Report on Fundamentals of Accounting
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Added on 2020-05-16
Report on Fundamentals of Accounting
Added on 2020-05-16
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Running Head: FUNDAMENTALS OF ACCOUNTINGAccounting
Fundamentals of accounting 2Part AQuestion 1The current liabilities are the short term debts or obligations which are required to be paid within a period of one year. They are reported in the company’s balance sheet on the liabilities side (Kieso, Weygandt and Warfield, 2010).The current liabilities of Wesfarmers have reduced over the period. In year 2016, total current liabilities were $10,424 million and in 2017, they were reported at $10,417 million. There has been a reduction of $7 million in the total current liabilities of Wesfarmers. Under classification “Current Liabilities”, items like creditors, Interest-bearing loans and borrowings, Income tax, Provisions, Derivatives andothers are recorded (Wesfarmers.com.au. 2017).Question 2The most common liabilities of a company generally have largest balances. Covering high portion of total liabilities make them major for the company, as they are required to be paid off quickly. Considering the annual reports of 2017 of Wesfarmers, the major liabilities of thecompany were its trade payables classified in the section “current liabilities”. Among all the items, accounts payable is the major liability as it carries largest balances. Similarly, under section “Non-current liabilities”, Interest bearing debt also known as long term obligations are consider to be the major liability for the company as it has the highest balance. These are two liabilities which Wesfarmers is required to pay off as soon as possible (Wesfarmers.com.au. 2017).Question 3Referring to the Note 9 of Notes to Financial Statements, items included under the heading ‘Provisions’ in the ‘Current Liabilities’ are:Employee benefits: It include long service leave entitlements, annual leave and incentives. Wages and Salaries: they include amounts which are to be paid within a year of the recording date and are recognized in provisions with regard to the service rendered byemployees (Wesfarmers.com.au. 2017).Annual and Long service leave: these leaves are measured as the future expected payments for the employee services. (Wesfarmers.com.au. 2017).Lease Provision: it covers the lease arrangement for enabling the lease expenditure to be recognized on straight-line basis. Off-market contracts: Wesfarmers also make provisions for the contracts, the terms ofwhich can be affected by the changes in market condition as compare to the market condition prevails at the date of acquisition.Self-insured risks: provision is made on the worker’s compensation and general liability claims recorded and the estimation of claims that are incurred but not recorded. Mining and plant rehabilitation: provisions related to remediation are calculated on assuming current technologies. Restructuring and make good: For restructuring, provision is made in the situation where activities like implementation of comprehensive plan, negotiations with the employees is done and employee cost is recognized.
Fundamentals of accounting 3According to IAS 37, provision means an uncertain liability. A company is required to recognize a provision if, Present obligation arises due to past events. Probable payment and A dependable estimate of amount is needed to be done (Epstein and Jermakowicz, 2010).Wesfarmers purely comply with the definition of provisions given under IAS 37. Provisions made for employee benefit include the estimation of the future expected payments to me made for the employees’ services. Wages and salaries which are to be paid within 12 months are the present obligations arise due to the services rendered in the past. Provision for the same has been made by the company. Remaining other provisions also satisfy the definition of provisions under IAS 37. The liabilities for employee benefits have been decreased over the year from $1,154 million in 2016 to $1,150 million. They have reduced by an amount of $4 million (Wesfarmers.com.au. 2017).Question 4Interest bearing loans and borrowings are known as the financial obligations of a company carried over more than one year. These are those debts which require the payment of interest over the predetermined period (Needles, Powers and Crosson, 2013).The financial report of Wesfarmers says that, loans and borrowings are recognized at fair value initially and then they are measured at amortised cost, using effective interest method. No cash has been raised from the interest bearing loans, instead they are been paid off during the year. In year 2016, the total interest bearing borrowings were reported at $7,303 million and in 2017, they were at $5,413 million. This implies that within the year, company has set off its long term liability by an amount of $1,890 million. This also resulted in the decrease ofinterest expense over the year (Wesfarmers.com.au. 2017).Question 5Secured liabilities are the debts of the company which are secured by an underlying asset or collateral in order to reduce the risk associated with borrowings. Non- current liabilities mainly include long term debt or interest bearing loans and borrowings. The loan taken by keeping an asset as a collateral security towards it is described as a secured non-current liability (Friedberg, 2015). However, the annual report of Wesfarmers does not showcase anynon-current debts which are secured. Wesfarmers’ non-current liabilities mainly include its interest-bearing loans and borrowings. The note number 14 of notes to financial statements shows the details of interest-bearing loans and borrowings which includes unsecured current and non-current loans. It does not provide any information regarding secured non-current liabilities. Question 6Provisions included under the heading ‘Non-current Liabilities’ are basically the provision made for those liabilities which are likely to arise in future. The amount is set apart for those liabilities or expenditures in terms of provisions or reserves, which a company may require to
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