AFNR315 Advanced Financial Reporting: Comparing Company Recognition

This report provides a comparative analysis of financial reporting practices, specifically focusing on revenue, asset, and liability recognition, between a manufacturing company (Wesfarmers Limited) and a mining company (Altura Mining Limited). It begins with an introduction to both companies, detailing their establishment, activities, and organizational structure. The report then contrasts their revenue recognition methods, highlighting differences in how they recognize revenue from sales of goods, services, interest, and dividends. A similar comparison is made for asset recognition, examining trade receivables, inventories, plant, property, equipment, and intangible assets. Finally, the report analyzes the recognition of liabilities, including interest-bearing loans, borrowings, hedging, borrowing costs and provisions. The analysis is based on the companies' annual reports and relevant accounting standards.

Running head: ADVANCE FINANCIAL REPORTING
Advance financial reporting
Name of the student
Name of the university
Student ID
Author note

1ADVANCE FINANCIAL REPORTING
Executive summary
The main objective of the report is to contrast and compare the revenue recognition, asset
recognition and liabilities recognition of two types of companies that is the manufacturing
company and mining company. For this particular report the requirement and findings will be
assessed taking into consideration one manufacturing company that is Wesfarmers Limited
and one mining company that is Altura Mining Limited. The report will also focus on the
various details of the companies that is the establishment date, product and services, main
activities, business achievements and organizational structure.

2ADVANCE FINANCIAL REPORTING
Table of Contents
a. Introduction.........................................................................................................................3
b. Revenue recognition...........................................................................................................4
c. Asset recognition................................................................................................................7
d. Liabilities recognition.........................................................................................................9
e. Conclusion........................................................................................................................10
References................................................................................................................................11

3ADVANCE FINANCIAL REPORTING
a. Introduction
Since the establishment in the year 1941 Wesfarmers was able to become one of the
largest conglomerates in Australia. The company has it’s headquarter in Western Australia.
The company is engaged in diverse business that includes office supplies, manufacturing of
safety and industrial products, liquor, hotel business, supermarkets, chemicals, fertilizers and
energy products. It is one of the largest Australian private sectors that have more than
530,000 shareholders and more than 220,000 employees. The company’s primary objective is
to deliver satisfactory returns to the shareholders. The objectives of the company is achieved
through placing strong focus on protection of the environment, providing healthy and safe
working place for the employees and satisfying the requirements of the customers through
delivering the service and goods on professional and competitive basis. The board of the
company has 9 directors at present, out of which 8 are non-executive director. The board is
committed towards assuring that the board’s composition will include the directors who will
bring required mix of experience, skills, diversity and expertise for the decision making
purpose of the board. The company’s achievements include enhancement of customer’s
offers that includes reinvestment in the value for driving the business growth and enhancing
the ranges for merchandise. Further, it invested and optimised the networks for digital
channels and retail stores. Moreover, it was focussed on efficiency of production plant and
maintaining the growing relationships with the customers. The company also made further
improvements in the operational productivity and able to reduce the costs all over the
businesses (Wesfarmers.com.au 2018).
On the the mining company Altura Mining Limited was listed under the ASX on 8th
January 2001. The company building the leading position with regard to independent supply
lithium raw materials with the world class project for lithium at Pilgangoora that is ready for

4ADVANCE FINANCIAL REPORTING
setting the platform to start its production from 2018. Further, the company has a track record
for providing the mining projects on proper time and with budget amount that too with solid
off-take partners. It also offers world market that provides considerable growth and demand
opportunities which in turn enable the shareholders to look forward for receiving returns over
the next few years. Protection of the environment and people is in the top priority list of the
company. They further ensure that no person shall suffer any any ill impact owing to taking
up a job in Altura. To achieve this objective, the company identifies its responsibilities to
maintain the workplace through maintenance and implementation of appropriate environment
system management and health safety. At present the company has 7 members on their board,
out of which 4 directors are non-executive. All the members have required qualification for
smoothly running the business operation and taking required decisions. The company is
further committed to achieve the high standard performance on the environmental aspect
(Alturamining.com 2018).
b. Revenue recognition
As per the recognition criteria of general purpose financial reporting corporate
framework the revenue shall recognized under the income statement if the increase in the
future economic benefits associated with the increase in the assets or reduction in the
liabilities has been generated and the where the amount can be reliably measured (A Review
of the IASB’s Conceptual Framework for Financial Reporting 2018). This signifies that the
revenue recognition simultaneously takes place with recognition of the assets increase or
reduction of liabilities. Looking in to annual report of Wesfarmers it is recognised that the
revenue of the company amounted to $ 68,444 million for the year ended 30th June 2017.
Revenue of the company is measured at fair values of total consideration receivable or
received. The revenue is recognised by the company when the following criteria is met –

5ADVANCE FINANCIAL REPORTING
1. Sale of goods –
Significant part of revenue of the company is generated from sale of the finished
goods through –
 Merchandising the goods directly to the customers through retail operation of the
company
 Specialty gases and fertilizers
 LNG and LPG
 Coal, both internationally as well as nationally
 Sales made to other businesses of the products for which the company has distribution
rights, mainly associated with the industrial safety and industrial maintenance
The company recognizes the revenue in the financial statement when the rewards and
significant risks associated with the products has been passed on to the buyer and are able to
be reliably measured (De Villiers, Rinaldi and Unerman 2014). The rewards and risks
associated with the product are considered to be passed on to the buyer when the delivery for
the products takes place. Further the revenue generated from lay-by activities is recognized
when the payment is received from the customers and the customers take the possession of
merchandise.
2. Rendering of the services –
With regard to rendering of the services the revenue is recognized based on the
completion stage of the activities.
3. Interest –
Interest income is recognized when the interest is accrued on associated financial
asset. Further, the amount of interest is determined through using the effective rate of interest

6ADVANCE FINANCIAL REPORTING
method that is the rate used as the discount rate for calculating the future cash flows of the
company (Kogan, Sudit and Vasarhelyi 2018).
4. Dividend –
Dividend income is recognized when the company establishes its right to receive
payment.
On the other hand, the revenue of Altura Mining Limited is measured at fair values of
of total consideration receivable or received. The amount disclosed by the company as
revenue are net of returns, rebates, trade allowances and any amount collected on behalf of
the 3rd parties. The company recognizes its revenues while the amount of revenue can be
measured reliable and it is apparent that the future economic associated with the product will
inflow to the company (Morioka and De Carvalho 2016). The revenue under the profit and
loss account is recognized as follows –
1. Goods sale –
Revenue received from bulk commodities sales are recognized while the rewards and
risks associated with the product has been passed on to the buyer and are able to be reliably
measured. The rewards and risks associated with the product are considered to be passed on
to the buyer when the delivery for the products takes place generally of the basis of Free On
Board (FOB).
2. Revenue from royalty –
Revenues received from royalty is recognized in the profit and loss account when the
company is established the right to receive the payment.
3. Dividend –

7ADVANCE FINANCIAL REPORTING
Dividend income is recognized when the company establishes its right to receive
payment.
4. Interest –
Interest income is recognized when the interest is accrued on timely basis from
associated financial asset. Further, the amount of interest is determined through using the
effective rate of interest method that is the rate used as the discount rate for calculating the
future cash flows of the company (Zhang and Andrew 2014).
5. Service –
With regard to rendering of the services the revenue is recognized based on the
completion stage of the activities.
c. Asset recognition
As per the recognition criteria of general purpose financial reporting corporate
framework the asset shall recognized under the balance sheet of the company if the future
economic benefits associated with the assets will be the inflow for the company and where
the value or the cost of the assets can be reliably measured (Garrett, Hoitash and Prawitt
2014). Looking at the annual report of Wesfarmers Limited it is identified that the assets of
the company are recognized as follows –
1. Trade receivables –
Finance advances, loans, trade receivables and any other debtors are classified as the
financial assets. The receivables are recognized at fair values initially and eventually it is
recognized at the amortised cost through using the effective method of interest reduced by the
impairment loss, if any.

8ADVANCE FINANCIAL REPORTING
2. Inventories –
Inventories are recognized at lower among the net realisable value and cost,
whichever is lower. Net realisable value of the inventories is estimated price of sales in
ordinary course of business reduced by estimated selling cost.
3. Plant, property and equipment –
Carrying amount of plant, equipment and property is measured at the cost reduced by
impairment and depreciation. The asset cost includes the replacing cost of the asset that are
eligible to be capitalized and cost of the major inspections, if any.
4. Goodwill and other intangible assets –
Goodwill acquired under the business combination is measured at the cost initially.
The cost is measured as cost of the business combination reduced by fair value of contingent
liabilities, identifiable liabilities and assets. The intangible assets separately acquired are
measured at cost initially and subsequently it is carried at the cost reduced by impairment and
amortization cost, if any.
On the other hand the assets of Altura Mining are recognized as follows –
1. Property, plant and equipment –
Freehold building and land are recognized at cost. The property and plant are
measured at cost initially and subsequently the costs are included under the carrying amount
of the assets or the assets is recognised as the distinct property, as and when appropriate, if
only the the future economic benefits associated with the assets will be the inflow for the
company and where the value or the cost of the assets can be reliably measured.
2. Inventories –

9ADVANCE FINANCIAL REPORTING
Inventories are recognized at lower among the net realisable value and cost,
whichever is lower. Net realisable value of the inventories is estimated price of completion in
ordinary course of business reduced by estimated selling cost.
3. Loans and receivables –
The receivables and loans are recognized at fair values initially and eventually it is
recognized at the amortised cost through using the effective method of interest reduced by the
impairment loss, if any.
d. Liabilities recognition
As per the general purpose financial reporting requirement requirement the liability
shall be recognized in the balance sheet if it is apparent that the resource outflow will take
place to pay off the current obligation resulted from past event and for which the amount can
be reliably measured (Cheng et al. 2014). Wesfarmers recognises its liabilities as follows –
1. Interest bearing loans and borrowings –
All the borrowings and loans initially are recognised at fair values of consideration
received reduced by transaction costs that are attributable directly. However, subsequent to
initial recognition it is measured at amortised cost through using the effective method of
interest rate (Simnett and Huggins 2015).
2. Hedging –
Derivative financial instruments initially are recognized at the fair values when the the
contract for derivative is entered into and subsequently are measured at amortised cost
through using the effective method of interest rate.
On the other hand, Altura Mining Limited recognises its liabilities as follows –

10ADVANCE FINANCIAL REPORTING
1. Borrowing cost –
All the borrowing costs of the company are recognized as expenses under the period
in which it is incurred.
2. Provisions –
The company recognizes the provision while it has a constructive or legal obligation
resulted from the past events and for which it is apparent that the outflow of economic
resources will take place and the amount for provision can be estimated reliably (Cajaiba-
Santana 2014).
e. Conclusion
From the above discussion and analysis of financial statement of Wesfarmers as well
as Altura Mining Limited that both the companies recognise the revenues, assets and
liabilities in their financial statement as per the conceptual framework requirement of General
Purpose Financial Reporting (GPFR). However, owing to the difference in operational
activities of both the companies they recognize different items in financial statement under
revenues, assets and liabilities. However, in recognising any item both the companies
followed the requirement of GPFR appropriately. However, the data presentation of
Wesfarmers are more clear as compared to Altura Mining Limited as Altura mining did not
disclosed the items under distinct heads for all the items.

11ADVANCE FINANCIAL REPORTING
References
A Review of the IASB’s Conceptual Framework for Financial Reporting. (2018). [ebook]
Australian Accounting Standard Board. Available at:
http://www.aasb.gov.au/admin/file/content105/c9/ITC29_07-13.pdf [Accessed 17 Apr.
2018].
Alturamining.com., 2018. Altura Mining | Charging Forward with Lithium. [online]
Available at: https://alturamining.com/ [Accessed 30 Apr. 2018].
Cajaiba-Santana, G., 2014. Social innovation: Moving the field forward. A conceptual
framework. Technological Forecasting and Social Change, 82, pp.42-51.
Cheng, M., Green, W., Conradie, P., Konishi, N. and Romi, A., 2014. The international
integrated reporting framework: key issues and future research opportunities. Journal of
International Financial Management & Accounting, 25(1), pp.90-119
De Villiers, C., Rinaldi, L. and Unerman, J., 2014. Integrated Reporting: Insights, gaps and
an agenda for future research. Accounting, Auditing & Accountability Journal, 27(7),
pp.1042-1067.
Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality. Journal
of Accounting Research, 52(5), pp.1087-1125.
Kogan, A., Sudit, E.F. and Vasarhelyi, M.A., 2018. Continuous online auditing: A program
of research. In Continuous Auditing: Theory and Application (pp. 125-148). Emerald
Publishing Limited.