Analysis of Accounting Concepts and AASB 16: Myer Holdings Limited

This report provides a comprehensive analysis of Myer Holdings Limited's financial accounting practices, focusing on key accounting concepts and the impact of AASB 16. The report identifies and describes the accounting concepts used by Myer Holdings, including prudence, accrual, consistency, and going concern, providing examples from the company's financial statements. It then examines the changes incorporated in the new accounting standard for leases (AASB 16), discussing the implications for Myer Holdings and illustrating these with specific examples from the company's financial disclosures. Finally, the report summarizes the key disclosures made by Myer Holdings on its accounting for leases, including the transitional provisions and the effects of the transition from AASB 117, using examples to clarify the company's approach. The report highlights the company's adoption of the retrospective method for the inclusion of lease liabilities and rights of use, and the impact of the new standard on the income statement and balance sheet. The summary also includes the company’s policy for lease payments and the classification of leases.

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Myer holdings limited: advanced financial accounting concepts
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INTRODUCTION
This report is an analysis of the financial concepts that an entity is obliged to use while
preparing the different financial statements and reports. It is mainly focusing on the generally
accepted accounting principles or concepts that are internationally accepted by the various
accounting institutions or boards such as the Australian accounting standards board, the
international standards accounting board and so many others. In this particular paper, Myer
holdings limited will be the business entity that will be used as the point of reference. This
implies that the paper will lay emphasis and focus on the Myer financial records and reports to
provide a relevant discussion. Additionally, the paper will specifically take a look at the new
requirement of AASB 16: leases and its underlying impact on the business operations in the
forthcoming financial periods. Conclusions will, therefore, be made following the discussions
proved and the data collected.
Description of the accounting concepts used
By definition, accounting concepts or principles refer to internationally accepted
standards, rules and guidelines that must be applied by an entity especially when preparing
financial records and or statements. There are majorly four accounting principles or concepts that
are fundamental when preparing accounting reports and records. These four major concepts
include the principle of consistency, accrual concept, prudence and the going concern concepts.
However, besides the above fundamental accounting principles, there are other concepts such as
the matching concept, the accounting equation principle, and the principle of objectivity and full
disclosure among others. For purposes of understanding, explanations of such terms will be
provided throughout the discussion.

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Because the Myer holdings limited uses the accrual basis of accounting, the four
fundamental concepts and or principles were identified from the annual financial statements of
the company. Some of the statements that were used for selecting these concepts include the
company consolidated balance sheet, the consolidated income statement the statement of changes
in equity and the consolidated statements of cash flows. It forms such statements that concepts
such as the prudence, accrual, consistency and going concern were identified for the discussion
of the paper. Further discussions of the principles are provided as below:
The concept of prudence
Also known as the conservation concept, the prudence principle of accounting requires
that an entity or financial accountant should recognize and record only those incomes and
expenses that are realized (HLB Mann Judd, 2019). In this principle, a company should not
overstate the revenues and at the same time, the company should not understate the expenditures
incurred. The same principle should as well be applied to the assets and liabilities. The objective
of using such an accounting principle is to promote conservatism within the business entity. The
other alternative that can be used under this concept is undertaking delayed revenue recognitions
and on the other hand expenses and liabilities should be recorded immediately once there is an
obligation to pay. Myer Company limited applies the prudence concept, especially with the
concessions sales revenues. It is a company policy not to recognize revenues and incomes arising
out of concession sales and yet the provisions for returns inwards are effectively put in place. By
such accounting policies on revenues and expenses or obligations, the prudence concept of
accounting becomes applicable within the company financial records.

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The accrual concept of accounting
According to the accrual concept, an entity or company such as Myer Holdings Limited
should be recorded when transactions take place and not when cash is received or paid up. This
means that an income is recognized at the time of the transaction provided there is right of
receipt or duty to pay. Such expenses or incomes are mostly witnessed especially when there is
no document or written receipt or invoice to show the transaction event. Therefore a journal
entry is recorded to represent such a transaction in the book of accounts. Among such
transactions that can be recorded with such a principle includes the interest on loans, tax
liabilities, credit sales and purchases and so on. For Myer Holdings Limited such items include
the deferred income of $ 10,294 million in the year 2018.
Consistency concept
This is the type of accounting which requires that an organization should continuously
use a single accounting method through over the future accounting period (Michelle et al, 2019).
Changes can only be acceptable w.hen such changes will improve the quality of financial
records. From the 2018 annual report, Myer Holdings Limited effectively applies this concept of
accounting through the comparative system of presenting financial data. The company also
maintains a uniform method of precision for recording financial data and information. Looking at
.comparability it is required that current year financial reports are presented alongside the
previous years’ records. The company reflects comparability as the 2018 financial records are
presented alongside the 2017 financial statements. The Precision of reporting data and
information in million dollars as used by the company is one way of facilitating proper
communication of the company affairs. The presentation of the current year financial statements

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alongside the previous years' records, on the other hand, plays a significant role in decision
making. Users of such financial data can easily create comparisons about the financial stability
and performance between different periods and make relevant decisions.
The going concern concept
The going concern concept, on the other hand, is an assumption which requires that the
business continues in the nearby foreseeable future. According to this assumption or principle of
accounting, an entity should be regarded as one that is in position to utilize its existing assets,
continuously meet and pay up obligations to avoid liquidation (Deloitte, 2016). Therefore The
Myer Company has applied this principle especially through the way that it values its fixed
assets. For instance, the 2018 company annual report shows that all assets apart from land as are
depreciated over their useful lives. Assets such as plant and equipment are depreciated with the
straight line and they are forecasted to have a useful life of about 10 to 20 years. The buildings,
on the other hand, are estimated to last for about 3 to 12.5 years (Myer, 2018). All these are signs
showing that Myer Company limited is operating on the going concern concept of accounting.
The matching concept
The matching concept is a principle through which an entity is required to record
revenues and expenses for the same period in which such revenue was realized. Therefore the
revenues generated from expenses should be within the same accounting period (Legaspi, 2014).
For instance, an income that is obtained in the current should not be offset to the expense that
was incurred within the previous year of income. Taking an example of the Myer Holdings
Company, the revenues resulting from concession sales of the current year should not be used to
offset the costs and expenses incurred in the previous financial year. The major reason for such a

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principle is by the company is to facilitate an easy way of making decisions for the use of
financial information. This further promotes a better understanding of the information that is
provided in the financial statements and records of the entity.
Changes in the new accounting standard for lease AASB 16
With aims to create a distinction between the operating and finance leases, the AASB has
strategically chosen to improve or perhaps alter the requirements of the presenting leases in the
financial statements by companies. Originally these leases had been an off the balance activity
but with the revival of the standard, it has henceforth become a mandatory requirement for leases
to appear in the organizations' statement of financial position (Kiabel, 2014). A lease, therefore,
refers to a contractual agreement through which the lessee and the lessor come into a mutual
understanding for the use of an underlying asset. In this type of contract, the lessee agrees to
make periodic payments to the lessor or owner of the property for a specified period. These
payments may include the fixed payments such as the (in-substance payments), royalty lease
payments, contract termination payments in case the lessee wants or intends to tend the contract
before the maturity date and so many forms of payments.
The new and revised standard does not require an entity to portray or record obligations
relating to future payments that may arise out of an operating lease. An operating, on the other
hand, is that type of lease which gives the lessee the right to use an underlying asset for a period
that is often shorter than its economic life cycle but it does not give the lessee transfer of
ownership at the end of the lease contract. Therefore the changes in the standard will require an
entity to record both the lease liability and the right of use in the balance sheet extract of the
company. In simple terms, an entity that obtained a lease contract will be obliged to record and

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show the costs or expenses of utilizing the leased asset together with the benefits generated from
using such underlying assets in the lease contract. Additionally, the rights of using the leased
asset or assets will be reflected among the non-current expenses and the lease liabilities will be
sub-divided into the current and long term lease liabilities. The new standard requires that the
lease liabilities should be measured at the present value of the lease payments.
According to the requirements of the new accounting method for leases, Myer Holdings
Limited has effectively adjusted to the retrospective method of inclusion of the leases liabilities
and rights of use. Retrospective inclusion here means that the new changes will be included in
both the balance sheet and the income statements as if they were already in operation (Warfield
et al, 2010). Due to the new requirements, the operating lease payments and expenses have also
been incorporated into the income statement of the company. For example, the company in its
provisional financial statements for the years 2020 provides disclosures concerning the lease
information. According to the information, it is expected that the right of use will range between
$ 1.35 to1.55million for the year 2020. The operating lease expenses, on the other hand, are
expected to e between $200,000 to 220,000.
Summary of the key disclosures made by Myer Holdings Limited
According to Myer Holdings Company policy, disclosures relating to leases show that the
company uses the amortisation method to write down the payment s and renewal options are
discussed at the time of acquisition. Lease amounts are always paid before taking over the
underlying asset. The company policy also requires that the payments that are made concerning
the operating leases be recorded in the income statement and the straight-line method of
amortisation is used for purpose of determining such periodic amounts to be paid. In classifying

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the two types of leases, Myer Holdings Limited considers operating leases as ones in which the
lessor assumes almost all of the risks associated and at the same, the lessor assumes all the
rewards and benefits (Myer Holdings Limited, 2013). The company on the other hand, however,
considers the finance lease as those in which it assumes all of the risks and benefits associated
with the use of an underlying asset. In the new accounting policy, the company will replace the
AASB 117 lease requirements and interpretations. Since the AASB 16 eliminates the creation of
distinction between the operating and finance lease, Myer Holdings Limited intends to apply the
single lessee accounting approach. Under such a standard and approach, recognition of the right
of use (ROU) of the assets and the lease liabilities are to be made (Australian Government,
department of finance, 2018). However, the short term leases that is to say leases with less than
one year maturity period and are obtained on an asset of low value will not be recognized in the
books of accounts. Separate payments that will result from depreciation on the rights of use and
interest payments will as well be reflected in the income statement.
Effects of the new AASB 16on the Myer Company Limited
Myer holdings is an operating lessee with a variety of operating lease portfolios, the
transition to the new standard of lease accounting will, therefore, have significant impacts on the
affairs f the company. The effect will be both in the present and in the future periods as it will
become mandatory for the company to include leases that are currently recognized as operating
leases in the statement of financial position. Additionally, the policy has created the need for a
new lease accounting software will be used to effectively and efficiently manage the leases
(Myer Holdings Limited, 2019). Due to this policy, the company is expected to terminate certain
lease terms and since the retrospective approach of transition is to be used, changes in the
opening balances of the retained earnings or losses will have to be witnessed. For instance, the

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company’s earnings before interest and tax together with the EBITDA will be significantly
increased due to the inclusion of the depreciation that will result out of the right of use assets and
the interest payable on the leases liabilities (Accounting Tools, 2019). The net profit before tax,
on the other hand, will, however, be lower whereas the cash flow statement is expected to
experience no impact (Myer Holdings Limited, 2019). This is because increases in the operating
cash flows will be effectively offset by the declines in the financing cash flows.
Conclusions
The new AASB 16 standard of accounting for leases will have a significant impact on the
financial information and reports of all business entities. The impacts are most likely to be both
positive and negative and they will be faced in the long and short term period. Some of the
positive outcomes of such a policy are that it will result in proper and clear transparency within
the affairs of the different entities. However, it is also possible that is can lead to reductions in
the net profits of entities. With reduced net profits, companies such as those listed on the stock
market are also under the treats to become less attractive. With reduced attractiveness on the
market, the capital acquisition will as well be made difficult. The transition will require
additional costs especially to the companies that will need to upgrade the software to carry out
effective lease accounting.

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References
HLB Mann Judd, 2019. New Leasing Standard (AASB16): Brings Significant Impacts. Retrieved
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