University Corporate Accounting Report: Wesfarmers Financial Analysis

This report provides a comprehensive analysis of Wesfarmers Ltd's corporate accounting practices, examining its financial statements for the years 2015, 2016, and 2017. The analysis delves into the cash flow statement, dissecting operating, investing, and financing activities, and highlighting signi...Read More

Running head: CORPORATE ACCOUNTING
Corporate Accounting
University Name
Student Name
Authors’ Note

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Table of Contents
Solution i)...................................................................................................................................2
Solution ii)..................................................................................................................................3
Solution iii).................................................................................................................................5
Solution iv).................................................................................................................................6
Solution v)..................................................................................................................................6
Solution vi).................................................................................................................................7
Solution to vii)............................................................................................................................7
Solution viii)...............................................................................................................................8
Solution ix).................................................................................................................................8
Solution x)..................................................................................................................................9
Solution xi).................................................................................................................................9
References................................................................................................................................10
Appendix:.................................................................................................................................11

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The company selected for evaluating the yearly financial report is Wesfarmers Ltd that is an
Australian multinational that operates in the segment of retail, industrial and safety products,
coal mining, chemicals as well as fertilisers. This company is listed in the Australian Stock
Exchange (ASX) has an operating income of approximately AUD 3.61 billion, total assets of
AUD 0.78 billion and net income of AUD 2.35 billion.
Solution i)
The cash flow statement of the firm Wesfarmers Limited consist of conventional three
sections namely cash flow from operational, investing along with financing activities. In
operating actions, the cash flows are either provided by or utilized in primarily depreciation,
definite adjustments to net earnings, alterations in accounts receivables, liabilities, inventories
as well as alterations in diverse operating actions. As per the financial assertions of the firm,
list of items under the operational activities include receipts of the firm from their customers,
disbursements to diverse suppliers as well as employees, movement in particularly finance
advances as well as loans, firm’s dividends along with distributions accepted from associates,
interests accepted, costs of firms borrowings together with payment of income tax
(Schaltegger and Burritt 2017). Again, the exhaustive list of items mentioned under investing
activities includes disbursements for property, plant, and equipment (simply referred to as
PPE) along with intangibles. Also cash used in investing functionalities comprise of proceeds
from mainly sale or else disposal of the PPE, overall proceeds from disposal of businesses
along with associates, overall investments in mainly associates and varied joint arrangements
of the firm. Also, for the purpose of investing activities, cash is used for acquisition of
various subsidiaries and redemption of otherwise investment in loan notes (Siew 2015).
Again, the list of items that are listed under the cash used for Wesfarmers financing activities
take in proceeds of the company from borrowing, pay offs or in other words repayments of

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borrowed amounts and equity dividend disbursed. Also, cash is used for proceeds from
specifically exercise of different in-substance options mainly covered in employee share plan.
Solution ii)
Analytical evaluation of the cash flow assertion of the firm Wesfarmers reveal that cash
utilized for operative actions is documented to be AUD 4226 million in the year 2017 in
comparison to the year ago figure that stood at approximately AUD 3365 million. Thus, it
can be seen that the cash flow from operating actions declined from AUD3791 in 2015 to
AUD 3365 million in 2016 and thereafter again increased during 2017 (Wesfarmers.com.au
2018). The increase in cash inflow during 2017 is mainly due to increase in receipts from the
company’s customers, increase in interests received and at the same time decrease in costs
incurred for borrowing and decrease in disbursements for income tax paid (Tschopp and
Nastanski 2014).
Detailed study of cash utilized in investing activities reflect that cash outflow enhanced
sharply from (AUD 1898 million) in 2015 to (AUD 2132 million) in 2016. However, it
declined significantly to just (AUD 53 million) (Wesfarmers.com.au 2018). This is mainly
due to decrease in outflow of cash for payments for PPE, decline in outflow for acquirement
of subsidiaries (net of particularly cash acquired) and at the higher inflow of cash from
proceeds from disposal of PPE and augmented proceeds from sale of mainly businesses as
well as associates.
Again, it can be hereby observed that cash outflow for the firm Wesfarmers’s financing
activities decreased to (AUD 1333 million) in 2016 in comparison to the figure of (AUD
3249 million) (Wesfarmers.com.au 2018). However, the same is observed to have again
considerably increased to (AUD 3771 million). This is chiefly owing to the fact that proceeds
obtained from firm’s borrowings decreased while pay off for the borrowings increased

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(Warren and Jones 2018). However, the net cash as well as cash equivalent for Wesfarmers
increased to AUD 1013 million in 2017 in comparison to AUD 611 million in 2016.
Cash flow (Amount
in $million)
2017 2016 2015
Cash flow from
operating activities
4226 3365 3791
Cash flow from
investing activities
-53 -2132 -1898
Cash flow from
financing activities
-3771 -1333 -3249
2017 2016 2015
-5000
-4000
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
Cash Flow Analysis (Wesfarmers Ltd)
Solution iii)
According to the yearly financial report of the firm Wesfarmers Ltd, the statement for
comprehensive earning mentions the profit that is essentially attributable to different

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members of particularly the parent firm. This is recorded to be AUD 2873 million in 2017
while the same was documented to be AUD 407 million in 2016 (Wesfarmers.com.au 2018).
This assertion also includes other comprehensive income that comprises of varied items that
might perhaps be reclassified for profit/loss of the firm (Siew 2015). As such, this includes
reserves for foreign currency translation that mentions the variance in exchange on definite
translation of varied foreign operations. However, exchange variance was registered to be
(AUD 2 million) during 2017 while the same was registered to be AUD 15 million during
2016 (Wesfarmers.com.au 2018). Also, this statement for comprehensive earning reflects
cash flow reserve for hedge. This hedge reserve contains unrealised losses on particularly
hedges for cash reserve, varied realised losses of the firm that is transferred to total profit,
diverse realised loss/profit that gets transferred to various non-financial resources of the
company, share of different associates along with joint venture reserves together with tax
effect. Also, this statement mentions about the items that shall not be reclassified for the
firm’s gain or else loss and takes in retained earnings (Brooks 2015). In the end, this
pronouncement reflects overall comprehensive earning of Wesfarmers for the particular
financial year that is essentially net of total tax amount, and is attributable to different
members of the parent company. However, the total comprehensive income stands at AUD
2891 million in 2017 while the same was recorded to be AUD 329 during 2016
(Wesfarmers.com.au 2018).
Solution iv)
The comprehensive income of Wesfarmers recorded to be AUD 2891 million is significantly
high during the period 2017 in comparison to 2016 (Wesfarmers.com.au 2018). This is
mainly because of higher amount of profit attributable to different members of the parent
firm. Also, an outflow for exchange difference can also be noticed. Further, there is increased

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outflow of unrealised losses on particularly various losses on mainly hedges of cash flow
(Siew 2015).
Solution v)
As rightly indicated by Tschopp and Nastanski (2014), other comprehensive income also
simply referred to as OCI is said to contain varied items of particularly of firm’s income as
well as expenses incurred (counting adjustments of reclassification) which are not necessarily
identified in the assertion for profit and loss of reporting entities. Essentially, the alterations
in the amount of equity during a specified period ensuing from business dealings as well as
other incidents other than the alterations from business transactions oriented to owners in
their potential as owners. On the other hand, the profit and loss assertion needs to include
outcomes of the transactions, different consumptions along with impairment of assets and
satisfaction of liabilities during the period in which they take place. In addition to this, the P-
L statement would also identify all the alterations in the asset costs and liability costs in
addition to any sort of profit/losses ensuing from initial recognition (Brooks 2015).
Therefore, it can be said that the role of OCI is mainly to uphold the profit as well as loss. As
such, any profit/loss can only be recognized in the statement of OCI in case if that made other
comprehensive earnings more relevant. For the case under consideration, the reclassification
adjustment for PPE losses/gains is not presented from equity to P-L.
Solution vi)
As mentioned in the annual report of the firm Wesfarmers, the tax expenditure of the firm
stands at (AUD 1265 million) in 2017 while the same is recorded to be (AUD 631 million) in
2016 (Wesfarmers.com.au 2018). This stands for the current tax expends of the firm
Wesfarmers. In essence, the current tax assets or else liabilities of the firm Wesfarmers are
enumerated at the specific amount that is anticipated to be essentially recovered otherwise

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paid to definite taxation authorities at the particular tax rates as well as laws of tax enacted
else wise considerably enacted by the firm’s date of balance sheet statement (Brooks 2015).
Solution to vii)
The income tax of the firm Wesfarmers is essentially enumerated by utilizing ascertained rate
of tax that are mainly imposed by the pronouncement on financial position and regulation of
tax. Detailed examination of the yearly report of the firm replicates the fact that the current
expenditure of the corporation during the year 2017 was observed to be (AUD 1265 million)
in 2017 while the same is recorded to be (AUD 631 million) in 2016 (Wesfarmers.com.au
2018). Hence, it cannot be analysed whether the figure for income tax expenditure are similar
to the particular tax rate times the total firm’s earnings.
Solution viii)
Analysis of annual financial assertion of the firm reveals that the deferred tax asset of the
firm Wesfarmers as mentioned in the balance sheet stands at AUD 971 million while the
same was recorded to be AUD 1042 million in 2016 (Wesfarmers.com.au 2018). In this
regard, it can be said that deferred tax assets are necessarily recognized for diverse deductible
temporary variances, also carried forward unutilized tax assets as well as unutilized losses of
tax, to the point that it is quite probable that the firm’s taxable gain shall be available to use
them (Reid and Myddelton 2017). In essence, the carrying amount of particularly tax asset
(referring to deferred ones) are as such enumerated at the rate of tax that are expected to be
implemented to the entire year at the time when the specific asset is realised otherwise this
liability of the firm gets settled, founded on rates of tax as well as regulations of tax that are
imposed or else considerably imposed at the date mentioned in the balance sheet.

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Solution ix)
Expenses for current tax disbursements during the financial year 2017 was recorded to be
(AUD 1265 million) in 2017 while the same is recorded to be (AUD 631 million) in 2016.
However, alternatively, income tax payable by the firm Wesfarmers Limited is recorded to be
AUD 292 million in 2017 and AUD 29 million in 2016 (Wesfarmers.com.au 2018). Thus, it
can be seen that the income tax payable is not the same as the income tax expense. This
reflects a reconciliation of expenditure of income tax to income tax amount that is payable. In
essence, this procedure of reconciliation takes in adjustments for primarily temporary
variances. In essence, the adjustments include different provisions, enumeration of different
financial assets, several other items together with prior year’s variances (Miao et al. 2016). In
particular, temporary variances are mainly for inventories, plant, property as well as
equipment, sales revenue acquired by the firm in advance with payables.
Solution x)
Analysis of annual report of the company Wesfarmers Ltd replicates that income tax
expenditure mentioned in the income account is not analogous to that of disbursement of
income tax represented in the pronouncement on cash flow. Fundamentally, payments for
income tax inevitably comprises of influence of income tax of specific losses or else gains
associated to financing deeds so that cash flow calculated after tax is represented in the sub
heads of overall cash flow (Warren and Jones 2018). All over again, in opposition, payments
of the reporting entity on taxation are unavoidably the specific amount that reflects tax costs.
Solution xi)
Comprehensive evaluation of yearly report helps in identification of the fact for Wesfarmers
there is in essence a charge for present taxation on earnings of the reporting entity.
Fundamentally, this is for the most part founded on adjusted profit figure of the corporation

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that can be attributed to any sort of rejection or non-assessable piece (Warren and Jones
2018). Over and above this, there also subsists notes for particularly financial assertions that
are prepared as well as arranged by the business concern Wesfarmers. In essence, this aids in
gaining thorough understanding regarding reconciliation of income tax expenditure of the
firm to the amount of payable tax of the firm. Basically, this kind of illustrations on
reconciliation delivered in the notes section of the report provides particular information to
diverse users concerning calculation of income tax of the firm. As a result, the most
significant part in this regard is necessarily realisation of expenditure of the firm as income
tax that is based on reconciliation of certain temporary variation and kind of net loss that the
company bears.

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References
Brooks, R., 2015. Financial management: core concepts. Pearson.
Miao, B., Teoh, S.H. and Zhu, Z., 2016. Limited attention, statement of cash flow disclosure,
and the valuation of accruals. Review of Accounting Studies, 21(2), pp.473-515.
Reid, W. and Myddelton, D.R., 2017. Cash flow statement. In The Meaning of Company
Accounts (pp. 16-16). Routledge.
Schaltegger, S., and Burritt, R. 2017. Contemporary environmental accounting: issues,
concepts and practice. Routledge.
Siew, R.Y., 2015. A review of corporate sustainability reporting tools (SRTs). Journal of
environmental management, 164, pp.180-195.
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.
Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Wesfarmers.com.au. 2018. Home - Wesfarmers. [online] Available at:
http://www.wesfarmers.com.au [Accessed 22 Apr. 2018].

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Appendix:

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