Management Accounting Study on Recognition and Measurement in Financial Accounting

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student
Name of the University
Author’s Note

1MANAGEMENT ACCOUNTING
Executive summary
The learnings of the study provide an understanding of issues associated to recognition and
measurement in financial accounting. The in-depth investigation of measuring financial
accounting information is done on two publicly listed ASX companies, Wesfarmers Ltd and
Woolworth Ltd. The financial measurement critically discusses the accounting standard literature
on recognition and measurement requirements for leasing, provisions made for Income tax
expense, benefits and obligations and intangible assets. The other sections of the study have
reviewed the recent financial statement of both companies to analyse and compare the
disclosures made on leasing, provisions for Income tax expense, benefits and obligations and
intangible assets with relevance to Australian accounting standards. The latter part of recognition
and measurement in financial accounting will be provided with suggesting improvement
measures for accounting standard and reporting’s practices followed by the firms based on the
research literature. The findings of the report suggest that despite of following AASB 117 leases,
both the companies have proposed to apply AASB 16 Leases (AASB 16) from 1 July 2019.
Wesfarmers recognises the intangible assets as those assets which are acquired separately and
measured as per initial recognition cost. The recognition criteria of intangible assets for the
company is recognised at “cost less accumulated amortisation and impairment losses”. It can
be further seen that per the amendment AASB 2018-1, Wesfarmers Ltd elucidates the obligation
for IT expenses pertaining to dividend payments to be designated in agreement with the nature of
past profits via which the dividends were derived. On the other hand, Woolworth Ltd recognises
income tax based on deferred tax assets and DTL arising as a temporary difference.

2MANAGEMENT ACCOUNTING
Table of Contents
Introduction..........................................................................................................................4
Answer to Part 1-Leasing....................................................................................................4
Answer to Part 1A...........................................................................................................4
Answer to Part 1B............................................................................................................5
Answer to Part 1C............................................................................................................7
Answer to Part 2- Intangible Assets....................................................................................8
Answer to Part 2A...........................................................................................................8
Answer to Part 2B............................................................................................................9
Answer to Part 2C..........................................................................................................10
Answer to Part 3- Income tax expense, benefits and obligations......................................11
Answer to Part 3A.........................................................................................................11
Answer to Part 3B..........................................................................................................12
Answer to Part 3C..........................................................................................................13
Conclusion.........................................................................................................................14
References..........................................................................................................................16
List of Appendix................................................................................................................18
Wesfarmers Limited......................................................................................................18
Woolworth Limited.......................................................................................................19

3MANAGEMENT ACCOUNTING
Introduction
The discourse of the study is aimed at providing an understanding of issues associated to
recognition and measurement in financial accounting. The vivid investigation of various
parameters of measuring financial accounting information is done on two publicly listed ASX
companies namely Wesfarmers Ltd and Woolworth Ltd. The financial measurement has been
considered by critically discussing the accounting standard literature on recognition and
measurement requirements for leasing, provisions made for Income tax expense, benefits and
obligations and intangible assets. The report will also review the recent financial statement of
both companies to analyse and compare the disclosures made on leasing, provisions for Income
tax expense, benefits and obligations and intangible assets with relevance to Australian
accounting standards. The latter part of recognition and measurement in financial accounting will
be provided with suggesting improvement measures for accounting standard and reporting’s
practices followed by the firms based on the research literature.
Answer to Part 1-Leasing
Answer to Part 1A
Australian accounting standard recognises lease as any contract whereby lessor conveys
to the lessee the “right to use an asset” for a certain period of time in return for a single payment
or series of payment. A finance lease is associated to substantial transferring of risk and reward
related to the proprietorship of an asset. On the other hand, an operating lease can be transferred
to another incidental ownership. A non-cancellable lease is any lease which can be cancelled
with permission of lesser, presence of remote contingency or in case lessee agrees to enter into a
new lease contract having equivalent asset with same lessor (Aasb.gov.au 2019). Presently, all
Australian entities adhere to AASB 117 Leases which is issued by IASB.