Financial Accounting Report: Coca-Cola Amatil and AASB Standards

This report provides a comprehensive analysis of Coca-Cola Amatil's financial accounting practices, focusing on the application of key accounting concepts and the impact of AASB 16, the new accounting standard for leases. The report begins with an introduction to Coca-Cola Amatil and an overview of the accounting concepts it employs, such as accrual, conservatism, going concern, offsetting, materiality, economic entity, and consistency. The main body then delves into the changes introduced by AASB 16, including the definition of a lease, lease terms, payments, and discount rates, as well as the transition options available. The report also summarizes the key disclosures made by Coca-Cola Amatil concerning its accounting for leases, including the transitional provisions and the effects of transitioning from AASB 117 to AASB 16. The analysis highlights the importance of these changes in providing a more transparent and accurate representation of the company's financial position, particularly regarding its liabilities and assets related to leases. The conclusion summarizes the key findings and the implications of the accounting changes on the financial reporting of the company.

Advance
Financial
Accounting
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
The accounting concepts used by Coca Cola Amatil according to the company's annual report.
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Changes adopted in the new accounting standard for lease AASB 16 with examples................3
Summarising the key disclosures the company has made on its accounting for leases including
on the transitional provision and effect of the transition to AASB 16 from AASB 117.............4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................1
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INTRODUCTION
Accounting concepts are the basic rules and principles that serves as a guideline for
recording business transaction and in preparation of final accounts. The Coca-Cola Amatil was
established in 1904 and is owned by Coca-Cola group, HSBC and National nominees. It operates
in major countries like Australia, New Zealand, Indonesia and Fiji and has more than 14700
employees worldwide. It produces alcoholic, non-alcoholic drinks, sparkling water and energy
drinks. AASB 16 is basically concerned with leasing and the contract made between lessee and
lessor. Also, it emphasises the determination of lease arrangements and their treatment in the
financial statements. The current study will highlight the accounting concepts used by Coca-Cola
Amatil, new changes incorporated in the accounting standard for lease and the effect of change
to AASB 16 from AASB 17.
MAIN BODY
The accounting concepts used by Coca Cola Amatil according to the company's annual report.
It is imperative for every company to follow the accounting concepts in order to ensure
smooth preparation of financial statements and to easily record business transactions. The
accounting principles and concepts of Australian companies are governed by AASB (Australian
accounting standards board) and their main objective is to ensure uniform standard for
accounting and also to protect the interest of shareholders, creditors as well as investors. The
AASB became applicable from 1st January 2019 and for companies whose financial year ends on
30th June the new law became applicable on 1st July 2019.
The main objective behind AASB 16 is to clearly reflect every company's liabilities by
providing transparency about leasing activities, capital employed and financial leverage. This
will further help the shareholders, investors and creditors to compare the financial position of a
company that borrows funds to purchase financial assets and another company that leases the
financial assets. The major transitions a business needs to do is to is top identify whether they
leased any assets from another party and secondly they must also identify the value of affected
assets and liabilities (Varsamis, et.al.,2017).
Coca Cola Amatil follows all the accounting concepts framed by AASB in order to
provide fair business information to the stakeholders. Some of the concepts followed by the
organization are as follows
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 Accrual concept: Accrual concept is the most basic principle followed by Coca-Cola
Australia and it states that the revenue must be recorded at the time when it is earned and
not at the time of receiving cash. In the same way the expenses must also be recorded at
the time of their occurrence and not when they are actually paid. Coca-Cola Amatil
follows the same concept as the Auditors only consider the accrual concept at the time of
analysing financial statements.
 Conservatism concept: Under conservatism concept, the Coca-Cola company records
revenue only when there is high probability of its occurrence whereas the expenses are
recorded only with little probability of their occurrence. This concept has helped Coca-
Cola Amtil in recording cases of uncertainty and estimates adequately (Dunbar, K. and
Laing, 2017).
 Going concern concept: According to this accounting principle it is assumed that a
business will continue its operations in the near future and that is the reason revenue and
expenses are deferred to a future period. It is imperative as it helps Coca-Cola to
adequately account its business activities otherwise without this concept all future
transactions would have to be recorded in the present period.
 Offsetting concept: The offsetting concept states that a company cannot offset their
assets against liabilities unless it is guided by AASB or if gain, loss and expenses are
arising from the same transactions and they are not materialistic. Coca Cola Amatil sets
off their debtors towards the creditors because both are the same person and company
therefore the organization is allowed to do so but in case if both debtors and creditors are
different then it is not possible to offset.
 Materiality concept: The materiality concept states that an accounting transaction can be
ignored if it has no or minimum impact on the financial statements and if it does not
mislead the reader of the statements. However, Coca-Cola Amatil records all the
transactions, big or small whether it impacts the statements or not.
 Economic concept: According to economic concept, the business transactions must be
kept separate from its owners and there must be no relation between the two in regard to
recording of financial statements. The Coca-Cola Amatil is a subsidiary of Coca-Cola
and the CEO Alison Watkins has never manipulated or merged the company's
transactions with their personal transactions (Svoboda and Bohušová, 2017).
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 Consistency concept: Consistency concept is the most important concept for any
business to follow. It means that every company must follow the same accounting
principles throughout the financial year otherwise it can lead to mismanagement and
unfair practices in books of accounts. Coca-Cola Amatil uses FIFO uses cost flow to
value its inventory and to identify its cost of goods sold. Later on, the organization
identified that LIFO is a better tool therefore they disclosed the break in consistency
The Coca-Cola Amatil company also adopted the AASB 16 to ensure fair practices and
transparency and also they have started mentioning leasing assets in their balance sheets which
has helped them in fair performance.
Changes adopted in the new accounting standard for lease AASB 16 with examples.
The AASB 16 gives a more detailed and complete information related to financial
position of the business by showcasing the liabilities and providing an accurate picture of the
financial statement. The Australian accounting standards board 16 Lease became compulsory
from annual reporting period beginning on or after 1st January, 2019 and it has brought several
changes in accounting for lease as from now on most leases would need to be displayed on the
balance sheet of lessee's under the head of right-of-use-assets with corresponding lease liabilities.
Basic terminology related to the concept of AASB 16 are
 Lease: Leasing As per AASB 16, a lease can be defined as a contract that allows the
right to use an asset for a specific period of time in exchange for a consideration such as
money or something of equivalent value. Coca Cola Amatil has lease various
warehouses and office spaces in Perth and New Zealand in order to expand its activities
adequately (Mialon, and et.al., 2016).
 Lease term: AASB 16 defines lease term as a non-cancellable period where the lessee
has to use the asset for periods covered under the agreement and also for the periods
covered by termination option if the lessee is certain not to terminate.
A lease is not considered to be enforceable if both lessee and the lessor have the rights to
terminate the lease without permission from the respective party.
 Lease payments: Lease payments are basically concerned with payments made by a
lessee to a lessor relating to the right to use the asset. These payments are differentiated
on the basis of fixed payments, variable lease payments and payment for terminating the
lease.
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 Discount rate: As per AASB 16, the lessees are required to bring leases in their balance
sheet and mention it in the balance sheet as right-of-use-assets with lease liabilities. The
discount rate means that a lessee can use Interest rate implicit in lease (IRIL) to discount
the lease.
 Transition options: A transition strategy is very important for every business as it can
have a positive impact on the financial results of the company. In order to adopt smooth
transition it is important for a company to understand the practical aspects of the AASB
16.
The AASB 16 has a huge impact on the financial statements of a Coca-Cola company as
it has made various changes for leases mainly removing the difference between operating and
finance leases. The main objective of AASB 16 is to be proactive and prepared the basic problem
with AASB 117 was that it did not include the accounting entry of future payments related to
operating lease arrangement and therefore it became difficult for the stakeholders to estimate the
true financial position of Coca-cola Amatil Company. On the other hand, the AASB 16 gives an
accurate and reliable information regarding the liabilities and assets of a company which is not
only beneficial for the shareholders and investors but for general public as well. Also, the AASB
16 has changes the criteria of measuring expenses as earlier it used be straight line method for
rental expense but with the AASB 16 the expenses will increase in the early years and then
reduce accordingly. Thus, it will have an impact on earning profiles (Mialon and et.al., 2016).
Summarising the key disclosures the company has made on its accounting for leases including on
the transitional provision and effect of the transition to AASB 16 from AASB 117.
The transition provision is important to both lessee and the lessor as it affects the opening
balance sheet, income statement and information required for a company. The transition
provision under AASB 16 involves two methods like full retrospective method and modified
retrospective method. For Coca- Cola Amatil, AASB 16 will require the company to calculate
and recognize the right-of-use-asset and corresponding liability in balance sheet to committed
lease payments. Although, these expenses were earlier associated with EBIT but now it has
replaced with straight line method of the right use asset which will further reduce the lease
liability. As of 31st December, 2017 the Coca Cola Amatil had lease payments worth $600
million which is mainly concerned with lease of land, buildings and warehouses in Australia.
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Transitional provision is regulates the process or procedure of company before the
company amendment the provision or the enactment come into the force. As per the AASB 117
the lease payment is adjusted in earnings before interest and tax. But after the amendment it was
replaced by straight-line depreciation method to reduce the liability of lease. According to the
new standard the lease liability will be carried on present value (Dunbar and Laing, 2017). Prior
to the AASB 16 the all the lease asset are included in accounting transaction but after AASB 16
more than 12 months lease are included in accounting transactions. As per the current standard
the future payment obligation under operating lease is not included in the financial statements
such as balance sheet even the Coco Cola Amatil company committed it as a future expenditure.
It implies that the company now include the cost and befits incurred on the use of leased asset in
balance sheet.
AASB 16 is most likely to affect business to some extent on companies who are lessees
of assets such as vehicles, premises, etc. compliance with AASB is important for companies who
prepare financial reports. This standard is useful in enabling understandable and accurate
financial reports in relation with companies that borrow assets and companies that lease assets.
AASB effectively supersedes the previous Australian accounting standards AASB117, which
states that a company's balance sheet does not need to consider organization obligation to make
any future payments. This in turn does not reflect the true financial position of the company in
case of AASB17.
The AASB 16 provide more accurate financial information to its shareholders and
stakeholders and help them to take decision regarding the investment in Coco Cola Amatil. It
reflects all the liabilities of the company to its investor and present the financial statements but
the same time it also has some limitations. The change from AASB 117 to AASB 16 increases
the risk of financial and commercial reporting (Hana and Patrik, 2017). It also increases
problems in financial reporting because the right of use asset is treated as non-current liability
whereas the lease liability is split between current and non-current asset. The new standard
AASB 16 increase the assets value of Coca Cola because now the lease assets are treated in
balance sheet. It helps to attract more customer and investor toward the company by presenting
the higher asset value in balance sheet.
The internal tax and treasury team of Coca cola Amatil found no significance concern in
respect to the company tax, fund and dividend obligation. After the implementation of AASB 16
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it can be identified that the accumulated losses of Coca cola Amatil is increased. Now the lease
liability is carried at present value which result to increase the interest expenses over the lease
period. As per the balance sheet of Coco cola Amatil of 2019 the right of use asset is $450
million and after the adjustment of lease and tax liability the accumulated losses of company are
$40 million (Joubert, Garvie and Parle, 2017). It indicates that the accumulated losses of Coco
Cola Amatil is increased after the adjustment of lease liability but is also increased the asset of
the company which present higher value in market and helps to attract more and more customer,
investor and creditors towards the company (Xu, Davidson and Cheong, 2017). Furthermore, the
Coco Cola Amatil require to improve the interrelation between the financial reporting function
and lease agreement. The new AASB 16 will provide accurate and reliable information to the
stakeholder by reflecting all the liabilities to the investors and shareholders.
CONCLUSION
From the present report, it can be concluded that advanced financial accounting play a
significant role in performing accounting operations, merger of public holding companies,
patters, foreign currency operations, changing financial statement prepared in foreign and local
currencies. This study concludes that there are various accounting concepts which can be used
for understanding advanced financial accounting majorly includes materiality concept. Further
this report concludes that there are several changes that have been incorporated in the latest
accounting standard for the purpose of leasing AASB 16 which helps in providing more accurate
representation of a company's financial position through rectifying all its liabilities with
providing more significant information for investors and shareholders in financial reporting.
Lastly this report concludes that there are several key disclosures which are being made by the
company on its accounting leases including on the transitional provisions with the effects of the
changes to AASB 16 to AASB 117.
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REFERENCES
Books and journals
Joubert, M., Garvie, L. and Parle, G., 2017. Implications of the New Accounting Standard for
Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance
Sheet. The Journal of New Business Ideas & Trends, 15(2). pp.1-11.
Xu, W., Davidson, R.A. and Cheong, C.S., 2017. Converting financial statements: operating to
capitalised leases. Pacific accounting review, 29(1). pp.34-54.
Hana, B. and Patrik, S., 2017. Will the amendments to the IAS 16 and IAS 41 influence the
value of biological assets?. Agricultural Economics, 63(2). pp.53-64.
Dunbar, K. and Laing, G.K., 2017. Deconstructing the Accounting Standard AASB 13 Fair
Value: Exit vs Entry Price for Assets. Journal of New Business Ideas & Trends, 15(2).
Svoboda, P. and Bohušová, H., 2017. Amendments to IAS 16 and IAS 41: Are There Any
Differences between Plant and Animal from a Financial Reporting Point of View?. Acta
Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 65(1). pp.327-337.
Svoboda, P. and Bohušová, H., 2017. Amendments to IAS 16 and IAS 41: Are There Any
Differences between Plant and Animal from a Financial Reporting Point of View?. Acta
Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 65(1). pp.327-337.
Varsamis, P., and et.al.,2017. The sugar content of soft drinks in Australia, Europe and the
United States. The Medical Journal of Australia, 206(10). pp.454-455.
Mialon, M., and et.al., 2016. Systematic examination of publicly-available information reveals
the diverse and extensive corporate political activity of the food industry in
Australia. BMC Public Health, 16(1). p.283.
Mialon, M., and et.al., 2016. Analysis of the corporate political activity of major food industry
actors in Fiji. Globalization and health, 12(1).p.18.
Online
AASB 16: Leases. 2019 [Online]. Available through:
<https://home.kpmg/au/en/home/insights/2017/04/aasb-16-leases-standard.html>
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