Holmes Institute HI5020: AASB 137, Funds, and Liabilities Report

This report provides a comprehensive analysis of the financial practices of Alliance Aviation Service Limited and Air New Zealand Limited, focusing on their funding sources, liabilities, and the application of AASB 137. The report examines the companies' equity, retained earnings, and borrowings from 2016 to 2019, differentiating between internal and external funding. It delves into the implications of AASB 137 on provisions, contingent liabilities, and contingent assets, as well as the measurement basis for various assets like inventories and property, plant, and equipment. The report also explores the types of liabilities found on the balance sheets, including borrowings, deferred tax liabilities, and interest-bearing and non-interest-bearing liabilities, and analyzes the financial statement impacts of these elements. The analysis draws conclusions on the changes in financial reports, the merits and demerits of different funding types, and the impact of AASB 137 on these aviation companies. The report is based on the financial statements of the two companies and aims to develop a clear understanding of the sources of funds, use of AASB 137, and measurement basis for assets.

Understanding the key concepts under
the AASB 137 ‘Provisions, Contingent
Liabilities and Contingent
Assets Alliance Aviation Service Limited
and Air New Zealand Limited

introduction
 The organizations that are selected for this assignment are Alliance Aviation Service
Limited and Air New Zealand Limited. They are known for their transportation business and
provide their services to general public.
 They have operations all over Australia and they usually focus on the national level rather
than international level. The headquarter of Alliance Aviation service limited is at Brisbane,
Australia and Air New Zealand Limited is at Auckland, New Zealand .
 In this presentation, the types of asset that both the organizations use are evaluated and
described properly in the period of 2016-19.
 All the things related to the different sources of funds, internal and external fund, and their
short comings that came from different sources of funds in this presentation.
 In the later part, the key provisions and implication of AASB 137 are described with
reference to the Alliance Aviation Service Limited and Air New Zealand Limited.

Different Sources of Funds
 Equity: Total equity was $2089m in 2019 and $ 2176m in 2018 of Air New
Zealand and for Alliance Aviation Services Limited $183,498,000 million in
2018 and $187,648,000 in 2019.
 Retained Earnings: The Air New Zealand Limited had $(50) million in
their retained earnings, which decreased to ($130) million in the current
year 2019. the retained earnings were at $93,472,000 million for
Alliance Aviation Services Limited
 Borrowings: In 2019, the Air New Zealand Limited had $146 million of
borrowings. The borrowings of Alliance Aviation Services Limited has
decreased to $56,400,000.

Internal and external
fund
 Internal sources
retained earnings of air new Zealand limited was $2.42m in 2019 and $9.4m in 2018 per share and
Borrowings have decreased massively. For Alliance Aviation Services Limited, Retained earnings
increased to 27.0891 % in 2017 from the year 2016 and Borrowings was decreased to (6.0687) % in the
year 2017 if compared to 2016.
 External sources
Equity share of Air New Zealand Limited decrease to (0.6217) % and for Alliance Aviation Services
Limited there was (.3058) % change in equity share in the year 2017.

Types of Liabilities in
Balance Sheet
 Borrowings : the recognition of borrowings done at fair value that is the net worth of transaction
cost aroused (Alderson, Bansal and Betker, 2014). The Consolidated Income Statement shows if
there is any distinction between the redemption value and the net worth of transaction costs incurred.
 Deferred tax liability: it is a liability that the company needs to pay at a future period. the difference
between the rules of financial accounting and tax accounting the deferred tax liability arises.
 Interest-bearing liabilities: for Alliance Aviation Services Limited debt service cover ratio should
exceed 1.25 times and For Air New Zealand Limited fixed interest rates fluctuate from 0.7% to 3.1%
 Non-interest bearing liabilities: Recording of current debt of a company done in provision account.
Provisions can be made for both current and non-current obligations.

Key provisions under
the AASB 137
 Provisions: As per AASB 137 standard, provision is quite obvious to recognize that
an entity should have the current obligations as a result of the past event (AASB 137,
2020).
 Contingent liabilities: A contingent liability is a current commitment that comes
from the past event however, it is not recognized because the actual amount of
commitment can’t be measured with adequate accuracy.
 Contingent assets: A Contingent asset is not acknowledged in the financial
statement since they outcome in the identification of income that can never realize.

Implication of AASB 137 in Air New
Zealand Limited Alliance and
Aviation services limited
According to AASB137 Air New Zealand limited made references of provisions
and contingent liabilities in annual reports. Provisions aren’t identified for
upcoming operating losses in the company. Alliance aviation services limited has
on issue 5 bank assurance connect with to existing leases in their annual reports
of all the three financial years. Estimated possible liability for upcoming
rectification work represents by warranty provisions

Measurement basis of Air New
Zealand and Alliance Aviation
Services
 Cash and cash equivalent: it consist of demand deposits, cash in hand and current account
in banks net of overdraft.
 Inventories: Inventories are measured at the net realizable value and the cost determined by
first in first out (FIFO) cost method which is used by both the companies.
 Property, plant and equipment: The work in progress includes all the cost of materials,
services and labor. Property, plant and equipment recorded at cost less accumulated
depreciation and impairment (Strouhal, 2015).

Classification of assets
 Inventories: Inventories measured based on the net realizable value or
costs, whichever is lower. First-in-first–out basis used for valuation of
the stock. Inventories quantities are allocated with costs at the reporting
date
 Trade and other receivables: Trade receivables refer to any amount
due, not received for any services rendered or goods sold to customers
during a particular financial year (Mladineo and Susak, 2016). Trade
receivables generally classified as current assets as their settlement is
done within 30-45 days.

Conclusion
 From the above analysis, it can be concluded that, there has been various changes upon
the analysis of financial report in the three years.
 The various types of funds that both the organization has been used are borrowings,
equity and preference shares, retained earnings. All the merits and demerits are being
discussed in this project.
 Also in this report, the examination of provision AASB137 concerning to contingent
liabilities and contingent assets are analyzed, even annual report is evaluated to
understand if this provision has any impact in the companies.

References
 Mladineo, L. and Susak, T., 2016. Trade receivable analysis. Economic and Social
Development: Book of Proceedings, p.38.
 Alderson, M.J., Bansal, N. and Betker, B.L., 2014. Secured debt and managerial
incentives. Review of Quantitative Finance and Accounting, 43(3), pp.423-440.
 Mladineo, L. and Susak, T., 2016. Trade receivable analysis. Economic and Social
Development: Book of Proceedings, p.38.
 Strouhal, J., 2015. Historical costs or fair value in accounting: Impact on selected financial
ratios. Journal of economics, business and management, 3(5), pp.560-564.

THANK YOU