Accounting and Financial Report: Domino's Pizza - Concepts Analysis

This report provides an in-depth analysis of accounting concepts, specifically focusing on prudence and accrual, within the context of Domino's Pizza's financial reporting. The report examines the usefulness of information presented on assets, liabilities, and equity, drawing insights from Domino's 2015 annual report. It explores how Domino's utilizes prudence to manage risks, such as foreign currency and credit risks, and explains the application of the accrual concept through IAS 19 revenue recognition and double-entry accounting. The report details specific examples, such as investments in associates and joint ventures, inventory valuation, and the treatment of liabilities like bank loans and finance leases, to illustrate these concepts. Furthermore, it highlights how Domino's uses the accrual concept in its financial practices, including the recognition of sales of goods and services, providing a comprehensive overview of the company's accounting practices and their implications.

ACCOUNTING AND
FINANCIAL REPORT

Table of Contents
INTRODUCTION...........................................................................................................................3
1. Usefulness of information provided on assets, liability and Equity........................................3
2. Explain prudence and accrual concept.....................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
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INTRODUCTION
Accounting is regarded as one of the important element which will enhances the role opf
financial categories as every business entity required finance to strengthen their business.
Domino's has been selected for this project report in order to define the accounting assumptions
and concepts used by an enterprise. This report is all about explaining various concepts such as
prudence and accrual cum matching concept used by the business environment in assessing their
internal business efficiency.
1. Usefulness of information provided on assets, liability and Equity
The balance sheet is also recognized as the statements of financial position which will
define the position of an entity which determines the actual position of an entity based on their
existing financial condition as compared to the external market competitors (Choi, 2013). The
balance sheet has three major components such as Asset, liabilities and the equity. The
usefulness of all the three elements lies in the annual report of Domino for the year 2015 which
are given as below:
Assets-
The investment in associates and joint ventures has increases by this entity from 2014 to 2015
with an increment of £538000 which is done to increase their overall market share in order to
fight against their competitor's like subway and the burger King. The current share of domino's
in the restaurant plc is 41% as it is mandatory to link up as this place is only in the UK who
delivers pizza in the UK. The share of an entity in the joint ventures is lasso increases as an
enterprise need to incorporate external support of joint ventures to maintain the brand image of
an entity to remain ahead in the race.
Loan to provided to all the individuals who take franchisee of this brand on rate of 3.0% at the
LIBOR which are available on a payment system of paying debt in monthly or quarterly
installments.
The trade receivables are also incorporated in the current assets of an entity which igained
receivables from franchise of business operations from Group's Irish operations. The payment
system will be design of 7 to 28 days.
It includes various components which are further segmented into divisions such as
current and non-current assets. The current assets are held with an enterprise for short period
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which can be used in meeting short term obligations. The non-current asset on the other hands
which is held with an enterprise for long period (Edwards, 2013). The fixed asset or non-current
asset of domino's are divided into two different parts such as tangible asset which includes
property, plant and equip*-+
Investment in associates and joint venture
As per the Dominoz balance sheet, it can be seen that in the year 2014, total investment
in associated and joint venture has been reported to 7,170,000 got increased to 7,985,000 in the
year 2015. Looking to the notes to the financial accounting, 20 on page no. 99, it can be seen that
out of total, investment in associates has been reported to 1,919,000 whilst investment in joint
venture was reported to 6,066,000 which were higher than the previous year as it were 1,381,000
& 5,789,000 in 2014 (Dominoz annual report, 2015). Dominoz has 41% interest in a private
organization, named Full House Restaurant Holding Limited. However, on the other hand, it has
50% joint venture agreement with the DP Shayban limited Domino Pizza West Country Limited.
Inventories
In 2015, total inventory’s figure reported in the balance sheet got increased from
4,826,000 to 6,208,000. Out of it, total stock of raw material got increased from 220,000 to
330,000 whilst the finished stock valued raised up from 4,606,000 to 5,878,000 in current year
2015. Company records inventory at the accounting principle of lower of cost or estimated NRV
(Net realizable value).
Property, plant and equipment
In the current year 2015, the total property, plant and equipment got up from 57,374,000
to 58,566,000 due to more purchase of fixed assets in this year. PP&E comprises freehold land
property worth 27,771,000, assets under construction at 1,782,000, leasehold improvements
worth 4,822,000, fixture and fittings at 2,233,000 & supply chain equipments of 21,985,000
respectively.
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ment, operating leases, investment in finance leases, joint venture investment and deferred tax
asset. On the contrary, the intangible asset which cannot be touched but whose presence can be
felt such as brand image of the business in terms of goodwill and software. The major
components of current asset includes cash, inventories, prepaid charges, asset held for sale. The
asset held for sale are those which are divided by an entity in different category to gain money by
selling that asset which are of no use for an enterprise.
Liabilities
 Bank loans will be taken by this entity will form under the category of non-current
liabilities as this Loan has taken for 5 years. The interest rate charged on the amount
taken as loan is 1.10 interest which is above the LIBOR rate. The lower interest rate
facility is available for an entity till 2017. This facility is provided to this entity due to
unlimited cross-guarantee agreement between domino's pizza and DP group ltd.
 The finance lease has also taken up by this entity which is essential for an enterprise in
order to operate their business undoubtedly. The rate of borrowing for this lease was
1.8% which has decreases from the previous rate of 3.2%.
 Contingent liabilities are taken into consideration in the liabilities which is regarded as
higher amount which needs to be incorporate into account.
This is the burden for an enterprise which needs to be reduced by raising the level of all the
assets of an entity. The liabilities of the business are similarly segmented into two major
categories like current liabilities and the non-current liabilities (Colson, 2010). The primary
factor of the current liabilities includes trade payable who all are the trade creditors which needs
to be controlled in order to strengthen the business entity. The deferred income will be current
liabilities for an entity which needs to be reduced over the years. It also includes financial
liabilities, deferred and contingent consideration, current tax liabilities and provisions. The
provisions are prepared by an organization in order to meet the future uncertainties imposed on
an enterprise. These provisions will be reduced as this will decrease the sales and the revenue
earned by an enterprise in a particular year. The current liabilities will assess the business
efficiency of an entity. The business efficiency will be determined by comparing it with the
current asset held with an enterprise as current ratio will determine the success or failure of an
entity.
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Equity-
 The current group has acquired 100% ordinary shares of Dresdner Kleinwor as this
company is the famous entity of England. The ownership will lend an enterprise in order
to strengthen their current business performance.
 The current group has acquired the trade assets which will help an entity in order to
initiate their business. The firm has utilized capital allowances of £7,032,000 in order to
reduce their deferred assets. In the current year 2015, Dominzo’s total equity capital got
up from 73,398,000 to 97,675,000. It indicates that Dominoz collected more proprietors
capital in this year to meet out their long-term capital requirement. Collection of fund
through issue of equity capital and high availability of retained profits are the reasons
behind high shareholders equity in 2015 (Dominoz annual report, 2015).
The shareholder's equity is regarded as one of important aspect of an entity as it lends ownership
to an individual. The equity is the basic source of finance which every organization uses in order
to strengthen their business entity (Edwards, 2013). The equity shareholder are further classified
into various divisions such as called up share capital and paid up which help an enterprise owner
in order to decide whether to pay dividend to all the equity shareholder. The share premium are
the profit which will be earned by an entity by charging additional amount added in the existing
share prices. The company also need to determine specific share of capital redemption reserve
which is determined by the external legal authority as this whole process is legalized by taking
consent of the external party. The capital reserve also form part of this equity held within an
entity as it is obtained while selling of property with high amount of profit. The property in the
equity context is the shares held by an enterprise.
2. Explain prudence and accrual concept
Prudence
The domino's has used prudent concept in minimizing their future risks by using different variety
of techniques which are given as below:
Foreign currency risks- The group has invested in advance in increasing their business
operations by investing in Germany and Switzerland which will increases the revenue of Group's
non-sterling by investing financial assets by investing in Euro currency to take advantage in case
of increase of currency values.
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Credit risk- The credit terms are decided in advance which will help an entity in order to reduce
the payment of operating and finance lease to boost the level of sales and the revenue. The
policies are framed in advance to give credit to all customers without affecting the revenue of an
enterprise.
It is regarded as one of the accounting concepts which helps an entity in order to prepare
financial statements by using professional judgment in adopting different variety of accounting
policies and different estimates (Henderson, 2015). It is that concept which assist the accountant
while exercising degree of risk while estimating asset and income of an entity in order to
increase as compared to the liability and expenses incurred in an enterprise. It is that concept in
which future risks that may arises in an entity will be assessed in advance by using different
accounting statements. The reason behind selecting this particular whose primary focus is on
recognizing the value of asset which is higher in the value that the amount expected to be
recovered in near future buy selling that asset.
On the other hand the same principle applied in an entity while treating with the liabilities
incurred in the business enterprise. The future expenses are firstly recognized in order to avoid
all kinds of expenses in near future without affecting an organization to get shock of increased
expenses which will result into higher losses (Gassen, 2014). It can be used in order to analyses
inherit risks arises in the asset of an enterprise. The risks arise from facts and figures that
domino's can get benefit from good profitability conditions of this enterprise. The prudence
concept is currently used by Domino as the inventories are valued at the lower of selling price or
net realizable value.
The provisions are used for the leases taken by this enterprise of both the category of finance or
operating leases. The 7-28 days of trade receivables period currently uses by an enterprise in
order to carried forward the recovered amount generated from the trade receivables in the
defined time frame. The capital reserve kept by an enterprise is based on the shares personally
owned by Domino's Pizza Group Plc.
Accrual concept- In the double entry accounting system used by an enterprise will enhance the
role of accrual accounting concept of the business (Li, 2010). The accrual concept is also
regarded as the matching concept in which all the business transactions are taken into
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consideration without actually received their amount in real business context. This principle
refers to all the expenses incurred in an enterprise which is charged with the income statements
in the particular accounting period which will involve all income and expenses incurred in an
enterprise. The application of this concept is different in this particular organization which are
given as follows:
 The IAS 19 revenue recognition has used which defines the sources of sales of gods such
as revenue from pizza delivery, Supply chain centers (Macve, 2015). It also includes
revenue and income from royalties, rental income and finance income.
 IAS 16 borrowing costs will capitalize all kidskin of costs incurred in an enterprise such
as expenditures for asset, expenses related to work in progress assets.
 IAS16 guidelines used by an entity which will help an enterprise in order to manage all
their expenses and income earned from all kinds of leases.
CONCLUSION
It can be summarized from the above project report that the accounting is integral part of
the financial aspects which enhances the existing role of an enterprise. This report also stresses
on complying with different rules and regulations in order to prepare their financial statements.
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REFERENCES
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Metrics in TPM and PAC Activities. Journal of the Korea Safety Management and
Science. 15(3). pp. 151-161.
Colson, R.H. and et.al., 2010. Response to the Financial Accounting Standards Board's and the
International Accounting Standards Board's Joint Discussion Paper Entitled Preliminary
Views on Revenue Recognition in Contracts with Customers. Accounting horizons. 24(4).
pp. 689-702.
Edwards, J.R., 2013. A History of Financial Accounting (RLE Accounting)(Vol. 29). Routledge.
Gassen, J., 2014. Causal inference in empirical archival financial accounting research.
Accounting, Organizations and Society. 39(7). pp. 535-544.
Henderson, S. and et. al., 2015. Issues in financial accounting. Pearson Higher Education AU.
Kimmel, P.D., Weygandt, J.J. and Kieso, D.E., 2010. Financial accounting: tools for business
decision making. John Wiley & Sons.
Li, S., 2010. Does mandatory adoption of International Financial Reporting Standards in the
European Union reduce the cost of equity capital?. The accounting review. 85(2). pp. 607-
636.
Lovell, H., 2014. Climate change, markets and standards: the case of financial accounting.
Economy and Society. 43(2). pp. 260-284.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Online
Dominoz annual report. 2015. [PDF]. Available through: <
http://192.168.1.18/projectfiles/internal_cust_document/dominosar2015_1479715931.pdf>
. [Accessed on 7th March 2017].
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