Report on Accounting Concepts: Collins Foods Limited Analysis, 2017-18

This report provides a comprehensive analysis of the accounting concepts employed by Collins Foods Limited, focusing on its 2017-18 annual report. It identifies and describes key accounting concepts such as accrual, prudence, going concern, and consistency, illustrating their application within the company's financial statements. The report delves into the changes introduced by AASB 16, the new accounting standard for leases, explaining its implications for Collins Foods Limited and providing specific examples of how the company recognizes assets, liabilities, and expenses related to leases. Furthermore, the report summarizes the key disclosures made by Collins Foods Limited concerning its accounting for leases, including the transitional provisions and the effects of transitioning from AASB 117 to AASB 16, offering a detailed understanding of the company's financial reporting practices in the context of these accounting standards.

Running head: DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS
LIMITED
DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
Name of the Student
Name of the University
Author Note

1DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
Table of Contents
Introduction................................................................................................................................2
Answer to question 1:.................................................................................................................2
Accounting concepts..............................................................................................................2
Answer to question 2:.................................................................................................................5
AASB 116- Lease..................................................................................................................5
Answer to question 3:.................................................................................................................6
Conclusion................................................................................................................................10
References................................................................................................................................11

2DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
Introduction
The report aims to know and understand about the different accounting concepts that
are used within a company. The company here chosen for preparing this report is "Collins
Foods Limited". The accounting concepts used within the company has been identified within
this report by analyzing the company’s 2017-18 annual report. The company has used new
accounting standards related to lease AASB 16. This has been properly examined in the
discussion. Further, various key disclosures that the company has made on its accounting for
lease that includes the transitional provision and its certain effects to AASB 16 as well as to
AASB 17 has summarized in the discussion section. At last, the report concludes with the
overall understanding of the analyzed report.
The company "Collins Foods Limited" (CFL) is listed under the Australian Securities
Exchange (ASX) and started operating from the year 1969. The company is mainly focused
on the operation related to restaurants that serve people worldwide. This company is engaged
in the industry of Consumer Services Restaurants and its Franchisee. Collins Foods Limited
is famous for its chain of restaurants like KFC and Sizzler. Along with this, it has surveyed
that Collins is serving their consumers mostly with KFC as it stands for the largest franchisee
for the KFC restaurants that serves almost more than 300 KFC restaurants through Australia
and Europe. The CFL is very active to think about their customers, to serve them with good
quality and taste. Also, it considers its products as well as performance.

3DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
Answer to question 1:
Accounting concepts
The concept of accounting are the basic assumptions that provide a relevant guideline
to prepare a quality-based financial report. The accounting concepts include various rules as
well principles that guide the company to record their financial transactions within the
company and the necessary objects that have to be disclosed by the company (Joubert, Garvie
& Parle 2017). The Australian Accounting Standard Board has set several frameworks as
well as accounting standards with respect to making a transparent annual report. There are
several accounting concepts that are used while preparing the financial statement of the
organization. Some of the accounting concepts are discussed below.
i. Accrual or matching concept- This concept states that an entity must recognize their
amount of profit earned and the expenses they made on time when it incurred (Brumm
and Liu 2019). Further, this concept suggests that the amount of generated profit must
be matched with the recognized expenses.
ii. Concept of prudence- the prudence concept suggests to be less optimistic and state
the actual position about the company.
iii. Going concern- Under this concept, it has been assumed while preparing reports that
the company is continuing its activities in future as it is doing at present.
iv. Entity- The financial transaction must be share and keep recorded as separated from
the other businesses and those of its owners.

4DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
v. Money measurement- This concept is also referred to as Measurability concept. This
concept states that the company has to recognize those items that have the capability
to convey its monetary value or can be measured in terms of money.
vi. Consistency- The financial report must be made consistent with the present
accounting principle. The items that are similar must be accorded with the same
accounting treatment.
vii. Materiality- The state where the financial data recorded in their report must
represent a view of an entity that is considered to be material.
viii. Separate valuation- The number of assets, as well as liabilities, must be recorded
separately in the financial statement of the organization.
 Use of the accounting concepts in Collins’ Annual report 2018
In the annual report of the financial year 2017-18, Collins Foods Limited has used
different accounting concepts to reflect a true and fair view of the company in its financial
report. Some of the accounting policies are stated below:
o Compliance: As per the financial report made by the organization is as a General
Purpose Financial report, and this is prepared under the guidelines of AASB. The
consolidated reports of the Collin have complied with IFRS.
o Measurement: The Company has prepared its financial report by considering all the
historical costs and the present valuation or transactions made during the financial
year.
o Going concern: The financial statements made by the company clearly stated that
this had been prepared on the basis of going concern (Dakis 2016). The directors of

5DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
the company have regarding the current position of debt as well as of their profit and
said that the company would conduct their activities along with the present ongoing
concern basis.
o Consolidation: The reports made by the company consists of their parent company
that is Collins Foods Limited as well as its subsidiary company. Consistent
accounting concept has been used within the preparation of the consolidated financial
statement of the organization.
The company has further prepared its report with the proper guidelines of the AASB.
The report includes new as well as amended standards to reflect a transparent view of the
company. The accounting standard such as AASB 1048 interpretation of the standard, AASB
112 related to taxes, plants and equipment, and so on.
Answer to question 2:
AASB 116- Lease
The Australian Accounting Standard Board has introduced this individual lessee
standard to recognize properly the assets as well as liabilities related to the leases for more
than the period of 12 months. As per the AASB 16, it has been stated that the lessee will be
able to classify clearly their principal amount and the interest amount that has to be reported
clearly with the cash flow statement of the organization (Wong and Joshi 2015). Therefore,
the company, along with the AASB 16, it has to consider the lease amounts in the preparation
of their cash flow accordance with AASB 107 Statement of cash flows.
Collins Foods Limited has prepared their financial report by considering AASB 16
that helps them in recognizing all the leases in the balance sheet related to them (Giner and

6DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
Pardo 2018). With the effect due to the modification in the earlier standard, the company has
chosen the new standard for the preparation of their reports. According to the new standard,
an asset that is on lease and has the right to use that item under lease consists of any financial
debt such as to pay rent must be considered and will be shown in the income statement report
as an expense of the company (Brumm and Liu 2019). These amount of lease must be for
more than 12 months and not based on the short-term periods.
The following are some examples discussed below that has affected the company’s
financial report while including the amended AASB 16 standard in their report.
For the lease term, the amount of liability has renowned with the payment of lease-
related to future had been measured at the present value. Addition to this, any lease payment
for the future date has been included in the lease liability (Xu, Davidson and Cheong 2017).
The liabilities of the company consist of several lease payments that are linked with the index
or rates. But this has also removed certain other lease payments such as payment related to
the sales volume or % of the store.
The depreciation made on the use of a certain asset and lease interest occurred on the
liability has been shown in the consolidated income statement over the lease term. Further,
the overall amount that is to be paid on the lease has been separated from the cash flow
statement from the principal from financing activities as well as the interest from the
operating activities present within the cash flow report (Wong, Wong and Jeter 2016).
However, the amount of net increase or decrease has remained the same. This standard is
mainly affecting the accounting for the Group Operating leases within the company.

7DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
Answer to question 3:
Collins Foods Limited has changed its accounting standards which they have adopted
from AASB 117 to AASB 16. As per the Australian Accounting Standards Board (AASB)
16, the definition of a lease is redefined here (Sieverding 2018). Though it is almost similar to
the older Australian Accounting Standards Board (AASB) 117, there are some differences
which still exists in the Accounting Standards (Dhankar 2019). There are certain changes in
the methodology and service contracts in the new standards which have been implemented by
the organization.
As per the Australian Accounting Standards Board 16, it provides Collins Foods
Limited with a clear idea about the leases; whether the lease will be on a contractual basis or
it will be on the service contract, i.e. considered as a non-lease contract (Schaltegger and
Burritt 2017). But according to the Australian Accounting Standards Board 117, there was no
issue whether the Collins Foods Limited was providing lease under the contractual basis or
under the service contract because both of the leases were accounted in the same procedure
(Caplan 2016). This is one of the changes between the Australian Accounting Standards
Board 16 and Australian Accounting Standards Board 117.
Another differences which is to be considered between Australian Accounting
Standards Board 117 and Australian Accounting Standards Board 16 is that, under AASB
117 when there was a lease taken by the organization under the operating lease, there were
some services which are provided by the lessor which includes cleaning and maintenance
(Kimmel et al. 2016). Though there was not much of issue as all the lease expenses are
considered as the rental expenses to profit and loss. According to the new Australian
Accounting Standards Board 16, the expenses of the lease and rent are recorded under the
lease element and non-lease element. It is done as there was a different account for the lease

8DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
which is under the new accounting standard and from the old standard the service lease is
recorded in the other account as expenses under the profit and loss.
One of the most important changes that have to be considered in these accounting
standards is related to the accounting for leases (Bailey and Samuels 2018). In the case of
Australian Accounting Standards Board 16, there is no need to classify the lease, i.e. no
requirement of determining whether the lease is finance or operating. This is because, in the
Australian Accounting Standards Board 16, there is a single model for accounting for those
who have taken the assets under the lease. It is the duty of the lessee to identify the uses of
the assets which is taken for the lease and the liability which is interrelated to the lease, which
is shown in the financial statement of the organization (Kaplan and Atkinson 2015). In the
lease period, the depreciation of the assets is to be considered, and there should be the
amortization of the liability in that period. Through this way, accounting for the operating
leases is measured.
The disclosures which Collins Foods Limited has made in accordance with the
accounting for leases is classified into two models, i.e. fair value model and cost model. As
per the new standards, the owner provides all the disclosures of the lessors related to the
property which they have invested (Weygandt, Kimmel and Kieso 2015). In the new
standards, a lessee has the right to use the property which he has invested in the property, and
it will provide the disclosures of the lessees' which is required as per Australian Accounting
Standards Board 16 for any of the operating leases which have entered.
In the fair value model, the valuation which has been done for the property which is
invested is adjusted for determining the financial statements of the organization. Sometimes,
to avoid the mistake which may occur while evaluating the assets and liabilities, the
organization provides a disclosure of the adjustments which has been done between the

9DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
valuation which has been received and the valuation which has been changed that is inclusive
of the financial statement of organization (Boyd and Pitre 2019). The cost model is used by
the organization after there was an initial recognition for the measurement of the investment
property. As per the new standard, there is a right to use the property of the lessee, but that
property which he is taken for lease cannot be sold as per Australian Accounting Standards
Board 5.
Collins Foods Limited replaces Australian Accounting Standards Board 117 with the
new Australian Accounting Standards Board 16 because lessees need to understand the
lability which is related to lease which will show the current value of payments related to the
lease payments and Right-To-Use (ROU) asset for all the contracts related to leasing. After
the implementation of the new Australian Accounting Standards Board 16, there are certain
changes which can be seen as in the consolidated income statement of the organization as
there was a change in the operating lease expenses (Gusc and van Veen-Dirks 2017). There
were requirements related to the future lease payments, which includes the interest expenses,
and there should be a consideration of the depreciation expenses in relation to the Right-To-
Use (ROU) asset. Thus, from the above discussion it can be seen that as per the implication
of the new Australian Accounting Standards Board 16, there are changes which are occurred
in the operating and financial activities with the consolidated statement of cash flows. Here,
the cash which is used for the operating leases will not be further considered under operating
activities (Ijiri 2018). According to the annual report of Collins Foods Limited, the value of
operating lease commitments is $280.9 million. The new standards are being effected on 29
April 2019. After the implication of Australian Accounting Standard 16, the management of
the organization have to make certain changes, which includes:

10DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
 For the discount of a future lease payment obligation, there is a use of incremental
borrowing rate (IBR).
 The rights of renewal need be exercised in reference to the lease terms.
 The foreign currency translation rate needs to be changed.
The operating leases which are related to the equipment's, lands and buildings are started
with the lease terms, which started from 1 to 20 years and may vary as per the requirements
of the organizations. Collins Foods Limited has the power to extend the terms of the contracts
of leases, in which there are certain matters which is involved, i.e. contingent rent, annual
revenue.
Conclusion
As Collins Foods Limited focuses mainly on operating, managing and administrating
the restaurants. In this report, all the accounting standards which Collins Foods Limited
follows is as per the Australian Accounting Standard Board. Most of the concepts are
discussed, which is followed by the management. The accounting concepts which reflect the
true and fair value of the organization are Compliance, Measurement, going concern and
Consolidation. The organization does follow proper guidelines of Australian Accounting
Standard Board. In the second part of the report, Australian Accounting Standard Board 16 is
being discussed with the changes which have happened and the implications which have been
caused after Australian Accounting Standard Board 16 are stated here. All the key disclosures
which the organization has made in accordance with the accounting for leases are explained
here. Lastly, the effect which Collins Foods Limited has faced in the transition of Australian
Accounting Standards Board 117 to Australian Accounting Standards Board 16 is evaluated
in reference to the annual report of the organization.

11DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED

12DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
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Education for Business, pp.1-4.
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p.449.
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Investment Decision Making (pp. 323-352). Springer, New Delhi.
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13DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
Ijiri, Y., 2018. An Introduction to Corporate Accounting Standards: A Review. Accounting,
Economics, and Law: A Convivium, 8(1).
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14DISCUSSION ON ACCOUNTING CONCEPTS OF COLLINS FOODS LIMITED
Xu, W., Davidson, R.A. and Cheong, C.S., 2017. Converting financial statements: operating
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