HI5020: Corporate Accounting Assignment on Funds, Liabilities, Assets

This report provides a comprehensive analysis of the financial aspects of two ASX-listed companies, Wesfarmers Limited and JB Hi-Fi Limited. It begins by examining the various sources of funds utilized by both companies, including interest-bearing loans, issued capital, reserves, retained earnings, and current liabilities, and traces the evolution of these funds over a three-year period. The report then delves into the advantages and disadvantages of each funding source, offering insights into the strategic financial decisions of the companies. A significant portion is dedicated to the provisions of AASB 137, exploring its application in the annual reports of the two companies, particularly concerning provisions, contingent liabilities, and contingent assets. Finally, the report identifies and analyzes the different categories of assets reported by Wesfarmers and JB Hi-Fi, along with the measurement bases employed for each asset class, providing a detailed understanding of their accounting practices.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student
Name of the University
Author’s Note

1CORPORATE ACCOUNTING
Abstract
Business organizations require funds in order to continue their business operation
along with facilitating certain expansion plans or business growth. Moreover.
Different types of assets and liabilities can be seen in the companies that require the
companies to adopt the appropriate measurement basis to measure and recognize
them. There are three different parts of the report. The first part discusses about the
internal and external sources of funds in Wesfarmers Limited and JB Hi-Fi Limited.
The second part discusses about description of liabilities along with the provisions of
the accounting standard of AASB 137 Provisions, Contingent Liabilities and
Contingent Assets. The last part discusses about the assets in these two companies
along with the adopted measurement basis by these two companies.

2CORPORATE ACCOUNTING
Table of Contents
Introduction...................................................................................................................3
Different Sources of Fund.............................................................................................3
Evolution of Funds........................................................................................................3
Percentage of Internally Generated and Externally Generated Funds........................4
Relative Merits and Shortcomings of Sources of Funds Used.....................................5
Types of Liabilities........................................................................................................6
Provisions under AASB 137.........................................................................................6
References to the Standard of AASB 137 in the Annual Report..................................7
Different Categories of Assets......................................................................................7
Measurement Basis of Assets used by the Companies...............................................7
Conclusion....................................................................................................................9
References.................................................................................................................10

3CORPORATE ACCOUNTING
Introduction
The key purpose of this report is the analysis and evaluation of some of the
major financial aspects of two ASX listed companies; they are Wesfarmers Limited
(Wesfarmers) and JB Hi-Fi Limited (JB Hi-Fi). This report discusses about different
types of funds used by these two companies and the evolution of these funds for the
last three years. This also discusses about the advantages and disadvantages of
sources of funds used by these firms. After that, this report sheds light on the
provisions of AASB 137 and the use of the same standard in the annual reports of
these two companies. Lastly, this report discusses about the types of assets
reported by these two companies. In addition, it shows the measurement bases
adopted by these two companies for the reported assets in the financial statements.
Different Sources of Fund
Wesfarmers – Wesfarmers has used four source of funds for the business. They are
interest bearing loans and borrowings, issued capital, reserves, retained earnings
and current liabilities (wesfarmers.com.au 2019). The company has used these
funds with the aim to fund its business operations.
JB Hi Fi – JB Hi-Fi has also used certain sources of funds for the business; they are
borrowings, contributed equity, reserves, retained earnings and current liabilities.
The management of JB Hi-Fi has used these sources of funds for the purpose of
financing its business operations (investors.jbhifi.com.au 2019).
Evolution of Funds
Wesfarmers – Wesfarmers has divided its interest bearing loans and borrowings
under current liabilities and non-current liabilities over the last three years
(wesfarmers.com.au 2019). Interest bearing loans and borrowings under current
liabilities have decreased from 2017 to 2019; that is $1347 million in 2017, $1159
million in 2018 and $356 million in 2019. The same trend can be seen in case of
interest bearing loans and borrowings under non-current liabilities; that is $4066
million, $2985 million and $2673 million (wesfarmers.com.au 2019). The main
reason for this decrease is the large repayment of borrowings. Issued capital has
decreased over the years that is $22268 million in 2017, $22277 million in 2018 and
$15809 million in 2019 (wesfarmers.com.au 2019). The reserves have also
decreased over the years and 2019 has registered negative reserve and this is
because of accumulated losses due to poor business performance. Wesfarmers has
also reported accumulated losses in 2019 after the reduction of retained earnings
from 2017 to 2018 (wesfarmers.com.au 2019).
JB Hi-Fi – In JB Hi-Fi, the borrowings have decreased over the last three years that
is $558.8 million in 2017, $469.4 million in 2018 and $439.1 million in 2019: and
continuous repayment of borrowings is the main reason for this reduction in the
source of fund (investors.jbhifi.com.au 2019). Contributed equity has increased from
$438.7 million in 2017 to $441.7 million in 2018 and then decreased in 2018 that is
$434.8 million (investors.jbhifi.com.au 2019). This is due to the deviation in the issue
of shares and share prices. JB Hi-Fi has increased its reserve from 2017 to 2019
continuously that is $33.2 million in 2017, $42.7 million in 2018 and $53.7 million in
2019. Like reserves, retained earnings of the company has also increased
continuously from 2017 to 2019; that is $381.6 million in 2017, $463.2 million in 2018
and $555.6 million in 2019 (investors.jbhifi.com.au 2019).

4CORPORATE ACCOUNTING
Percentage of Internally Generated and Externally Generated Funds
Wesfarmers – The following table shows the percentage of internally created and
externally created funds in Wesfarmers:
Wesfarmers
Particulars
2019
($m) %
2018
($m) %
2017
($m) %
Externally
Generated Funds
Interest bearing
loans and
borrowings
(Current and non-
current) 3029 23.16% 4124 15.32% 5413 18.42%
Issued capital 15809 120.85% 22277 82.75% 22268 75.79%
Total 18838 144.01% 26401 98.07% 27681 94.22%
Internally
Generated Funds
Reserves -5549 -42.42% 344 1.28% 190 0.65%
Retained
Earnings -208 -1.59% 176 0.65% 1509 5.14%
Total -5757 -44.01% 520 1.93% 1699 5.78%
Total Funds 13081 100.00% 26921
100.00
% 29380 100.00%
(Source: wesfarmers.com.au 2019)
JB Hi-Fi – The percentage of internally generated and externally generated funds in
JB Hi-Fi can be seen in below:
JB Hi-Fi
Particulars
2019
($m)
2018
($m)
2017
($m) %
Externally
Generated
Funds
Borrowings 439.1 29.60% 469.4 33.13% 558.8 39.57%
Contributed
Equity 434.8 29.31% 441.7 31.17% 438.7 31.06%
Total 873.9 58.92% 911.1 64.30% 997.5 70.63%
Internally
Generated
Funds
Reserves 53.7 3.62% 42.7 3.01% 33.2 2.35%
Retained
Earnings 555.6 37.46% 463.2 32.69% 381.6 27.02%
Total 609.3 41.08% 505.9 35.70% 414.8 29.37%
Total Funds 1483.2 100.00% 1417 100.00% 1412.3 100.00%

5CORPORATE ACCOUNTING
(Source: investors.jbhifi.com.au 2019)
In case of both of the companies, borrowings and issued capital are the
externally generated funds; and reserves and retained earnings are the internal
sources of funds.
Relative Merits and Shortcomings of Sources of Funds Used
Interest Bearing Debts or Borrowings
Merits – The main merits is that it allows the companies to keep the ownership of
the business unlike equity financing. After that, large amount of funds for the
purposes of large purchases or business expansion can be acquired by using this
source of fund. It provides flexibility to the companies along with providing the
opportunity to improve the credit ratings (Wang and Lin 2013).
Shortcomings – This source of fund creates key obligation on the companies to
make the repayment of the borrowed funds irrespective of the fact that whether the
company has made profit or not. In addition, this source of fund comes with high
interest rate. In addition, collaterals need to be maintained by the company in most
of the cases (Zhang 2016).
Issued Capital or Contributed Equity
Merits – Fund raised through issue of shares can be used for the business
operations as well as growth of the companies. Unlike debts, the companies are not
required to repay it. Companies can use the proceeds from the sales of shares
however they want in the absence of any obligation (Rossi 2014).
Shortcomings – Companies have to incur high costs in order to raise the required
fund by share issue. Most importantly, using shares in order to raise the required
money ends up in dividing ownership of the company among the shareholders by
providing the voting rights to them. This can make the corporations vulnerable
(Finnerty 2013).
Reserves
Merits – The main advantage is that this provides the companies with the ability to
meet the future losses and this ads stability to the whole financial position of the
companies. In addition, reserves can be used in the lean financial years in order to
cover the abnormal losses. It is a useful tool to the companies at the time of financial
crisis (Brief and Peasnell 2013).
Shortcomings – The main shortcoming associated with this is that the purpose of
audit cannot be achieved since the true and fair financial position of the company is
not possible to show. Sometimes, misuse of this kind of reserves can be seen that is
not good for companies (Maurer et al. 2016).
Retained Earnings
Merits – It is a powerful business strategy to fund a business by the use of retained
earnings since this does not contribute to the increase in the amount of debt of the
firms. In addition, the option of conservation allows the companies in maintaining full
control over the business. This provides the companies with the opportunity to fund
the business growth internally (Yusra, Hadya and Fatmasari 2019).
Shortcomings – The main shortcoming is that it is a slow process to fund the
business through retained earnings as the businesses can miss the crucial business
opportunities at the time of building up the required funds. Devoting large amount of
retained earnings for business growth can hamper the present business operations
of the companies (Royer 2017).

6CORPORATE ACCOUNTING
Types of Liabilities
Wesfarmers – Two categories of liabilities have been reported by Wesfarmers that
are current liabilities and non-current liabilities. Trade and other payable is a current
liability and this is the obligation of Wesfarmers to pay for goods and services.
Income tax payable is the amount that is owed to the government on the basis of
profitability (wesfarmers.com.au 2019). Provision is another liability of Wesfarmers
and there are five types of provisions in Wesfarmers; they are employee benefits,
provision for lease, off-market contracts, self-insured risks, mine rehabilitation and
restructuring and make good. Hedging is another liability of Wesfarmers that is a
portion of the company’s risk management strategy against the risk from movement
in foreign exchange. Among all these liabilities, interest-bearing loans and
borrowings are the only interest bearing liabilities and the rest are the non-interest
bearing liabilities. Interest-bearing loans and borrowings include bank debt and
capital market debt (wesfarmers.com.au 2019).
JB Hi-Fi – JB Hi-Fi has reported both current and non-current liabilities. Trade and
other payables is a major current asset that represent the liabilities for provided
goods and services that are unpaid. That includes goods and services tax payable
and other creditors and accruals (investors.jbhifi.com.au 2019). Deferred revenue is
considered under both current and non-current liabilities and this is associated the
unfulfilled services to be performed. Provision is another current and non-current
liability of JB Hi-Fi; and the company has two types of provisions that are employee
benefit provision and lease provision (investors.jbhifi.com.au 2019). Some of the
other liabilities are lease accruals, lease incentives and other financial liabilities
(investors.jbhifi.com.au 2019). Deferred tax is a current as well as non-current
liability that is generated from the provisional changes attributed to deferred tax
assets, inventories, provisions, deferred revenue and other. The only interest bearing
liability is borrowings which is bank loans (investors.jbhifi.com.au 2019).
Provisions under AASB 137
AASB 137 Provisions, Contingent Liabilities and Contingent Assets provides
the Australian listed companies with the techniques and procedures to recognize and
measure the provisions, contingent liabilities and contingent assets (aasb.gov.au
2019).
As per AASB 137, Paragraph 14, provision needs to be recognized by an
entity when it has a present commitment because of a past incident which probable
the outflow of resources associated with the economic benefit for settling the
commitment and it is possible to estimate it properly (Moerman and van der Laan
2013).
As per Paragraph 27 and 31 of AASB 137, it is not required for an entity to
report the contingent liabilities and contingent assets. As per Paragraph 28 of AASB
137, a contingent liability is required to be disclosed, but it cannot be disclosed when
there is a remote possibility of the outflow of economic resources associated with the
economic benefit. As per Paragraph 34 of AASB 137, a company needs to disclose
the contingent assets where there is a probability of the outflow of economic benefits
(Hudson 2016).
According to Paragraph 36 of AASB 137, the amount recognized as a
provision needs to be the finest estimate of the required outflow for settling the
present obligation. Paragraph 42 of AASB 137 puts the obligation on the companies
to consider the risks and uncertainties surrounded many events and circumstance at
the time to reach to the best estimation of a provision. As per Paragraph 84 of AASB

7CORPORATE ACCOUNTING
137, a company needs to disclose certain aspects related to provision; they are end
of the period carrying amount, additional provision made, amount used during the
period, reversal of the amount of unused provision, increase in provision during the
year. As per Paragraph 85 of AASB 137, the disclosures associated with each type
of provision include short explanation of the provision, indication of the uncertainties
and any amount of expected reimbursement (Wardani et al. 2019).
References to the Standard of AASB 137 in the Annual Report
The annual reports of both Wesfarmers and JB Hi-Fi demonstrate that these
companies have not mentioned about AASB 137 in their annual reports. However,
these companies have accounted for provision, contingent liabilities and contingent
assets by complying with the provisions of AASB 137 (Tran 2015). Both Wesfarmers
and JB Hi-Fi have disclosed every element of their business provisions by complying
with the relevant paragraphs of AASB 137. For example, by complying with the
paragraphs 84 and 85 of AASB 137, both the companies have disclosed the opening
balance of provision, development of new provision, utilized provision, reversal of
provision and carrying amount at the accounting period end. After that, by complying
with the Paragraphs of 36 and 42, both the companies have taken into consideration
the necessary risk and uncertainty factors for the estimation of provision.
Wesfarmers has disclosed the information on its contingent liabilities associated with
trading guarantees in the notes to the financial reports. The main reason of the
company behind the disclosure of information on contingent liabilities is the high
probability that there could be outflow of economic resources due to the presence of
these liabilities (Richardson, Taylor and Lanis 2013). However, it needs to be
mentioned that JB Hi-Fi has not reported any contingent liabilities and contingent
assets because of the remote probability of outflow of economic resources for the
presence of these contingencies.
Different Categories of Assets
The annual reports of Wesfarmers and JB Hi-Fi have shown that both the
companies have reported certain assets in the balance sheet and they are discussed
below.
Wesfarmers – The firm has reported two categories of assets in its balance sheet;
they are current assets and non-current assets. The assets reported under the
current assets are cash and cash equivalent, trade and other receivables,
inventories, derivatives and others (wesfarmers.com.au 2019). The assets that
Wesfarmers has shown in the list of non-current assets are investment in associated
and joint ventures, deferred tax assets, property, plant and equipment, goodwill,
intangible assets, derivatives and other. These are all the assets reported by the
company in the financial statements (wesfarmers.com.au 2019).
JB Hi-Fi – The management of JB Hi-Fi has also categorized all of their assets in
two categories; they are current assets and non-current assets. The assets under
current assets are cash and cash equivalent, trade and other receivables,
inventories and other current assets. The assets under non-current assets are plant
and equipment, deferred tax assets, intangible assets and other non-current assets.
The management of the company has reported all these assets in the financial
statements (investors.jbhifi.com.au 2019).

8CORPORATE ACCOUNTING
Measurement Basis of Assets used by the Companies
Both Wesfarmers and JB Hi-Fi have used certain measurement bases for all
of their assets in the balance sheet; these are discussed below:
Wesfarmers
 The classification of Cash on deposit is done as financial assets that are held
at amortized costs. Interests on cash at bank are earned at floating rate on
the basis of daily bank deposit rates (wesfarmers.com.au 2019).
 Trade receivables are of terms of up to thirty days and the company initially
recognizes them as per its revenue policy and then, their measurement is
done at amortized costs utilizing actual interest method.
 The valuation of inventories is undertaken at the lower of cost and net
realizable value. The company a key estimation associated with the realizable
value.
 The company measures the derivative financial instruments at fair value on
the date of entering into the contracts. The classification of hedge accounting
is done as fair value hedges and cash flows hedges by the company
(wesfarmers.com.au 2019).
 Investments in the associated by the company are carried in the balance
sheet at cost plus any post-acquisition changes in the company’s shares of
the net assets of the associated.
 Wesfarmers measure the current tax assets at the amount that is anticipated
to be recovered from the authorities at the tax rates (wesfarmers.com.au
2019).
 The company measures the carrying value associated with property, plant
and equipment as the cost of the assets less accumulated depreciation and
impairment. The depreciation is charged in accordance with the straight-line
method of depreciation.
 The company measures acquired goodwill from business combination at cost.
The company separately acquires the intangible assets and their
measurement is done at cost less impairment losses and amortization
(wesfarmers.com.au 2019).
JB Hi-Fi
 Trade receivables have a credit period of 30 days and no interest is
chargeable on it. JB Hi-Fi recognizes the trade receivables at amortized cost
less allowance for predictable credit loss. The company has made an
allowance for the expected credit losses through the use of matrix based
historical credit loss rates (investors.jbhifi.com.au 2019).
 The company has stated its inventories at the lower of cost and net realisable
value. The assignment of costs is done to the individual inventory terms
based on weighted average cost. Management judgment is required in order
to ascertain the inventory’s net realisable value.
 JB Hi-Fi accounts for the deferred tax through the use of balance sheet
liability technique providing for provisional difference between the carrying
amount of assets and liabilities under the purposes of financial reporting and
taxation. The company recognizes them in the presence of this temporary
difference (investors.jbhifi.com.au 2019).
 The company states the property and equipment along with the leasehold
improvements at cost minus depreciation and impairment, if any. These
assets are subject to depreciation on straight-line method. The company tests
these assets for impairment in the presence of any change in circumstances.

9CORPORATE ACCOUNTING
 JB Hi-Fi carries the intangible assets with indefinite useful life at cost less
accumulated impairment losses. Goodwill is the surplus of the acquisition cost
over the fair value of the firm’s share of the net identifiable assets acquitted at
the acquisition date. The company has adopted the accounting strategy to
charge impairment on assets with identifiable life (investors.jbhifi.com.au
2019).
Conclusion
The main sources of fund used by Wesfarmers and JB Hi-Fi are interest-
bearing borrowings, equity capital, reserves and retained earnings. Both the
companies have made continuous debt payments which contributes to the decrease
in the percentage of debt. However, the merits and limitations of each of the sources
of finance are crucial which much be considered by the managements of the firms
before adopting them. It can also be seen from the analysis that both the companies
have reported current assets, current liabilities, non-current assets and non-current
liabilities. In both Wesfarmers and JB Hi-Fi, interest bearing term borrowing is the
only interest bearing liability reported. It can also be observed that the companies
have complied with the standards and requirements of AASB 137 in order to account
for provision, contingent assets and contingent liabilities. Lastly, both Wesfarmers
and JB Hi-Fi have used the appropriate measurement based for each class of
assets.

10CORPORATE ACCOUNTING
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11CORPORATE ACCOUNTING
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