ACCT 2178 - Contemporary Financial Reporting: Case Study Analysis

This report provides an analysis of contemporary financial reporting practices, specifically focusing on the annual reports of Woolworths Group Limited and Wesfarmers Limited. The analysis centers on two key areas: lease accounting and accounting for tax. The report examines how each company accounts for leases, differentiating between finance and operating leases, and comparing the values of leased assets over time. It also explores the companies' approaches to deferred tax, including the methods used to calculate deferred tax assets and liabilities, and the temporary differences considered. The report highlights the differences in accounting treatments between the two companies, referencing relevant accounting standards and providing comparative financial data. The report concludes by summarizing the key findings and observations regarding the financial reporting strategies of both companies.

Running head: CONTEMPORARY FINANCIAL REPORTING
Contemporary financial reporting
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1CONTEMPORARY FINANCIAL REPORTING
Table of Contents
3. Leases.....................................................................................................................................2
4. Accounting for tax..................................................................................................................3
Reference....................................................................................................................................5

2CONTEMPORARY FINANCIAL REPORTING
3. Leases
Value of leased asset reported by Woolworths Group Limited for the year ended 2018
is $22,904 million as against $24,439 million for the year 2017. The company segregates the
lease as finance lease when terms of the lease substantially transfers all the rewards and risks
related to ownership of asset to lessee (Aasb.gov.au 2019). Leases those are not accounted as
finance lease are accounted as operating lease. Operating lease payments are reported as
expenses on straight line basis over the term of lease. Any increase in fixed rate for payments
related to lease rental excluding the index or contingent based rental increase are reported on
the straight line method. Incentives received from operating leases are recognised as liability
initially and then it is recognised as the part of lease expenses on straight line method over
term of lease (Woolworthsgroup.com.au 2019).
Value of leased asset reported by Wesfarmers Limited for the year ended 2018 is $
18,373 million as against $ 19,565 million for the year 2017. On the other hand, the
competitor Wesfarmers segregates the leases as finance lease and operating lease based on
whether the company substantially holds all rewards and risks associated with ownership or
not (Aasb.gov.au 2019). While assessing this, primarily the entity considers the ownership of
asset at closing of the lease term, purchases options if any, lease term associated with the life
of the asset and present value of the future lease payments (Group 2019).
From the above table it can be for both the companies lease asset amount for the year
2018 has been reduced as compared to the year 2017. Reduction for Woolworths with regard
to amount of leased asset was by 6.28% whereas the reduction for Wesfarmers with regard to

3CONTEMPORARY FINANCIAL REPORTING
amount of leased asset was by 6.09%. However, both the companies have not recorded any
amount for leased liabilities for 2017 as well as 2018.
4. Accounting for tax
Value of deferred tax asset of Woolworths group for the year ended 2018 is $908 and
deferred tax liability amounted to $637 million. Net amount reported by the entity as deferred
tax asset after deducting the amount of deferred tax liability amounted to $271 million.
Value of deferred tax asset of Wesfarmers group for the year ended 2018 is $1,365 million
and deferred tax liability amounted to $673 million (Woolworthsgroup.com.au 2019). Net
amount reported by the entity as deferred tax asset after deducting the amount of deferred tax
liability amounted to $692 million.
Woolworths calculates the deferred tax amount using the balance sheet approach and
provide the amount for temporary differences among the carrying value of the liabilities and
assets for the purpose of taxation as well as financial reporting. Deferred tax assets as well as
the liabilities are not reported if temporary differences generated from initial recognition of
the liabilities and assets for the transaction that neither affects the taxable profit or the
accounting profit with regard to initial recognition of the goodwill (Aasb.gov.au 2019). On
the other hand, competitor entity Wesfarmers reports the deferred income tax using the
liability approach. Deferred tax assets are reported for all the temporary differences those are
deductible. However, the unused tax assets and losses carried forward to the possible extent
that the taxable profit will be available for utilising them. Both the company’s measure the
deferred tax assets and liabilities at the rate of tax applicable for the year while the liability is

4CONTEMPORARY FINANCIAL REPORTING
settled and assets are realised. It is done on the basis of tax laws and tax rates that is enacted
or that is substantially enacted at the date of balance sheet (Aasb.gov.au 2019).

5CONTEMPORARY FINANCIAL REPORTING
Reference
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/Agenda_Decision_February_2012-
Scope_of_AASB112.pdf [Accessed 25 Jan. 2019].
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB16_02-16.pdf [Accessed 25 Jan.
2019].
Group, D., 2019. Home . [online] Wesfarmers.com.au. Available at:
https://www.wesfarmers.com.au/ [Accessed 25 Jan. 2019].
Woolworthsgroup.com.au., 2019. Woolworths Group: Quality Brands and Trusted Retailing.
[online] Available at: https://www.woolworthsgroup.com.au/ [Accessed 25 Jan. 2019].