HI5020 Corporate Accounting: Funds, Liabilities, and Asset Measurement

This report analyzes corporate accounting practices, focusing on how companies raise funds and manage liabilities. It examines the sources of funds used by Woolworths and Wesfarmers, including equity, retained earnings, and borrowings, and how these sources have evolved over a five-year period. The report discusses the merits and demerits of different funding sources and how the companies classify their liabilities. It also summarizes the key concepts of AASB 137, focusing on provisions, contingent liabilities, and contingent assets, and how these standards are applied by the selected companies. Furthermore, the report identifies the different categories of assets recorded by the companies and analyzes the measurement bases used for each class of assets, providing a comprehensive overview of corporate financial management and reporting.

RUNNING HEAD: CORPORATE ACCOUNTING
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Corporate Accounting

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Executive Summary
There are different sources through which the companies
raise funds that are equity, debentures, loans, borrowing,
venture capital and retained earnings. These funds are
further divided into internal sources and external sources.
The report focuses on the concept of different sources of
funds that the companies use in order to raise money at a
low cost. In order to understand this concept analysis of
Woolworths and Wesfarmers is done in the below sections.
This includes the way both the companies raise funds, their
assets and liabilities classification and standards used by the
companies for disclosures in the financial statements.
Further, the reports highlight the AASB 137 standards and
the use of this standard by both the companies in
measurement and disclosure of contingent assets and
contingent liabilities.

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Table of Contents
Introduction 3
Woolworths 3
Wesfarmers 3
Sources of Funds 4
Evolution and changes in sources of funds 4
Internal and External funds 5
Merits and demerits of sources of funds 5
Liabilities classification 6
AASB 137 6
Assets classification 7
Measurement 7
Conclusion 8
References 9
Appendix 10

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Introduction
The companies use different sources of funds in order to
increase their business and to grow in the market. There are
mainly two sources through which the companies raise
money that is shareholders' equity and debt. It is important
for companies to raise funds from different sources in order
to balance its capital structure and to reduce the cost of
capital. As different sources have different advantages and
drawbacks so the companies in order to get the maximum
benefit from minimum cost focus on raising funds from
different sources (Butler,2016). This report focuses on the
different sources of funds that the companies use, in order to
understand the concept two organizations are chosen that
are Woolworths and Wesfarmers. In the below sections,
from the balance sheet analysis of both the companies for 5
years different sources used by both the companies are
identified. Further, the key concepts under the AASB 137
“provisions contingent liabilities and contingent assets” used
by the companies are discussed by considering different
categories used by these companies to classify their assets.
At last, the analysis of both the companies and
summarization is done.
Woolworths
Woolworths is a leading supermarket in Australia and was
founded in 1924. The company offers groceries, magazines,
beauty, health and household products. The company has a
presence of over 1024 locations across the world with a total
turnover of $39.568 billion in 2019. It can be understood that
in order to grow and expand the company raises funds from
many sources as from its balance sheet it is identified that
the company uses mainly three sources to raise funds that
are shareholders equity, retained earnings and borrowings
or debentures. Long term borrowings of the company in
2019 was $2,855 million and shareholder equity was $5,828

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million with that the company had retained earnings of
$3,968 million (Table1). This showed that Woolworths for its
operations mainly depend on shareholders' equity and raise
funds from equity shares (Woolworths,2019).
Wesfarmers
Wesfarmers is an Australia conglomerate that operates in
fertilizers, chemicals, coal mining and safety, and industrial
products. The company exceeded Woolworths and BHP in
terms of revenue and workforce. In 2019, the company
showed revenue of $27.9billion and a net profit of $1.9billion
from its operations and in order to smoothly run its business
operations the company needs funds. The different sources
of funds that the company used in order to raise funds for its
operations and for growth of the business is equity and
borrowings (Table2). As in 2019, the company showed
shareholders’ equity of $15,809 million and long term loans
and borrowings of $2,673 million. This indicates that the
company depends on shareholders' equity and not on its
borrowings as in comparison to its equity its borrowings are
lower (Wesfarmers,2019).
Sources of Funds
There are different sources of funds through which the
companies can raise funds that are equity, loans,
debentures, retained earnings, venture capital, short term
borrowings, etc. The use of these sources depends on
various factors such as time, cost of raising money and
ownership. It is necessary for the companies to evaluate
different sources of funds before selecting the better option.
It is a challenge for big players to choose the right source of
the fund as it affects the whole capital structure and
decisions related to the growth and expansion of the
companies (Birt et.al,2019).

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Woolworths use retained earnings and shareholders’ equity
as its main sources for its operations and expansion. As the
ratio of debts and equity in the company’s capital structure is
0.50 or the portion of the debt is 50 percent in the capital
structure that indicates that the company had raised double
funds from equity than debts. This is a good indicator for
Woolworths as the cost of raising funds through debt is more
and this instrument is riskier than equity as the company is
liable to pay the amount to debenture holders at the time of
maturity and has to pay interest on the borrowed money in a
particular time period. Further, retained earnings of the
company are more this shows that Woolworths has enough
investments and cash flow in order to operate its business.
The retained earnings of Woolworths in 2019 was $3,968
million, this made the financial statement of the company
stronger (Woolworthsau,2019).
Wesfarmers also use shareholders' equity as its major
source of finance as this helps the company to reduce its
cost for raising funds. The company had interest-bearing
loans and borrowings of $2,673 and equity shareholders of
$15,809, this indicates that the major portion of funding is
through equity but still the company is running in losses and
the retained earnings of the company showed a negative
balance of $208 million. The company had 17 percent of the
share of debts in its capital structure as this is not a
balanced one. From the analysis of both the companies'
sources of funds, it can be said that Woolworths has a
balanced structure as the company raises funds from all the
sources that are retained earnings, debts or loans and equity
(Wesfarmersau,2019).
Evolution and changes in sources of funds
Woolworth’s capital structure for the last 3 years started from
2016 to 2019 is analyzed that through that it can be said that
the total long term debt of the company reduced to $2,852

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million in 2019 from $3,868 million in 2016. On the other
side, the company raises funds by issuing shares as the
shareholder equity of the company raised to $6,033 million in
2019 from $5,347 million in 2016. Its shareholder equity
increases by 7% in 2017, 8.5% in 2018 and decreased by
3% in 2019. Overall the sources of funds that the company
uses to raise funds are equity from the starting however in
the past 3 years the company focused more on internal
sources for raising funds such as retained earnings and
shareholders’ equity. In a nutshell, the sources of funds for
the company evolved and more focused on the
shareholder's equity and internal sources rather than
borrowings and loans. The company paid its long term debts
and reduced its liabilities whereas it increased its
shareholder's equity (Investing.com WOW,2019).
Wesfarmers totally changed its capital structure as analyzed
from its balance sheet as the company reduced shareholder
capital from $22,268 million in 2016 to $15,809 million in
2019 and reduced its loans and borrowings from $4,206
million in 2016 to $2,673 million in 2019. This is a good
indicator that the company reduced its debts but its retained
earnings showed a negative balance of $5,846 million this
showed that Wesfarmers is operating in losses and the
company is changing its sources of funds in order to narrow
its operations. Hence, the company is not raising funds from
the last 3 years rather focusing on reducing its capital and
paying off its debts (Invetsing.com WES, 2019).
Internal and External funds
Internal funds are those that are generated internally by the
businesses that include retained earnings, sale of assets,
and control over working capital. Whereas external sources
of funds are those that the companies generate from outside
of the business that includes borrowings, equity, venture
capital, and debentures. Both companies use internal and

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external sources of funds in order to raise money and to
expand (Moen et.al,2019).
Woolworths mainly depend on the internal sources as
retained earnings of the company in 2019 were $3,968
million and the cash flow from operating activities was
$2,948 million. External sources of funds are equity and debt
that comprise of the total fund for the company $8,680
million. 45 percent of the funds are raised from internal
sources and 55 percent of funds are raised from external
sources that are equity and debts (Woolworthsau,2019).
Wesfarmers mainly depend on external sources of funds as
the retained earnings of the company showed a negative
balance that means there are no internal sources or ways of
raising funds. Wesfarmers depends on 100 percent on
external sources due to the cost of capital for the company
increases and it directly impacts other aspects of the
company.
Merits and demerits of sources of funds
There are many sources through which the companies raise
funds, each source has its own advantage and disadvantage
and the companies select from different sources on the basis
of various factors. Borrowings by the companies are the
external source of raising funds, this is advantageous for the
companies because it gives tax benefits to the company and
there is no such obligation or control of lender on the
businesses as they get interest on a timely basis (Cornwall
et.al,2019).
On another side more the borrowings of the company more it
is risky for the company as the cost of raising funds is more
in case of borrowings because of higher interest that the
company needs to pay to its debenture holders or lenders.
Shareholders’ equity is the most preferred way of raising
funds as this helps the companies to raise long term capital

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for the growth and expansion of the company with low risk.
The companies who raise funds through this source don’t
need to repay the amount instead of that the company pay
dividend to its shareholders and the amount will be paid only
at the time of winding up of the company. This source has
also some drawbacks that are interference of equity owners
in the decision of the company and with the majority,
shareholders can change the decision of higher authority
(Mamouni et.al,2016). This leads to less control of
management on its activities or operations. The
shareholders can change the plans and decisions of the
company if they think that it is not beneficial for them or is
not focusing on wealth maximization. Retained earnings are
an internal source that is used by most companies because
it is the personal savings or aside amount that kept by the
company from its profits. As the company can use this
amount anytime and this is the source that is less risky and
has a low cost of capital. The drawback of this source is that
the companies retained a huge amount of profits aside due
to that opportunity cost may vary and most of the profits
remain wasteful (Castellaneta and Gottschalg,2016).
Liabilities classification
The liabilities of Woolworths are classified into two
categories that are current liabilities and non-current
liabilities. The company includes trade receivables, short
term borrowings, current tax payables, other financial
liabilities, and provisions in the head of current liabilities.
Further in the head of non-current liabilities the company
includes long term borrowings, other financial liabilities,
provisions and other non-current liabilities then at last total
liabilities are shown in the balance sheet. From the analysis
of Woolworth’s balance sheet, it is known that the company
has long term and short term borrowings that are interest-
bearing that is the company pays interest on a total of

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$3,129 million other liabilities of the company are
noninterest-bearing.
Wesfarmers also divided its liabilities as current liabilities
and non-current liabilities, under the head of current liabilities
following items are included by the company that is trade
payables, interest-bearing loans and borrowings, income tax
payables, provisions and derivatives and others. Under the
non-current liabilities, the company includes interest-bearing
loans and borrowings, provisions, derivatives and others
(Campbell,2017). Both the companies have the same
categorization of its liabilities but Wesfarmers further divided
its liabilities to interest-bearing liabilities and non-interest
bearing liabilities. Wesfarmers have long term and short term
interest-bearing liabilities mainly the company pays interest
on a total of $3,029 million. Other liabilities of the company
are non-interest bearing liabilities.
AASB 137
Accounting standard AASB 137 “provisions, contingent
liabilities and contingent assets” objective is to ensure that
Australian companies use appropriate recognition criteria
and measurement bases are applied to contingent liabilities,
provisions and contingent assets and that information is
disclosed by the companies in notes to make users
understand the timing, nature and amount. As per AASB
137, provisions are liabilities that are made on the basis of
estimation of the outflow of resources. Contingent assets are
the unplanned events due to that the entity gain economic
benefit. Contingent liabilities are considered as the obligation
of the entity that is expected to be met in the future (Handley
et.al,2019).
Woolworths follows or discloses its accounts as per the
AASB 112, provisions of the company are distinguishable
from other current liabilities such as accruals and accounts

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payable this is because of uncertainty about the timing of
settling an event. “Borrowing in the liability section will be
identified initially at fair value, which is less attributable to the
cost of the transaction and subsequent in the borrowing are
stating in the amortization cost”. The classification of
liabilities of the company is based on the standard of AASB
1044. Provisions for current liabilities in 2019 were $1,528
million and provisions for non-current liabilities were $986
million and there were no contingent liabilities and contingent
assets in the balance sheet. Woolworth’s provisions and
contingent liabilities are disclosed in the balance sheet and
under the head provisions following items were included
employee benefits long and short term, self-insured risks,
and restructuring, onerous contracts. Total provisions
showed in 2019 were $2,514 million. There were no
contingent liabilities and contingent assets showed in the
balance sheet in different heads (Woolworthsau,2019).
Assets classification
Wesfarmers assets are classified as current assets and non-
current assets; under the head of current assets the
company includes cash and cash equivalent, trade
receivables, inventories, and derivatives. Whereas under the
head of non-current liabilities investment, tax assets, plant
and equipment, goodwill and intangible assets. The
company had total assets of $18,833 million in 2019 and the
recognition and measurement were done on the basis of net
realized value and the cost (Wesfarmersau,2019).
Woolworths classified its assets as current assets and non-
current assets, under the head of current assets the
headings are cash and cash equivalents, trade receivables,
inventories, and other financial assets on another side under
the head of non-current assets the company also includes
trade receivables, plant and equipment, intangible assets

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and deferred tax assets. The company had total assets of
$23,491 million in 2019 (Woolworthsau,2019).
Measurement
Wesfarmers values its current assets on the basis of net
realizable value, inventories or current assets of the
company valued at lower the cost and on net realizable
value. Wesfarmers measure its raw material on the basis of
the purchase cost on a weighted average basis and
manufactured finished goods on normal operating costs and
retail or finished goods after deducting discounts, logistics
expenses and supplier rebate. Goodwill and intangible
assets are measured at cost, and the cost is measured as
“the cost of business combination minus the net fair value of
contingent liabilities and identifiable assets. Provisions of the
company include wages and salaries, long service leave and
lease provision. The company had $543 million provisions in
2019 including lease provision, off-market contracts, self-
insured risks, and mine rehabilitation (Wesfarmersau,2019).
Woolworths value its inventories as net realizable value, and
at the reporting date, all stock is valued at the cost. Further,
for preparation of its consolidated statement the company
measures its currency using the currency of the parent
company and considering the primary environment in which
the company operates. Further, the group adopted
Australian standard AASB 15, AASB 9 and AASB 16 for
measuring its leases and revenue from contracts
(Woolworthsau,2019).
Conclusion
From the above analysis of both the company’s financial
statement and changes in the source of funds, it is
concluded that Woolworths mainly depend on retained
earnings and shareholders’ equity for raising funds and
Wesfarmers is reducing its funds in order to narrow its

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operations because of huge losses on a continuous basis. It
is also identified that both companies use the same
standards for classifying their assets and liabilities. AASB
137 adopted by both the companies while disclosing its
provisions, contingent liabilities and contingent assets. It is
concluded that the sources that the companies use to raise
funds are necessary to evaluate in order to reduce the cost
of capital and get a maximum return as each source has
some benefits and drawbacks and with that, the companies
can make it's capital structure effective.

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References
Birt, J., Chalmers, K., Maloney, S., Brooks, A., Oliver, J. and
Bond, D., 2019. Accounting: Business reporting for decision
making. John Wiley & Sons.
Butler, K.C., 2016. Multinational Finance: Evaluating the
Opportunities, Costs, and Risks of Multinational Operations.
John Wiley & Sons.
Campbell, J., 2017. Insights from the company monitor:
Wesfarmers. Equity, 31(8), p.16.
Castellaneta, F. and Gottschalk, O., 2016. Does ownership
matter in private equity? The sources of variance in buyouts'
performance. Strategic Management Journal, 37(2), pp.330-
348.
Cornwall, J.R., Vang, D.O. and Hartman, J.M.,
2019. Entrepreneurial financial management: An applied
approach. Routledge.
Handley, K., Evans, E., and Wright, S., 2019. Understanding
participation in accounting standard‐setting: the case of
AASB ED 192 Revised Differential Reporting
Framework. Accounting & Finance.
Investing.com WES,2019. Wesfarmers' financial statements.
Accessed From:
tps://www.investing.com/equities/wesfarmers-limited
Investing.com WOW,2019. Woolworth's limited financial
statements. Accessed From:
https://www.investing.com/equities/woolworths-limited
Mamouni Limnios, E.A., Watson, J., Mazzarol, T. and
Soutar, G.N., 2016. Financial instruments and equity

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structures for raising capital in co-operatives. Journal of
Accounting & Organizational Change, 12(1), pp.50-74.
Møen, J., Schindler, D., Schjelderup, G. and Tropina Bakke,
J., 2019. International Debt Shifting: The Value-Maximizing
Mix of Internal and External Debt. International Journal of the
Economics of Business, pp.1-35.
Wesfarmers,2019. Our Businesses. Accessed From:
https://www.wesfarmers.com.au/our-businesses/our-
businesses
Wesfarmersau,2019. Wesfarmers Annual Report 2019.
Accessed From:
https://www.wesfarmers.com.au/docs/default-source/asx-
announcements/2019-annual-report.pdf?sfvrsn=0
Woolworths,2019. About us. Accessed From:
https://www.woolworthsgroup.com.au/
Woolworthsau,2019. Woolworths Group Better Together
Annual Report 2019. Accessed From:
https://www.woolworthsgroup.com.au/icms_docs/195582_an
nual-report-2019.pdf

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Appendix
Table: 1 Balance sheet of Woolworth’s year ended 2019

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Source: (Woolworthsau,2019)
Table 2: Balance sheet of Wesfarmers for year ended 2019

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Source: (Wesfarmersau,2019)