Aristocrat Leisure Limited: Financial Statement Analysis (ACC201)

This report provides a comprehensive analysis of Aristocrat Leisure Limited's financial statements for the year ended September 2017. The report begins with an overview of the company's operations and financial performance, including a summary of its consolidated revenues and income statement. It then delves into the application of AASB101, discussing the classification of expenses by nature and function, along with their respective advantages and disadvantages. The report also examines the company's accounting policies, including the grouping of financial statement items and the use of consistent accounting practices across subsidiaries. Furthermore, it analyzes the company's estimates, particularly regarding share-based payments. The analysis extends to property, plant, and equipment, detailing the costs, depreciation methods, and useful lives of various assets. Finally, the report addresses the impairment process for assets, highlighting the company's approach to assessing and recording impairment losses, concluding that there were no impaired assets during the year. The report references the company's annual report and relevant accounting standards throughout the analysis.

Aristocrat Leisure Limited

Table of Contents
Sl No. Details Page No.
1 Task 1: Part A 1
2 Task 1: Part B 1-2
3 Task 2 3-4
4 Task 3: Part A 5
5 Task 3: Part B 5
6 Task 3: Part C and D 5
7 Task 3: Part E 5
8 Task 3: Part F 6
9 Reference 7

Aristocrat Leisure Limited 2017
Solution to Task 1: Part A
Aristocrat Leisure Limited is one of the most renowned names in the gaming industry and a
leading provider in the field of gaming solution. The company operates in over 90 countries
and have over 240 jurisdictions in gaming.
The company reported its financial statements for the year ended September 2017 with a
net comprehensive income of $478.2 million. The requirement of the company is to report
the consolidated revenues across all jurisdictions, countries and segment and the income
statements report exactly the same. The consolidated revenue of the company for 2017 was
reported as $2,435.80 million. The income statements reports the expenses classified on the
basis of functions as desired by the company. The extract of the Profit or Loss statement
available on page 57 (Aristocratleisurelimited.gcs-web.com, 2019) of the annual report is
reproduced as below for ready reference
Solution to Task 1: Part B
AASB101 which is the standard controlling the Presentation of Financial Statements states in
the paragraph 99 states that all business organisation shall present and report all the
general expense incurred by it way of detailed analysis. The expenses should be classified on
the basis of nature of the expense and functionality of the expense and then reported in the
profit or loss statement. This shall form part of the financial statements in the annual report
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Aristocrat Leisure Limited 2017
of the company (AASB 2017). Thus, the company can classify expense either on the basis of
nature or function of expense.
Paragraph 102: This particular paragraph of AASB101 specifically lists out how the use of
classification based on nature of expense can be used by the organization. This method
records all the expenses of the company classified on the basis of their nature and not on
the basis of how they are allocated to various function on the organization. Examples will be
reporting purchases, depreciation, general expenses, salaries etc.
(Basiccollegeaccounting.com, 2009)
Paragraph 103: This particular paragraph of AASB101 lists out how the use of classification
based on nature of function can be used by the organization. This method advises the
companies to classify expense which are part of cost of sales based on the function in which
they are incurred. This provides better information but obviously proper allocation is a
concern. Examples will be reporting as administrative expense, selling expense, cost of sales
etc. (Legislation.gov.au, 2018)
Thus, we see that a company can use either nature or function to classify their costs and
choosing the one requires judgement. The table below summarizes the advantages,
disadvantages of using them.
Advantages Disadvantages
Classification
- Nature
Simple and easy application as no
allocation requirement, Cost heads
helps in proper analysis for cost
controlling, makes prediction of cash
flow easy.
GP calculation difficult, detailed
information on cost missing
Classification
- Function
GP can be calculated easily, helps in
controlling departmental costs,
better and more relevant information
provided
Allocation to functions require
judgement and estimates which
are difficult, unable to predict
future cash flow with this,
Further, classification as per nature relieves the company of providing additional
information as disclosures as the entire costs is mentioned as is, whereas classification as
per function requires additional information in form of disclosures stating specifically the
depreciation, amortization and the costs of employee benefits.
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Aristocrat Leisure Limited 2017
Solution to Task 2:
A thorough review of the financial statements of the company and you will see that the
company has made changes in the workings of the items reported in the financial
statements.
a.
We all know that companies use their judgement, make estimates, and apply accounting
policies for valuing the items of financial statements. These judgements estimates and
accounting policies are all disclosed to the stakeholders in the annual report. The company
reported all these important information as notes to financial statements and grouped them
on the basis of their nature.
Note 1: Business Performance
This segment provided vital information on financials of the company including its segment
information, dividends, taxes, EPS and revenues and expenses.
Note 2: Operating assets and liabilities
This specifically presented information related to the assets and liabilities presented on the
balance sheet including inventories, trade receivable, assets, provisions, long-term asset and
payables. This explained the use of judgement, estimates for provisions and recording of
these assets or liabilities.
Note 3: Capital and financial structure
This provided further information on the use of capital within the firm, indicating the type of
funds utilised including equity and borrowings, risk factored, financial ratios etc. for user to
have complete and transparent information about the company.
Note 4: Group structure
Provided information on the subsidiaries and other entities which the company has controlling
interest and/or have plans for acquisition or disposals.
Note 5: Employee benefits
This presented the remuneration details of the KMP and share based payments that have
been allowed to the employees and management.
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Aristocrat Leisure Limited 2017
Note 6: Other disclosures
Other disclosures are all important disclosures that do not fall under any of the 5 group
above. This includes contingencies, related parties transaction, events that occurred after
balance sheet etc.
This as we see is logical grouping and sequencing for users to gather complete information
about the company; all these are available under page 62 (Aristocratleisurelimited.gcs-
web.com, 2019) of the annual report for the year 2017.
b.
One of the most important factors in presentation of financial statements is the use of same
accounting policies over years to ensure consistency and comparability. The group has
aligned the accounting policies of the subsidiaries companies’ with the on-going policies of
the company to ensure consistency while reporting.
Further, as per the best estimate of the management all the unrealizable gains from the
subsidiaries where eliminated while consolidation to ensure that the books represent the
true and fair view of the state of affairs of the company as far as possible.
c.
Revision in Estimates: The Company has recorded a significant change in their estimates
regarding the vested rights of the management based on the non-market condition of
besting. The same is adjusted with the original estimate and adjusted in the financials. This
is reflected under page 63 (Aristocratleisurelimited.gcs-web.com, 2019) of the annual report
which represents the “Share based segment” of the company.
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Aristocrat Leisure Limited 2017
Solution to Task 3: Part A
The company incurred a total of $631.70 million for Property, plant and equipment. This is
recorded in page 75 (Aristocratleisurelimited.gcs-web.com, 2019) of the annual report. The
costs add up for three major components with $554.4 million against Plant and Equipment,
$57.1 million against leased improvements and $20.2 against land and buildings.
This has increased from $540.6 million in 2016 to $631.7 in 2017, thus registering an
increase of approx. 17%
Solution to Task 3: Part B
The company expensed for a total depreciation of $111.60 million in the year 2017. This is
recorded in page 65 (Aristocratleisurelimited.gcs-web.com, 2019) of the annual report. The
costs add up for three major components with $101.4 million against Plant and Equipment,
$5.3 million against leased improvements and $4.9 against land and buildings.
This has increased from $115.6 million in 2016 to $111.6 in 2017, thus registering an
increase of approx. 4%
Solution to Task 3: Part C and D
The company applies straight line depreciation method for all its assets with land having no
depreciation expense at all. The company in page 73 (Aristocratleisurelimited.gcs-web.com,
2019) of the annual report lists out the useful life that has been considered for all its class
of assets which is 25-30 years for buildings, 2-10 years for the leased improvements and 1-
10 years for plant and equipment.
The chart below summarizes the given information:
Sl
No. Assets Useful Life
In years
Depreciation
Method
1 Buildings 25-30 Straight - Line
2 Leased Improvements 1-10 Straight - Line
3 Plant and Equipment 1-10 Straight - Line
4 Land Indefinite NA
Solution to Task 3: Part E
None of the operating assets or liabilities of the company went under revaluation for the
year 2017 and thus the annual report shows no disclosures related to revaluation.
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Aristocrat Leisure Limited 2017
Solution to Task 3: Part F
Here, we will talk about impairment process for assets. Any asset whose value in books as
per balance sheet exceeds the current market value is called as impaired assets (Kenton
2019). It is important for companies to assess the impairment of assets and record the same
in the financial statements for users to have full disclosure (Guthrie and Pang, 2013). Every
company at a consolidated level, assess the impairment of financial assets at the end of
each closing period (AASB 2015). The company also records the carrying amount of
investment after adjusting the impairment loss and the carrying amount generally is the
maximum credit risk attached to the given asset as on the date of reporting (Deegan 2012).
The company carries out impairment process when an adverse event related to an asset
happens or materializes post their recognition. This loss after the event materialisation will
have an adverse effect on the future cash flows (for Aristocrat refer page 73
(Aristocratleisurelimited.gcs-web.com, 2019) of the annual report)
The company has no exposure for price risk against investment held till maturity. The
company holds no assets which are impaired and thus no impairment has been done.
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Aristocrat Leisure Limited 2017
References
AASB 2015, AASB 136 Impairment of Assets, viewed Retrieved 5 Feb 2019 from
http://www.aasb.gov.au/admin/file/content102/c3/AASB136_07-04_ERDRjun10_07-09.pdf
AASB 2017, AASB 101 Presentation of Financial Statements, Retrieved 5 Feb 2019 from
http://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf
Aristocratleisurelimited.gcs-web.com. (2019) [online] Retrieved 5 Feb 2019 from
https://aristocratleisurelimited.gcs-web.com/static-files/8a63b725-9d18-403b-a6cb-
ae3b6af43acc
Basiccollegeaccounting.com. (2009). Explain What Are The Two Types Of Presentation Of
Expenses Format Recognized In The Income Statement In Accordance to FRS 101
Presentation of Financial Statements - College Accounting Coach | College Accounting
Coach. [online] Retrieved 5 Feb 2019 from
http://basiccollegeaccounting.com/2009/11/explain-what-are-the-two-types-of-
presentation-of-expenses-format-recognized-in-the-income-statement-in-accordance-to-
frs-101-presentation-of-financial-statements/
Deegan, C. (n.d.). Australian financial accounting Retrieved 5 Feb 2019
Guthrie, J. and Pang, T. (2013). Disclosure of Goodwill Impairment under AASB 136 from
2005-2010 (pp.216-231). Australian Accounting Review, 23(3), Retrieved 5 Feb 2019
Kenton, W. (2019). Impaired Asset. [online] Investopedia. Retrieved 5 Feb 2019 from
https://www.investopedia.com/terms/i/impairedasset.asp
Legislation.gov.au. (2018). AASB 101 - Presentation of Financial Statements - October 2006.
[online] Retrieved 5 Feb 2019 from
https://www.legislation.gov.au/Details/F2009C00140
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