Financial Statement Analysis

The report emphasises on some of the important elements that are present in the financial statements of companies. The notable elements described in this report are revenue, intangible assets and reserves. The importance of revenue is described and the different ways by which Harvey Norman Limited Company recognises its revenue are put forward.

Running head: FINANCIAL STATEMENT ANALYSIS
Financial Statement Analysis
Name of the Student
Name of the University
Author’s note

1FINANCIAL STATEMENT ANALYSIS
Executive Summary
The report emphasises on some of the important elements that are present in the financial
statements of companies. The notable elements described in this report are revenue,
intangible assets and reserves. The importance of revenue is described and the different ways
by which Harvey Norman Limited Company recognises its revenue are put forward. Further,
the report stresses upon the concept of intangible asset and the accounting techniques that are
used by the company for accounting its intangible assets. In the next part, the report
highlights the different kinds of reserves that are used by the company and the uses of these
reserves in the accounting treatment of the company.

2FINANCIAL STATEMENT ANALYSIS
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Definition of the term revenue...................................................................................................2
Recognition of different revenues by Harvey Norman Limited in their accounts.....................2
Concept of intangible asset........................................................................................................3
Types of intangible assets present in the financial statements of Harvey Norman Limited and
treatment of these assets.............................................................................................................3
Types of reserves present in the balance sheet of Harvey Norman and their uses....................4
Conclusion..................................................................................................................................5
References..................................................................................................................................6

3FINANCIAL STATEMENT ANALYSIS
Introduction
The report serves the purpose of bringing about an analysis of the financial statement
of Harvey Norman Limited Company. The different elements which are emphasised in this
report are revenue and its recognition, accounting methods of intangible assets and
identification of the different reserves as highlighted in the financial statement of Norman
Limited Company.
Discussion
Definition of the term revenue
Revenue can be defined as the income that is generated from the business operations
of a particular organisation. Revenue is generally denoted in the company’s income statement
through the sales figure (Chandra, Dutta and Marcinko 2018). Revenue shows the gross
income figure of the company from which costs are subtracted in order to come to a net
income figure of the company.
Recognition of different revenues by Harvey Norman Limited in their accounts
Considering the annual report of Harvey Norman Limited Company, it has been observed
that the revenue recognition of the company is done only when the consolidated entity would
experience economic benefits in the financial year (Myers et al. 2017). It is ensured by the
management of the company that the revenue should be measurable reliably irrespective of
the period of payment. The company undertakes measurement of revenue at fair value of the
received or receivable consideration. In this process the company also takes into account the
terms of payment which exclude taxes or duties. Some of the specific recognition criteria as
set up by the company include the following points.
1) Sale of goods – Under this situation, recognition of revenue takes place when the
ownership of the goods has already passed on to the buyer after the delivery

4FINANCIAL STATEMENT ANALYSIS
(Bridge 2017). This revenue is measured at fair value of the received or receivable
consideration.
2) Franchise Fee income – Revenue attributed to the franchise fees has been
recognised only in the income statement after the earning of these fees by the
company.
3) Rental Income – This income is derived from the investment properties and is
accounted through straight-line method over the entire terms of the lease
(Malikov, Manson and Coakley 2018). Rental income is recognised during the
period of its earning.
4) Interest Income – This income is recorded through the effective interest rate
(EIR). EIR discounts the future cash inflows over the expected life of the
respective financial instrument.
5) Dividend – Revenue through dividends is recognised after the shareholders
receive their payments and approve them accordingly.
Concept of intangible asset
Intangible asset can be recognised by the companies as those assets which do not have
a physical nature. The accounting treatments of these assets are different from other tangible
assets of the company (Banker et al. 2019). Few examples of intangible assets can be
goodwill, brand recognition and other intellectual properties.
Types of intangible assets present in the financial statements of Harvey Norman
Limited and treatment of these assets
The different intangible assets that are present in the financial statement of Harvey
Norman Limited are capitalised assets of computer software, capitalised expenditures of
development, property of license and foreign currency differences arising due to the foreign

5FINANCIAL STATEMENT ANALYSIS
operations. The accounting of intangible assets are carried out at their respective costs which
excludes any accumulated depreciation or any accumulated impairment losses (Haji and
Mohd Ghazali 2018). The amortisation of intangible assets are dine through a straight-line
basis over the entire useful lives of the assets. Ideally, the period should not be greater than 8
or 8.5 years. Intangible assets are also tested for impairment in the presence of an impairment
indicator (Haji and Mohd Ghazali 2018).
Types of reserves present in the balance sheet of Harvey Norman and their uses
The different types of reserves as observed in the balance sheet of Harvey Norman can be
listed as follows.
1) Asset Revaluation Reserve – This type of reserve has been used by the company
for the purpose of recording the increase in the fair value of the land and buildings
(Van der Velde 2016). Foreign Currency Translation Reserve – This type of
reserve is used for recording the differences in the exchange rates of the foreign
currencies which arise due to the translation process of the financial statements of
the foreign subsidiaries.
2) Available for cash reserve – This reserve is used for recording the change that is
shown in the fair value of the investments which are available-for-sale.
3) Cash Flow Hedge Reserve – This reserve has been exclusively used by the
company for the purpose of recording the gain or loss of a hedging instrument
(Akhigbe et al. 2018).
Conclusion
From the above report, it can be concluded that the company has been successful in
carrying out the accounting of revenue, intangible assets and reserves which has been proved

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to be beneficial for its operations. Therefore, these elements can be treated as one of the most
crucial elements of financial statements.

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References
Akhigbe, A., Makar, S., Wang, L. and Whyte, A.M., 2018. Interest rate derivatives use in
banking: Market pricing implications of cash flow hedges. Journal of Banking &
Finance, 86, pp.113-126.
Banker, R.D., Huang, R., Natarajan, R. and Zhao, S., 2019. Market Valuation of Intangible
Asset: Evidence on SG&A Expenditure. The Accounting Review.
Bridge, M.G., 2017. The international sale of goods. Oxford University Press.
Chandra, U., Dutta, S.K. and Marcinko, D.J., 2018. Revenue Recognition at TSA, Inc.—A
Roller Coaster Ride. Issues in Accounting Education, 33(3), pp.101-116.
Haji, A.A. and Mohd Ghazali, N.A., 2018. The role of intangible assets and liabilities in firm
performance: empirical evidence. Journal of Applied Accounting Research, 19(1), pp.42-59.
Malikov, K., Manson, S. and Coakley, J., 2018. Earnings management using classification
shifting of revenues. The British Accounting Review, 50(3), pp.291-305.
Myers, L.A., Schmardebeck, R., Seidel, T.A. and Stuart, M.D., 2017. Increased managerial
discretion in revenue recognition and the value relevance of earnings. Vanderbilt Owen
Graduate School of Management Research Paper, (2559438).
Van der Velde, J., 2016. Trusts: Revaluation of assets by trustees. Bulletin (Law Society of
South Australia), 38(10), p.36.