Contemporary Issues in Accounting: ADX Energy Ltd Financial Analysis

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AI Summary
This report provides a detailed financial analysis of ADX Energy Ltd., focusing on its performance over the past two years. The analysis includes an examination of the company's income statement and balance sheet, highlighting key financial metrics. Ratio analysis is conducted to assess the company's liquidity, profitability, and solvency. The report evaluates the company's adherence to the conceptual framework, including measurement requirements, fundamental and enhancing qualitative characteristics, and the ability of users to make informed decisions based on the financial information provided. It also addresses the requirements of General Purpose Financial Reporting. The analysis reveals the company's financial position, including its revenue, expenses, assets, liabilities, and equity. The report concludes with recommendations for future actions by the company based on the financial findings.
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CONTEMPORARY
ISSUES IN
ACCOUNTING
ASSIGNMENT
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By student name
Professor
University
Date: 25 April 2018.
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Executive Summary
In the given case, a report has been prepared on one of listed companies, ADX energy Ltd. The financial
analysis has been done on the same with the help of the profit and loss account and the balance sheet
analysis over the past 2 years. The latest annual report of the company has been used for the analysis.
Furthermore, the ratio analysis has been done to get the idea of the performance indicators and how
the company had fared in the last 2 years. Besides this, the report also highlights the measurement
requirements of conceptual framework, fundamental and enhancing qualitative characteristics that the
company has met. It also mentions if the annual report has met the requirements of GAAP and are the
users of report able to make decision on the basis of the same. Finally, conclusion and recommendation
has been given as to further course of action by the company.
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Contents
Introduction.................................................................................................................................................4
Discussion and Analysis...............................................................................................................................4
Measurement requirement of conceptual framework............................................................................4
Fundamental Qualitative characteristics.................................................................................................4
Enhancing Qualitative characteristics......................................................................................................5
If users are able to make use of the reports for decision making............................................................5
Users need only basic knowledge of accounting – Yes or No..................................................................6
Requirements of General Purpose Financial Reporting...........................................................................6
Income Statement and Financial Position Analysis................................................................................10
Ratio Analysis.........................................................................................................................................12
Conclusion & Recommendation................................................................................................................14
References.................................................................................................................................................15
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Introduction
The company which has been selected for the purpose of the financial analysis is ADX energy Ltd. It is
listed on Australian Stock Exchange and is a part of the energy sector. It also deals in gas and oil
exploration. It operates four oil and gas permits in the country of North Africa and Europe together with
gold and base metals interest in several parts of Australia (Delone & Mclean, 2004). It was established in
the year 1987. With respect to the vision of the company, it aims to have greater shareholder returns
through prospective investments by applying state of art technology. The financial analysis has been
done below.
Discussion and Analysis
Measurement requirement of conceptual framework
The conceptual framework laid down by the accounting bodies all over the world considers
requirements with respect to measurement, presentation and disclosure in the financial statements.
There are 3 basic fundamental principles of measurement which are:
1. The objective of measurement is to show how carefully the resources of the entity have been
used, what are the claims against the entity and if the management and governing board of
company has discharged its responsibilities well with regard to use of resources.
2. Generally, measurement starts with the balance sheet item, but the relevance of information is
also impacted by how it affects the income statements, cash flow statement, statement of
changes in equity and notes on accounts (Mock, Ragothaman, & Srivastava, 2018).
3. The cost of measurement must be commensurate with the benefits that accrues to the existing
as well as potential stakeholders of information.
All the given requirements have been met through the detailed annual report which meets the matching
concept and costs have been highlighted against revenue line items. It also highlights detailed
information for use by different stakeholders.
Fundamental Qualitative characteristics
Financial reporting information should be meeting 2 fundamental qualitative characteristics and should
report information that is true and fair and is not misleading.
1. Relevance: Accounting information is said to be relevant if it has the ability to change the
decision of the user of information. It can happen if the information presented if of confirmatory
value or predictive value or both of them. The relevance of information depends on the nature
and materiality of the item. Suppose in the given case, ADX energy would have shown only gross
block of the asset then the same would not have been useful of user but now with the entire
schedule of fixed assets showing addition, deletion, depreciation, etc, it becomes relevant
(Heminway, 2017).
2. Faithful Representation: It means that the financial information should represent only the things
which it purports to represent. Three major characteristics needs to be met some of which are
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completeness in recording of all the transactions, neutrality approach while preparation of
financial statements and the accounts and reports being free from error, omissions and
inaccuracies. The same has been ensured by ADX limited as the auditor has stated in the
Auditors report and Directors have declared in the Directors’s Report (Jefferson, 2017).
Enhancing Qualitative characteristics
The financial statements must possess the quality of enhancing qualitative characteristics which help in
bifurcating the more critical information from the less ones. These characteristics has been mentioned
below alongwith the extent to which it has been met by ADX limited.
1. Comparability: the financial values has been given for the last 2 years in all the major financial
statements be it profit and loss account or balance sheet or cash flow statement and the notes
on accounts. This helps the user to compare the performance of the company as compared to
the last year.
2. Verifiability: Verifiability means the data should present a faithful representation of the affairs
and the auditors or any other accountant should be able to reach the same result as the
accountant of the company using the same inputs. The company in hand ADX energy has
followed it as is mentioned in the Auditors Report to the users.
3. Timeliness: The information is useful only when the same is presented to users in a timely
fashion and ADX energy has also prepared and published the annual report within the due time.
4. Understandability: The information presented should be clear and concise and should not be
ambiguous. The same has been represented in the annual report of company.
If users are able to make use of the reports for decision making
In the given case the company has presented the information in the most detailed way for the
understanding of the user. The stakeholders may be different, it may be internal or external. The
information needs have been fulfilled for each one of them like for creditors and the bankers and
financial institutions, the debt equity split and the liquidity and solvency picture of the company has
been given. For the potential and existing investors of the company, the share price, the dividend and
EPS information has been given and for employees and other internal stakeholders, the business
information and critical excerpts on the business policies has been given.
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Users need only basic knowledge of accounting – Yes or No
As per the conceptual framework, users need only the basic knowledge of accounting to analyse the
company. The statement is however, partially correct as the basic knowledge of accounting helps the
company in knowing what the debits and credits and the financial statements and its line items but for
the critical analysis and review, in depth knowledge of ratio and what they purport to represent should
also be clear (Kew & Stredwick, 2017). Furthermore, there are many internal and external factors on
which the growth and sustainability of the company depends upon and hence to take a rational decision
the user must have the knowledge of the same. Decision making purely on the basis of basic accounting
knowledge can prove to be detrimental to the interests of the investors.
Requirements of General Purpose Financial Reporting
The four major general purpose financial reporting reports consists of balance sheet, income statement,
cash flow statement and the statement of changes in equity. The same has been included in the annual
report and the relevant notes with respect to the same has also been included. All such requirements
have been met such that the users are informed and they can take investment and other decisions
accordingly. It is called the general purpose financial statements because these are the basic documents
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which help the users in making the better investment and economic decisions. The screenshots of the
same has been shown below.
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Income Statement and Financial Position Analysis
The income statement analysis and the balance sheet analysis of the company for the last 2 years has
been shown below:
ADX Energy Limited
Consolidated statement of profit or loss
Particulars 2017 2016
A$ A$
Revenue and Income
Interest revenue 4,303 1,841
Other income 905,474 -
909,777 1,841
Expenses
Administration and corporate expenses, net of recoveries from exploration
projects 542,456 738,965
Share-based payments 712,774 216,490
Exploration expensed 1,857,32 949,530
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2
Net loss/(gain) – other financial assets at fair value Total expenses -54,819 752
3,057,73
3
1,905,73
7
Profit/(loss) before income tax
-
2,147,95
6
-
1,903,89
6
Income tax expense 21,378 9,604
Profit/(loss) after income tax attributable to members of ADX Energy Ltd
-
2,169,33
4
-
1,913,50
0
Other comprehensive income/(loss)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations -95,586 -14,699
Income tax relating to items of other comprehensive income/(loss) - -
Other comprehensive income/(loss) for the year, net of tax -95,586 -14,699
Total comprehensive profit/(loss) for the year
-
2,264,92
0
-
1,928,19
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Cents Per Cents Per
Share Share
Basic earnings/(loss) per share -0.21 -0.25
ADX Energy Limited
Consolidated statement of financial position
Particulars 2017 2016
$ $
ASSETS
Current Assets
Cash and cash equivalents 1,840,247 734,152
Trade and other receivables 164,814 152,683
Other financial assets at fair value - 266,874
Total Current Assets 2,005,061 1,153,709
Non-Current Assets
Property, plant and equipment 178 281
Total Non-Current Assets 178 281
Total Assets 2,005,239 1,153,990
LIABILITIES
Current Liabilities
Trade and other payables 675,711 422,249
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