The current liabilities have increased

ACCOUNTING

Finance
Part A
Answer: (1)
The current liabilities have increased from $885.4m to $917.2m from the year ended 2017 to
2018 that is increased by $31.8m (around 3.6%). The current liabilities include the trade and
other payables, deferred revenue, provisions, current tax liabilities, and other current
liabilities. The trade and other payables include 3 items in it namely trade payables, goods
and service tax (GST) payable and other creditors and accruals. This represents the unpaid
amount for the goods and services taken by the group before the end of the financial year.
These are generally unsecured and paid within 45days of credit. The company has the policy
of recognizing the income from the service up to the amount of service provided, thus any
unfulfilled services pending to be performed either any The Good Guys Gold Service Extra
program or unredeemed gift cards and customer deposits is transferred to deferred revenue.
Thus such deposits which fulfilled in the current period is shown under current deferred
revenue and services for the non-current period is shown under non-current deferred revenue.
Provisions include employee benefits and lease provisions. Provision for employee benefit
includes all the expense of the employees which shall pay for the service received in the
reporting period like wages, salaries as well as non-monetary benefits (Laux, 2014). Other
liabilities of the group include lease accrual, lease incentive, and other financial liabilities.
The increase in current liabilities is mainly due to an increase in trade payables, deferred
revenue, and provisions during the year.
Answer (2)
By the end of the year 2018 the group has the total interest-bearing liability of $469.4 million
and to cover it the cash in hand balance is $72 million, thus resulting in net debt of $397.4
million at the end of the year. This is lower by $88.6 million in the previous year. This
interest-bearing liability is the bank loans taken by the group (JB Hi-Fi, 2018). The company
has sound risk management policy as capital financing through loans require a fixed burden
on the profits of the group so it has properly hedged itself. The group has prudently utilized
an interest rate swap and interest rate cap over approximately half of the group’s borrowings
to mitigate the risk of changing interest rates adversely for the company on the variable rate
debt held. The group has been restructuring its multi-tranche term facilities which have
helped to reduce the debt facility by $100 million. The group has also entered into a new
2

Finance
trade finance facility which will be renewed annually of $30 million. The major liabilities of
the group is this two only namely trade & other payables and bank loans. The total liability at
the end of 2017 was $1204.8m as compared to $1135m by the end of 2018. This is due to an
increase in trade payables by $20.6m and reduction of bank loans by $89.4m (JB Hi-Fi,
2018). Thus we can conclude that the company is properly managing is financial liability and
risks associated with it.
Answer (3)
The provisions under the current liability in financial statements include the provision for
Employee Benefits and provision for Lease. The provision for employee benefits is mainly
the unpaid amount of services received from the employees by the end of the year. It includes
wages, salaries, non-monetary benefits, annual leave as well as unpaid bonuses. Thus all
short term employee benefits obligations are recorded as payables (Laux, 2014).
As per IAS 37, every entity should record the provision if it is probable that an outflow or
any other resources of the company will be required to settle the account. If the outflow is not
probable than we record such item as a contingent liability. Thus in the given case, the
outflow is probable as the group is recording only the value of salary and perquisites already
due to the employees because of their past efforts. During the last year provision for
employees was $71.4m and by the end of 2018, it is $78.2m (JB Hi-Fi, 2018).
The provision for lease is made as at the end of the lease the company has to return the leased
premises in its original condition which require some expense due to wear and tear during the
use. Thus this expense is also probable and provision should be made for it (Madura & Fox,
2011).
Answer (4)
During the current year, no new borrowings were raised only some repayment was done. As
per the cash flow statement during the last year net cash generated from borrowing activity
was $450m from the bank loan taken, the total outstanding was $558.8m (JB Hi-Fi, 2018).
During the year 2018, the repayment was done of $89.7m and net liability pending is
$469.4m.
Answer (5)
3