Corporate Accounting Report: Capital Structure and Liability Analysis

This report analyzes the corporate accounting practices of Australian Vintage Ltd and Domino's Pizza Enterprises. It examines their capital sources, including equity and debt, and their respective trends over a period, presenting a table of capital mix. The report assesses the companies' reporting of assets and liabilities, evaluating consistency with Australian reporting frameworks. It further discusses asset recognition criteria and explores the advantages and disadvantages of different funding sources, including equity, debt, and retained earnings. The analysis includes a review of liabilities, provisions, contingent liabilities, and contingent assets, along with the application of AASB 137. The report also covers the classification and recognition criteria of assets, providing a comprehensive overview of the companies' financial reporting processes. The report concludes by summarizing key findings and providing references for further reading.

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

1
CORPORATE ACCOUNTING
Executive Summary
The discussion would be related to two companies reporting process for the period
for which annual report of the considered companies would be reviewed. The
companies which are considered are Australian Vintage ltd and Domino’s Pizza
Enterprises. The capital sources and its respective trends would be the main focus of
the discussion in the initial stages for which a table showing trend is also presented.
The assessment shows the reporting process of assets and liabilities for both the
company and also comment on whether the same are consistent with the reporting
framework which is followed in Australia. The analysis further includes discussion on
recognition criteria which is followed for reporting assets of the business.

2
CORPORATE ACCOUNTING
Table of Contents
Introduction...................................................................................................................3
Discussion....................................................................................................................3
Options for accumulating of Funds...........................................................................3
Changes in the Capital Mix.......................................................................................4
Percentage of Different Sources of Funds................................................................4
Pros and Cons of Different Sources of Business.....................................................5
Liabilities of the Businesses......................................................................................7
Provisions, Contingent Liabilities and Contingent Assets........................................7
Reporting for AASB 137............................................................................................8
Classification of Assets.............................................................................................9
Recognition Criteria...................................................................................................9
Conclusion....................................................................................................................9
Reference...................................................................................................................10

3
CORPORATE ACCOUNTING
Introduction
The accounting framework which is used by a business for the purpose of
presenting the financial statement follows conceptual framework and relevant
accounting standards so that all necessary information and disclosures can be
included. The accounting information also includes aspects of capital sources which
is utilized by a business along with the assets and liabilities which the business
possess at the end of a financial year. The assessment would be considering two
companies which are listed in same industry and provide similar products. The
companies which are considered for the purpose of analysis are Australian Vintage
ltd and Domino’s Pizza Enterprises. The capital sources which is used by the
businesses and also the trend which can be identified regarding the changes in
capital sources would also be discussed in the analysis. Further, the reporting
process and disclosures which the respective businesses show regarding assets and
liabilities are projected in the financial reports (Tschopp and Nastanski 2014). In
addition to this, the analysis would also identify if any contingent liabilities or assets
or provisions are disclosed in the financial report or not and whether appropriate
disclosure is provided in this respect. The recognition criteria which are followed by
the respective companies are also shows covered in the assessment and the same
are obtained from draft notes.
Discussion
Options for accumulating of Funds
In a business, numerous projects and activities are undertaken for the motive
of generating profits and expanding the operations. In order to conduct all these
projects and activities, funds are required and the same needs to be acquired from a
source which can be either equity source or debt source. The annual report for
Australian Vintage ltd shows that the company has $ 298,831,000 in terms equity
capital while $ 79,965,000 is accumulated from debt capital. The analysis further
shows that the business relies more equity sources and therefore maximum portion
of the capital is accumulated from equity sources. These funds are utilized by the
business for financing the operations of the business
Figure 1: (Capital Mix from the Balance Sheet of Australian Vintage Ltd)
Source: (Australian Vintage Limited. 2020)
The annual report of Domino’s Pizza Enterprises shows that the business is
more reliant on long term debts as a source of financing in comparison to equity
sources which shows that the management of the company is comfortable with the
risks. The equity sources for a business are shown to be $ 346,007,000 while the
long term borrowings of the business are shown to be $ 646,076,000. The capital

4
CORPORATE ACCOUNTING
structure of the company is dominated by debt capital in relation to equity capital
which is one of factors which shows that the business likes to take risks and
appropriately balances the same with the overall return which is generated by the
company from its operations. For the purpose of appropriate presentation, an extract
from the balance sheet of the company is presented below:
Figure 2: (Capital Mix from the Balance Sheet of Domino’s Pizza Enterprises)
Source: (Domino's Investors. 2019)
Changes in the Capital Mix
It is always noted in a company that the source of fund which is used by the
business is never constant and fluctuates significantly depending on the nature of
activities and goals which the business is pursuing. The choice of mixture for funds
depends on the senior officials of the company and availability of funds in the
market. For any business, a trend can be established regarding the changes which
has taken place in the funds used by looking at the past years annual reports for the
company (Penman 2013). In the case of Australian Vintage Ltd, the policy of the
management is clear that they are looking to expand their equity base while at the
same reducing the debts which the company owes. This is a risk free approach
which allows the management to focus more on owner’s capital for financing the
activities of the business and thereby also assists in reducing the finance costs of the
business. The equity capital for the business is shown to have increased from $
292,893,000 in 2018 to $ 298,831,000 in 2019. The increase in the equity capital for
the business is quite evident while at the same time, debt capital has reduced from $
84,435,000 in 2018 to $ 79,965,000 in 2019. The decline in debt capital is a move to
reduce the risks associated with financing the operations of a business.
In the case of Domino’s Pizza Enterprises, the capital structure is dominated
by debt capital in comparison to equity capital. The borrowings of the business have
increased from $ 594,799,000 in 2018 to an amount of $ 646,076,000 in 2019. This
increase in debt capital reflects the strategy of the business to focus more on debt
capital and thereby appropriately finance the operations of a business. One of the
reasons for the high use of debt capital might be to make use of leverage effect in
the business and thereby also gain tax advantage.
Percentage of Different Sources of Funds
Particulars Australian Vintage Ltd Domino's Pizza Enterprises
Capital Structure 2019 2018 2017 2019 2018 2017
$m $m $m $m $m $m
Equity Capital

5
CORPORATE ACCOUNTING
Issued Capital 465.49 463.96 463.01 206.22 192.81 340.40
Reserves 2.44 1.99 1.83 -57.27 -76.37 -85.55
Retained earnings -169.10 -173.06 -177.99 197.06 191.23 160.57
Reserved shares 0 0 0 0 0 0
Total Equity 298.83 292.89 286.85 346.01 307.67 415.42
Percentage 78.96% 77.62% 77.17% 34.88% 34.09% 57.16%
Debt Capital
Borrowings 79.65 84.44 84.88 646.07 594.80 311.33
Total Debt 79.65 84.44 84.88 646.07 594.8 311.33
Percentage 21.04% 22.38% 22.83% 65.12% 65.91% 42.84%
Total Capital 378.48 377.33 371.73 992.08 902.47 726.75
Figure 3: (Percentage of Funds used by both of the Companies)
Source: (Created by the Author)
The above table shows the changes in funds which is utilized by both the
companies over the years. The business of Australian Vintage is shown to have
slightly increased the equity holdings of the business while at the same time has
made efforts to reduce the debt capital which is accumulated by the business. On
the basis of both equity and debt capital, the overall capital structure for the business
is formed. In the case of Domino’s Pizza Enterprise, the company has made drastic
changes in the capital structure of the business since 2017 as the business went
from 60% dent capital usage to 65% and more. This shows that the management of
Domino’s Pizza Enterprise relies more of debt financing considering the nature of
operations of the business (Uyar 2016). The use of debt capital provides tax benefits
to the business which is one of the main considerations for utilizing this source of
capital.
Pros and Cons of Different Sources of Business
The sources of funds which is used by a business have its own set of
advantages and disadvantages which needs to be considered before choosing a
particular option for the purpose of financing the activities of the business. It is to be
noted that the sources of capital which is used by Australian Vintage Ltd and
Domino’s Pizza Enterprise are similar in terms of sources and therefore advantages
and disadvantages of each sources is provided in the table below:
Sources of Capital Advantages Disadvantages
Equity Sources of Capital 1. These types of capital
are considered to be
permanent in nature
as once it is taken the
shareholders become
owners of the
company and the
capital can only be
returned at the time of
liquidation of the
business.
1. The application of
equity capital in a
business segregates
ownership and voting
rights and therefore
quick decisions is not
possible and this can
lead to opportunity
losses for the
business.
2. The main source of
returns for such type of
capital is dividend
income, right issue,
2 The use of equity
capital is considered to be
costly for a business in
comparison to debts and

6
CORPORATE ACCOUNTING
and bonus considering
the financial situation
of the business
(Warren and Jones
2018). Moreover, the
dividend income is
only required to be
paid if the company is
making profits
otherwise it can be
avoided.
therefore it is imperative
that an appropriate
mixture of equity and debt
capital is ontined.
Debt Source of Capital 1. The primary advantage
which is associated
with the use of debt
capital is that it
provides deduction in
taxes for interest
payments which is
made by the business
and therefore can be
identified as an
instrument for saving
taxes.
1. One of the main
disadvantages which
is associated with the
use of debt capital is
the interest payments
which the company
needs to bear on
regular basis until the
debt is not fully paid
(Zeitun and Tian
2014). This creates a
burden over the
organization and also
affects the profits
which the business is
able to generate.
2. The ownership aspect
which is present in the
case of equity is not
applicable on debts
and therefore the
management of the
company is free to take
any decisions on its
own will considering
the long term
prospects of the
decision.
2 The use of debt capital
is always accompanied by
a collateral security which
needs to be placed with
the creditor and therefore
it can be said that use of
debt capital creates a
charge over the assets of
the company. Plus, debt
capital is not a permanent
source of capital which is
another major issue.
Retained Earnings 1. The retained earnings
form part of internal
capital and the same is
a result of accumulated
savings of the
business. This form of
capital does not create
any charge over the
assets or even affects
1. The retained earnings
for a business depletes
the savings of the
business and thereby
impacts the liquidity
status of the business.

7
CORPORATE ACCOUNTING
the ownership status of
the company. The use
of such capital
demonstrates strength
on the part of the
management.
Liabilities of the Businesses
The liabilities of a business are covered in the balance sheet and the same
shows what the business owes to external parties. The liabilities need to be
appropriately presented in the financial statement so that investors have a clear idea
regarding all the liabilities of the business. The total of the liabilities and equities of a
business equals the total of the asset side of the business. As per the reporting
framework which is adopted by Australia Vintage Ltd for the year 2019 shows that
the management has effectively shows the sub-parts of current and non-current
liabilities so that it can be effectively determined which liabilities are short term and
which are long term in nature (Aversano and Christiaens 2014). The current liabilities
include short term borrowings, trade payables and provisions which are maintained
by the organization for the period. On the other hand, non-current liabilities include
the long term borrowings which the business has undertaken during the period for
the purpose of financing the operations of the business. In an overall analysis, it can
be said that the management of Australia Vintage Ltd has appropriately managed
the liabilities of the business and provided appropriate disclosures in this respect in
the financial statements. In case of debts which form a major part of the non-current
liabilities, the management is trying to reduce the same so that the risks which are
associated with the use of debt capital can be minimized.
In the case of Domino’s Pizza Enterprise, the management of the company
has also properly represented the reporting aspects of liabilities so that appropriate
financial position can be available to the investors of a business. The annual reports
shows that the business has a material amount of deferred tax liabilities as well as
provisions which has increased from previous year estimates (Demartini and Paoloni
2013). The non-current liabilities for the business show an increase which is mainly
due to the increase in borrowings of the business which also creates interest burden
over the management of the company. One new item which is presented in the
liability side of the company is contract liabilities which are also shown for a
significant amount and the same needs to be controlled by the senior officials of the
business.
Provisions, Contingent Liabilities and Contingent Assets
The provisions which is stated in by AASB 137 “Provisions, Contingent
Liabilities and Contingent Assets”, requires businesses to appropriately disclose
items which needs to be represented in the financial statements of the entity. The
standard requires businesses to appropriately disclose all losses or provisions which
are created by the business during the period (Ioana and Adriana 2013). The
purpose for which the provision was created should also be disclosed in the annual
reports note section. Every company which has provisions or contingent liabilities
needs to follow this standard for providing appropriate disclosure in the financial
reports of the business.

8
CORPORATE ACCOUNTING
Reporting for AASB 137
In the case of Australian Vintage Ltd, the annual report shows that the
business has contingent liabilities which are appropriately disclosed in the financial
statements of the business. The contingent liability which the business creates is
related to bank guarantees for the period. It is also properly covered in the notes to
account section of the annual report and extract for the same is shown below:
The management of the company has also maintained provisions for which
proper justifications are also provided in note 13 of notes to accounts. An extract of
the provisions which is maintained by the business is appropriately presented below:
This shows that the management of Australian Vintage has followed the
provisions of AASB 137 for the purpose of making proper reports with appropriate
disclosures (Domínguez and Gámez 2014). The company which is considered for
the analysis therefore follows all relevant standards for the purpose of reporting key
information.
On the other hand, the financial statement of Domino’s Pizza Enterprises for
the year 2019 shows that the management has appropriately disclosed contingent
liabilities for the business and the same are covered in the notes to account section
of the annual report of the business.

9
CORPORATE ACCOUNTING
Furthermore, the management of the company has also maintained proper
provisions for any anticipated losses for the business during the period. The
provisions are created based on the judgment of the management of the company.
Classification of Assets
The assets of the business are classified as per the valuation and reporting
requirements for the same and these are covered in the annual report with proper
disclosures related to the same. In the case of Australian Vintage Ltd as well as
Domino’s Pizza Enterprise, the assets which are represented in the annual reports
are similar and the same are bifurcated appropriate on the basis of current and non-
current assets (Barkemeyer, Preuss and Lee 2015). The current assets involve trade
receivables, other current assets and tax assets while non-current assets contain
fixed assets for the business. Therefore, it can be said that proper disclosures and
treatment for the assets is done in the financial reports of the business.
Recognition Criteria
The recognition of different assets which are presented in both the company’s
annual reports is based on consistent accounting principles which are regularly
followed by the management of the company for appropriate reporting. The
reporting process also follows significant other accounting standards for the
business. The inventories of the business are either valued on cost basis or market
value basis whichever is preferred by the management of the company.
Furthermore, the management of the company has disclosed regarding the
recognition criteria in the notes to account section for the ease of the investors of the
business.
Conclusion
The above analysis effectively shows aspects about sources of capital and
how the same can change over time depending on the requirement of the business.
The analysis further reveals pros and cons which is associated with the use of equity
and debt sources of financing and also in what percentage does the management of
the company uses equity and debt mixture in the operations of the business. The
analysis further reveals the asset and liability which the considered companies
possess during the period. The management has disclosed the same are
appropriately disclosed in the financial statement. In addition to this, the disclosures
also show if the company are compliant with the provisions of AASB 137 for
reporting provisions and contingent assets and liabilities.

10
CORPORATE ACCOUNTING
Reference
Australian Vintage Limited. (2020). Investors - Australian Vintage Limited. [online]
Available at: https://www.australianvintage.com.au/investors/ [Accessed 31 Jan.
2020].
Aversano, N. and Christiaens, J., 2014. Governmental financial reporting of heritage
assets from a user needs perspective. Financial Accountability &
Management, 30(2), pp.150-174.
Barkemeyer, R., Preuss, L. and Lee, L., 2015, December. Corporate reporting on
corruption: An international comparison. In Accounting Forum (Vol. 39, No. 4, pp.
349-365). Taylor & Francis.
Demartini, P. and Paoloni, P., 2013. Awareness of your own intangible
assets. Journal of Intellectual Capital.
Domínguez, L.R. and Gámez, L.C.N., 2014. Corporate reporting on risks: Evidence
from Spanish companies. Revista de Contabilidad, 17(2), pp.116-129.
Domino's Investors. (2019). Annual Reports — Domino's Investors. [online] Available
at: https://investors.dominos.com.au/annual-reports [Accessed 31 Jan. 2020].
Ioana, D. and Adriana, T., 2013. New corporate reporting trends. Analysis on the
evolution of integrated reporting. Annals of the University of Oradea, Economic
Science Series, 22(1), pp.1221-1228.
Penman, S.H., 2013. Financial statement analysis and security valuation. McGraw-
Hill.
Tschopp, D. and Nastanski, M., 2014. The harmonization and convergence of
corporate social responsibility reporting standards. Journal of Business
Ethics, 125(1), pp.147-162.
Uyar, A., 2016. Evolution of corporate reporting and emerging trends. Journal of
Corporate Accounting & Finance, 27(4), pp.27-30.
Warren, C. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Zeitun, R. and Tian, G.G., 2014. Capital structure and corporate performance:
evidence from Jordan. Australasian Accounting Business & Finance Journal,
Forthcoming.