the assets. This accounting standard applies
on the intangible assets such as goodwill, copyrights, patent and other that can not be amortise or
not physically present in the business. The main concept of this AS is to a assets value and cost
should not be overvalued in the financial statement that shows the fair value or most recoverable
amount in the books of accounts. If the assets is damages than its carries the recoverable amount
that's the only purpose behind this AASB 136. A business should diminished the value of assets
to it recoverable amount to proper representation of the financial statement (Hoitash and Hoitash,
2017).
Recoverable amount is assessed for those assets class which are related with amount
generating business unit in the organisation. The cash creating business unit is lowest cash
inflow generating unit that is dependent on the other class or group of assets. These business unit
can not be better than institution's operating section. So in the case amount can be analysed in
respect with individual asset class.
Impairment loss is acknowledged as profit or loss as such asset is shown at revalued price
according to the provisions of accounting Standard which is settled in AASB 116. Revaluation of
the assets class may occur the impairment loss that is basically treated in the decrement of the
value of assets as per accounting standard (Weygandt, Kimmel and Kieso, 2018).
In this case study of West Ltd, after the acquisition of the Fishy tales Ltd all the financial
value like assets and liabilities of the business also taken into account by West Ltd so the ship
named Steve Irwin added to impairment of assets in the business. By utilisation of the Steve
Irwin in business, it increase the operational function as well as goodwill of the organisation.
According to this AASB 138 on above case scenario there will be no impairment loss in
goodwill of firm. In addition to, Steve Irwin is asset of West Ltd and the expenses of it can
capitalise as repair costs to the carrying sum of money of goodwill. An impairment loss is
recognized as profit or loss of the firm (Sunder, 2016).
AASB 138 Intangible Assets:
This is accounting standard that issued by the international accounting standard board. It
is all about the recognition an intangible assets,measurement and requirement for disclosing of
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these assets class. As per this standard, the proper accounting treatment of the intangible assets
in the financial statement of an company. The accounting standard specks about the carrying
amount that needs to be disclosed in the financial accounting. In this standard the discloser
amount of R&D expenditure, start up, advertisement expenses, training and induction
programme and other capital expenses included (Kanagaretnam, Zhang and Zhang, 2016) .
Intangible assets are those which is lack of physical presence in nature and some of the
example are goodwill, brand recognition, patents. Value of Goodwill shown in balance sheet is
goodwill amount that consider the value from business merger, acquisition for which a particular
cost has been made by receiving company in prospect of future benefits.
In the context to this company, brand goodwill has increased at the time of the formal
acquiring of the business. In the assets class, condition that caused the impairment loss are
favourably settled. At the time of occurrence of acquisition, asset’s carrying amount will
increase, but not as extra value that it would have been adjust with prior impairment loss.
Depreciation on Steve Irwin repair cost can be tuned in future time period (Duff, 2016).
Effect on income statement and balance sheet by this proposal to West Ltd:
Income statement
Particular 2018 2019
Revenue 57491 63911
Cost of revenue 54141 59767
Gross profit 3350 4144
Operating expenses
Sales, General and administrative 1786 1989
Other operating expenses 78
Total operating expenses 1786 2067
Operating income 1564 2077
Interest Expense 431 294
Other income (expense) 165 -109
Income before income taxes 1298 1674
Provision for income taxes 306 354
Minority interest 2 -2
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Other income 2 -2
Net income from continuing operations 992 1320
Net income from discontinuing ops 216
Other -2 2
Net income 1206 1322
Balance sheet:
Particular 2018 2019
Assets
Current assets
Cash
Cash and cash equivalents 3282 2916
Short-term investments 1097 457
Total cash 4379 3373
Inventories 2263 2617
Prepaid expenses
Other current assets 7084 6678
Total current assets 13726 12668
Non-current assets
Property, plant and equipment
Fixtures and equipment 10909 7063
Other properties 23453 24949
Property and equipment, at cost 34362 32012
Accumulated Depreciation -15841 -12989
Property, plant and equipment, net 18521 19023
Goodwill 1796 4909
Intangible assets 865 1355
Deferred income taxes 117 132
Other long-term assets 9837 10960
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Total non-current assets 31136 36379
Total assets 44862 49047
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt 1467 1563
Capital leases 12 36
Accounts payable 8996 9354
Taxes payable 335 325
Other current liabilities 8428 9402
Total current liabilities 19238 20680
Non-current liabilities
Long-term debt 7032 5580
Capital leases 110 93
Deferred taxes liabilities 91 236
Pensions and other benefits 3282 2808
Minority interest -22 -24
Other long-term liabilities 4651 4816
Total non-current liabilities 15144 13509
Total liabilities 34382 34189
Stockholders' equity
Common stock 410 490
Additional paid-in capital 5107 5165
Retained earnings 4228 5405
Accumulated other comprehensive income 735 3798
Total stockholders' equity 10480 14858
Total liabilities and stockholders' equity 44862 49047
Interpretation:
After the acquisition of the Fishy tales Ltd all the financial value like assets and liabilities
of the business also taken into account by West Ltd. The assets and liabilities are increased as
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compare to last year. And operating cost also increased in the income statement. In balance sheet
the amount of the goodwill is increased to 4909.
RECOMMENDATION
As per the above discussed case study of west Ltd, it is suggested to the company to
adopt the process estimation of the impairment cost by considering the accounting standard. The
process is talks about the capital expenditure and goodwill of firm that may be increased the
value of organisation. So the assertion of the marketing manager is little bit wrong. As by using
the services of acquisition company its brands value increased and there are certain increment in
the profit and financial condition also. And company’s net position will increase which is
asserted by the marketing manager. There are effect on the statement of profit or loss which goes
wrong as comprehensive profit also increased. To avoid complexness in accounting activity it is
informed West Ltd to properly adjust the benefit of impairment of Steve Irwin by considering
Accounting Standard 136 and AAS 138. so this proposal should be accounted as it affect the
income statement and balance sheet of the West Ltd.
CONCLUSION
As per the above study report, it is concluded that marketing manager should be consider
the compliance of accounting process to avoid any complexness in financial accounting. Before
making the financial decision in the business he needs to be address the financial changes in
income statement and balance sheet such as profit and goodwill to better the decision making
process. Financial transparency can be established in the statement and report by following the
guidelines of the accounting standards that may help in the make the trust in financial structure
of the company by external user.
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