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Financial Accounting Assignment | Financial Classifications

   

Added on  2020-05-16

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Running head: FINANCIAL ACCOUNTINGFinancial accountingName of the studentName of the universityAuthor note
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1FINANCIAL ACCOUNTINGTable of ContentsTask 1 – Analysis of expenses...................................................................................................2a)Classification methods for expenses...............................................................................2b)Reasons for classification of expenses under different methods....................................3Task 2 – Accounting policy.......................................................................................................4Issues from annual report.......................................................................................................4Task 3 – Notes to the financial statement..................................................................................5a)Cost of the plant, equipment and properties....................................................................5b)Amount of depreciation...................................................................................................6c)Depreciation period.........................................................................................................7d)Depreciation method.......................................................................................................8e)Impairment......................................................................................................................8Reference....................................................................................................................................9
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2FINANCIAL ACCOUNTINGExpense is the budgeting and accounting term that is commonly used for mentioningany spending. It is the reduction in owner’s equity takes place due to usages of the assets forgenerating revenue and for other activities it is the part of the company’s operation. AGLEnergy Limited is the integrated energy company that provides gas, electricity and associatedproducts, services to business and wholesale customers all over Australia. It carries on itsactivities through investment segments, group operations and energy markets (AGL |Electricity Providers | Gas Suppliers | Solar Energy | AGL, 2018). Task 1 – Analysis of expensesa)Classification methods for expenses In the income statements various expenses are deducted from the revenue to arrive atthe net profit figure. Company that classifies its expenses by nature in the income statement,the expenses are shown as material cost, labour cost, depreciation, amortization, wages,salaries and rents for instance (Needles, Powers & Crosson, 2013). Further the expenses arenot reallocated further under any other head. On the contrary, the company that classifies itsexpenses by function in the income statement, the expenses are presented under broad headlike COGS, selling expenses and other expenses. However, under the method of classifyingthe expenses by function, the expenses are further disclosed by nature in the face of theincome statement or through notes (Wahlen, Baginski & Bradshaw, 2014). It is recognized from the annual report of AGL Energy Limited for the year ended 30thJune 2016 that the expenses of the company in the income statement has been classified bynature and not by function (AGL | Electricity Providers | Gas Suppliers | Solar Energy | AGL,2018). .
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3FINANCIAL ACCOUNTINGAs it can be observed from the above that expenses are recorded as finance costs,amortization and depreciation, it can be concluded that AGL Energy Limited classifies theexpenses under the income statement by nature and not by function.b)Reasons for classification of expenses under different methodsClassifications of expenses are made in different ways based on the nature andpurpose of the business. The expenses are classified in such a way that all the informationrelated to expenses is meaningful. It is the the 1st step of the management towards the processof decision-making associated with costs and expenses. The concept of cost is vague innature until it is classified under logical groups. Some possible reasons for classification ofcosts using various methods are –
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