Financial Statements Analysis

The report provides a detailed analysis of the financial statements of Billabong International Limited. It covers various points such as contingencies, provisions, plant and equipment under financial leases, non-current assets, and valuation methods.

Running head: FINANCIAL STATEMENTS ANALYSIS
Financial Statements Analysis
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Author Note

1FINANCIAL STATEMENTS ANALYSIS
Table of Contents
Introduction......................................................................................................................................2
1. Contingencies and Provisions......................................................................................................2
2. Recognition Criteria and Measurement associated with provision or contingent liability..........3
3. Contingency recorded..................................................................................................................4
4. Plant and Equipment under financial leases................................................................................5
5. Treatment of leases......................................................................................................................5
6. Reclassification of the leased item..............................................................................................7
7. Non-current asset – impairment method......................................................................................7
8. Valuation Method for Non Current Assets..................................................................................8
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

2FINANCIAL STATEMENTS ANALYSIS
Introduction
The issue that is presented is that the accounting statements of Billabong International
Limited should has been asked to be analyzed in order to determine the fact whether the
accounting reports are prepared in compliance to the prescribed standards for the purpose of
determining the reliability of the accounting statements. The financial report of the company is
analyzed to discuss the important points that are mentioned in the report. The main aim of the
report is to provide a detailed understanding and analysis of the financial statement of the
company.
1. Contingencies and Provisions
The contingencies are disclosed in the accounting statements of the corporate entities
have been segregated into a number of financial components. The term contingency refers to the
assets and the liabilities that are not accounted for and have occurred on an emergency basis. The
first component included in the financial report under the head of Contingencies is Guarantees.
The financial guarantee contract is realized as a liability that is in the nature of finance at the
time of issuing the guarantee. This particular liability is measured at fair value method in
accordance to the standards set by the Australian Accounting Standards Board. The particular
accounting standard that is utilized is the AASB 137 Provisions, Contingent Assets and
Contingent Liabilities (Belal 2016).
The financial component that is considered is the Letters of Credit. Enough financial
disclosures are provided in regards to the same. The Group had $2.4 million letters of credit. The
letters of credit are not limited to the leases and insurances (Belal 2016).

3FINANCIAL STATEMENTS ANALYSIS
Next, the financial component that is disclosed in the accounting statements as shown in
the below figure for the financial year of 2017 is the contingent liability that is associated with
the terminated agreement. It is further mentioned in the annual report that the Group has incurred
the contingent liability of up to $3.5 million.
The provisions that are included in the accounting statements of the company included in
the financial report for the financial year of 2017 and of the amount of $14,160.
Figure: Contingent Liability
2. Recognition Criteria and Measurement associated with provision or contingent liability
The recognition criteria and the measurement issues that are associated with the
provisions and the contingencies are as follows:

4FINANCIAL STATEMENTS ANALYSIS
 Guarantees – The recognition criteria that is included in the accounting statements in
regards to the particular liability of guarantees is that the measurement has been carried
out using the fair value technique that is mentioned in the AASB 137. Letters of Credit –
the letters of credit is recognized in regards to the undrawn letters and is not limited to
leases and insurances.
 No information are disclosed in regards to the recognition of the contingent liabilities
(Dumayet al. 2016,)
Provisions are measured based on the best estimate of the management that will be required
to settle the current obligations at the balance sheet date. The rate of discount that will be used in
determining the present value of is the pre tax rate that reflects the current assessment of the
market situation relating to the current time value of money and the associated risks. The interest
expenses should be recognized for the increase in the passage of time.

5FINANCIAL STATEMENTS ANALYSIS
3. Contingency recorded
The contingency recorder that is included in the financial report can be referred to in case
of guarantees. It has been stated in the accounting report of the corporate entity that the financial
guarantee contracts have been realized as a part of the liability that has been incurred when the
guarantee has been issued. The liability has been measured at a fair value. The contingency
recorder will not be used for the purpose of other contingent liabilities due to the fact that the
guarantees might fluctuate resulting the improper reflection of the treatment of the accounting
components. (Dumay et al. 2016). This will affect the qualitative features of the accounting
statements. This means that the essential qualitative features like the aspect of reliability,
understandability and comparability of the financial statements will be affected. Next, the aspect
of understandability refers to the extent up to which the financial statements can be understood
and interpreted by the investors of the company. Lastly, the aspect of the comparability mention
the fact whether the accounting statements that have been prepared are according to the
comparability standards that have been established by the accounting bodies (Macve 2015).
4. Plant and Equipment under financial leases
The picture below depicts that the plant and equipment under financial leases which are
entered in the accounting report of Billabong International Limited display an amount of $1189
in the accounting year of 2017 and $1253 in the accounting year of 2016. It has been further
mentioned in the balance sheet of the company that the rental expense in relation to operating
leases have been divided into the categories of minimum lease payments, contingent rentals and
sub-leases. The amounts have been disclosed as $86,877 and $80,923. The sub leases have been
revealed as 62 and 79 in the financial report of the company. The lease liabilities that have been
incurred by the corporate entity $1247 in the financial year of 2017 and $1675 in the financial

6FINANCIAL STATEMENTS ANALYSIS
year of 2016. The accounting body of Australian Accounting Standards Board has led to the
establishment of the accounting standard of AASB 16 (Grant 2016).
Figure: Property plant and Equipment
5. Treatment of leases
The particular accounting standard that should be utilized for the purpose of treating the
leases that have been included in the accounting statements of the corporate entity is AASB 16
that has been established by the Australian Accounting Standards Board. Moreover, the
recognition of the interest has been carried out over the leasing terms. The exceptions that have
been included in the financial report are the short-term and low-value leases(Grant 2016).
The plant and equipment under financial leases which are entered in the accounting
report of Billabong International Limited display an amount of $1189 in the financial year of
2017 and $1253 in the financial year of 2016. The lease liabilities that have been incurred by the
corporate entity $1247 in the financial year of 2017 and $1675 in the financial year of 2016.

7FINANCIAL STATEMENTS ANALYSIS
Figure: Balance Sheet
6. Reclassification of the leased item
The issue that has been presented in the question is that a hypothetical situation has been
asked to be described in which a leased item might be needed to be reclassified. This can be
helped with a number of potential examples that can be listed down as follows:

8FINANCIAL STATEMENTS ANALYSIS
 The leaser results in the transferring of the ownership of the asset to the lease by the
leasing term end.
 The lease experiences the option to make the purchase of the asset at an expected price
that is lower than the fair value
 The nature of the leased assets enable the lease to utilize them without incorporating any
major modifications (Macve 2015)
7. Non-current asset – impairment method
The issue that has been presented in the question refers to the fact that a particular asset
that has been included in the financial statements of the companies has been asked to be
identified and the required details have been asked to be specified. The particular asset that has
been chosen is the receivables that has been included in the accounting statements of the
corporate entity and reveals an account balance of $7351 in the current financial year of 2017.
The receivables account indicates the amount that is pending or the amount that can be received
from the debtors of the company. Moreover, the receivables also account for the portion of sales
that have been carried out on credit. Furthermore, the disclosure that has been provided in the
annual report of the corporate entity revolves around the fact that the segregation of the
receivables has been done on the basis of prepayments, other receivables and prepaid costs of
borrowing for the facilities that have not been drawn (Macve 2015).
The information pertaining to the valuation of the receivables that have been provided in
the annual financial report of the corporate entity is that the non-current receivables are not
impaired.

9FINANCIAL STATEMENTS ANALYSIS
8. Valuation Method for Non Current Assets
An alternative method for the valuation of the receivables would be the fair value
consideration or the historical cost valuation (Zeff 2016, p 10). These two valuation methods
would certainly result in the increase in the valuation of the particular account which would in
turn result in a negative impact. Moreover the fair value technique is preferred over the historical
cost technique. This is due to the fact that the fair value technique is recommended by the
accounting board. (Lang and Stice-Lawrence 2015), p. 13.
Conclusion
The report provides a detailed analysis of the above points mentioned. The detailed
analysis of various points relating to the company is covered and based on this a conclusion is
formed. The particular conclusion that can be arrived at refers to the fact that the corporate entity
has more or less adhered to the accounting regulations for the preparation of the financial
statements. This means that the preparation of the financial statements has been carried out with
much diligence and care. Moreover, the accounting statements that are prepared by the corporate
entity of Billabong International Limited also reflect the fact that enough disclosures will be
needed in order to improve and enhance the particular task of financial reporting by the corporate
entity.

10FINANCIAL STATEMENTS ANALYSIS
References
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Tool, Or Threat?.Routledge.
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trends. Routledge.