HA3011 - Financial Accounting Report, T1 2019, Holmes Institute

This report provides an in-depth analysis of advanced financial accounting principles, focusing on concepts such as the going concern, business entity, and measurement. It examines the significance of relevance and faithful representation in financial statements, emphasizing the importance of these characteristics for decision-making. The report uses the SOUL PATTINSON company as a case study to illustrate the practical application of these concepts, including accounting period, historical costs, and current value measurements. It also discusses depreciation and impairment, and how they are brought out in the financial statetements. The document also includes appendices with additional financial information, such as earnings per share and judgments and estimates. The report aligns with the assessment criteria of the HA3011 Advanced Financial Accounting course at Holmes Institute, demonstrating an understanding of accounting models, financial reporting issues, and the Australian accounting regulatory framework.

ADVANCE FINANCIAL ACCOUNTING 1
UNIVERSITY NAME
STUDENT NAME
STUDENT ID
COURSE
DATE

ADVANCE FINANCIAL ACCOUNTING 2
EXECUTIVE SUMMARY.
The purpose of this report is to shed light on the generally accepted accounting concepts that has
been feature in the company's report and their significance in facilitating preparations of
financial statements. The concepts mentioned include the going concern concept, business entity
concept and measurement concept. The report further ascertains the importance of relevance and
faithful representation as the basic accounting characteristics. Faithful representation states that
financial statements should be prepared honestly without biasness. Financial statements should
be relevant to the users for them to use them in making financial decisions. Business entity
concept is well brought out in the books of SOUL PATTINSON company. This firm also
exhibits a going concern as its financial plans are more than one year
Table of Contents

ADVANCE FINANCIAL ACCOUNTING 3
INTRODUCTION...........................................................................................................................................4
ACCOUNTING CONCEPTS.....................................................................................................................4
Accounting period concept......................................................................................................................4
importance of the accounting period concept......................................................................................4
Going concern concept............................................................................................................................5
Importance of the going concern concept............................................................................................5
Business Entity concept...........................................................................................................................6
importance of the business entity concept...........................................................................................6
MEASUREMENT.......................................................................................................................................7
HISTORICAL COSTS MEASUREMENT.................................................................................................7
CURRENT VALUE MEASUREMENT.....................................................................................................8
SOUL PATTISON MEASURMENT..........................................................................................................8
DEPRECIATION........................................................................................................................................9
IMPAIREMENT.............................................................................................................................................9
RELEVANCE AND FAITHFUL REPRESENTATION............................................................................9
EXAMPLES OF HOW RELEVANCE IS BROUGHT OUT IN THE FINANCIAL STATETEMENT OF
SOUL PATTISON COMPANY................................................................................................................10
HOW FAITHFUL REPRESENTATION IS BROUGHT OUT IN THE FINANCIAL STATEMENTS OF
SOUL PATTINSON.................................................................................................................................11
CONCLUSION.........................................................................................................................................12
REFERENCES..............................................................................................................................................13
APPENDICES...........................................................................................................................................15
APPENDIX I: MEASUREMENT OF PROPERTY, PLANT AND EQUIPMENT..............................15
APPENDIX II: EARNING PER SHARE..............................................................................................15
APPENDIX III: JUDGEMENTS AND ESTIMATES..........................................................................15

ADVANCE FINANCIAL ACCOUNTING 4
INTRODUCTION
Accounting concepts refers to assumptions, rules and principles that underlie preparations of
financial statements whereas measurement implies the technique employed by entities in
determining book values of accounting items. Measurement of financial items are brought out in
this report and qualitative characteristics of good financial information.
ACCOUNTING CONCEPTS
Accounting period concept
states that the lifetime of a business can be divided into different periods. The divisions form the
financial years (Gluzová, 2017, pg. 436).
importance of the accounting period concept
 Aids in computing the actual expenses and incomes during a certain time frame.
 Helps in computing the net profit for the business (Weil, Schipper & Francis, 2013).
Pattinson which is the parent company and its consolidated agencies has its financial year ending
at 31st July 2018 The company in its books of account discloses that the company's borrowings
has accumulated to 5405 million Australian Dollars as at 31st July of 2018 which is its financial
year. Similarly, the company discloses to have realize a net profit on its operations in the parent
and the consolidated agencies of 252.6 Million Australian Dollars. The entity also had 2529
breeders, 400 wearners ,76 bulls and 2511 cattles as at 31st July 2018 which is the end of the
company's financial period (pg.16). The company employed an expert in revaluation to revalues
its assets before proceeding to the next financial year. Its report that dates 31 July 2018 shows
that the assets valuation of both the parent and the consolidated agency was 414 Million
Australian Dollars. The shareholders are the owners of the company and has a claim on the
company through being paid dividends. Pattinson company and its subsidiary entities reports that
a net profit of 266.8 million Australian Dollars has been set aside as the profit that is attributable
to the shareholders as a consideration for their capital invested in the business. Since the
Pattinson company financial year ends at 31st July of every year the company lights to ensure
that its financial recordings are published before this time. Due to this the WHSP a subsidiary
branch of the Pattinson company discloses a Remuneration Report that is presented to the
manager at this period of the year (pg.29) The accounting documents of every entity by the legal
requirements in every country should be subjected to independence audit in order to show

ADVANCE FINANCIAL ACCOUNTING 5
whether the financial statements and the underlying books of account shows and reflects the true
and fair view of the company's state of affairs. The auditor must not be an employee of the
company to guarantee its independence. On 31st July 2018 the audit independence is declared by
the company (pg.29 of the Annual Report of 2018).
Going concern concept
The concept school of thought states that the business entity is expected to continue up to an
unforeseen future (Dewy & Dewi, 2017, pg. 120).
Importance of the going concern concept
 It ensures that investors get regular income on their investments.
 Provides a criterion for the computation of depreciation.
 Its absence may make the cost of a fixed asset be treated as an expense in the year of
purchase (Horton, Macve & Serafeim, 2011, pg. 492).
This only happens when the company is generating profits that is used in the service and the
expansion of the company. An entity that continually makes huge losses or selling at a breakeven
point may not depict the going concern concept as it has no revenue to further the expansion
soon of the business .In this report there is a chart that represents the company's information and
it is by the chart that we learn of the Pattinson company which has been in existence for a period
of 40 years and exhibits a going concern concept by this aspect(pg.6 of the annual report of
2018).The Pattinson company has been rapidly growing in the region it is domiciled in and from
its annual report it can be deduced that for the past 18 years the company together with its shares
has blossomed widely attracting several shareholders who have shown an interest in the
company as a potential and major source of investment(pg.7 of the 2018 Annual Report).Some
subsidiary corporates of the company have faced financial difficulties and this may lead to their
collapse and exit from the industry. This is evident by WHPS a branch of the Pattinson company
that is financially wound up and as a result exiting the industry after being in the commercial
sector for a period of 145 years hence going concerning is greatly depicted by this .Since the
company can enter into contracts in its own ,it approached West farmers to enter into a contract
that expires on the year 2019 hence elucidating a going concern concept(pg.17 Of The Annual
Report Of 2018).Furthermore ,the company enters into a contract by acquiring the shares in the
Clear Skin care clinics through takeover in 2018.It is expected that ,the company will begin

ADVANCE FINANCIAL ACCOUNTING 6
owning 75% of the total shares in the Clear Skin Clinic Care in 2020.The share influence of the
company will continue to rise within the remaining years and Pattinson will acquire a 100%
share ownership as by September 2021.This depicts a going concern that the entity is expected to
even beyond 2021 in its operations (Pg.17 Of The Annual Report Of 2018).The Pattinson
subsidiary branch goal production as reported by the company is expected to increase by 2029
and this is a period of 10 years that the company anticipates its expansion hence showing the
going concern concept of The Pattinson company and its branches. The branches of the Pattinson
company operate independently from the Parent company but are under the supervision of the
parent company. It is by this that the WHSP has granted the right to long-term deference of
shares (pg.46 of the 2018 Annual Report). The company further approached Godfrey
Remuneration Group to assist the company in determination of the long term incentive plan for
the company’s top management. The incentive period is expected to be 10 years and this shows
the company has a going concern concept (pg.49 of the Annual Report of 2018).
Business Entity concept
The concept states a business entity is deemed separate from the owners who supplied capital for
its start (Horvat, 2015).
importance of the business entity concept
 Aids in determination of expenses related to the business.
 Facilitates recording and reporting of business transactions from the commercial point of
view.
From this the company may sue, be sued and contract on its own name and may own property.
From this the company enters into a contract with West farmers to obtain 40 interest in the
Bengala mine (Pg.16 of 2018 Annual Report). The company further leased a land of 180 hectares
from the New Acland Mining in its own capacity as an artificial Person recognised by law
without involving the directors the sole owners of the company (pg.16 of 2018 Annual
Report).The company merging of Pengana and Hunter Hall to set Pengana Capital Group with
Pattinson being the largest shareholders (Pg16 of 2018 Annual Report).Through the capacity
granted by its parent company ,Round Oak company a subsidiary branch acquired Jaguar in its
capacity and the company (Pg.19 of the Annual Report).WHPS tenders its two of its

ADVANCE FINANCIAL ACCOUNTING 7
commercial office premises in Remnant Hills pg.21 Of the 2018 Annual Report).Pattinson is a
party to suit on the of Environmental Protection and Biodiversity Conservation Act of 1999 of
the country it is domiciled in.The company is divided into parent Company and the Consolidated
company. The Pattinson company and its subsidiaries are formed, established and run and the ran
under the Corporations Act of 2001 and its remuneration for the employees are to the Act. The
company further is liable to indemnity of directors, secretaries and executive officers (pg.50 of
The Annual Report). The company has taken some policies with the insurance agencies which
Directors and Office liabilities policy that is meant for the Directors and Officers only of the
parent company (Pg. 53 of The Annual Report).
MEASUREMENT
Measurement refers to the way of establishing the value of items that are to be recorded in the
financial and how they can be recognized and recorded in the statement of financial position and
income statement (Salas, Prince, Baker &Shrestha, 2017, pg. 67).
In the development of the conceptual framework,2010, the sitting board make some
consideration over measurement of various elements in the financial statements. They also
debated over the issue of measurement in depth and whether a single measurement method
should be adopted as a basis for measuring various elements in the financial statements. They
later on made a conclusion that using different basis of measurement will give a very useful
information to various users of the financial information. They therefore identified some basic
basis of measurement of accounting elements.
HISTORICAL COSTS MEASUREMENT
This basis gives an information on the items obtained from their historical costs value of their
original transaction (Boss et al (2010). Based on the historical costs measurement, the value of
the assets or liability in question is reviewed say on yearly basis to in order to determine its
depreciation value or the impairment costs.
According to the historical cost, it is expected that the carrying amount entered in the books of
account must not be higher than the value anticipated to be recovered from use or the sale of that
asset. It is therefore historical costs that can be recovered.

ADVANCE FINANCIAL ACCOUNTING 8
Historical costs basis is advantageous in that it is simple to use and also certain for instance
every entity knows that they have made certain payment amount for a certain asset when they
acquired them and also they know that they have certain amount of their liabilities based on their
various obligations.
The historical costs tend not to consider various changes in prices of non-monetary assets and
therefore current cost is sometimes preferred by some entities. For example, various carrying
amounts or book values of assets are outdated costs which have been affected by factors like
inflation.
CURRENT VALUE MEASUREMENT
This basis of measurement gives an information concerning the item by use of information that
gives a picture about the conditions during the period of measurement. Measurement base
comprise of the current costs, fulfillment value, value in use and the fair value (Barker &Schulte,
2017, pg. 56).
SOUL PATTISON MEASURMENT.
This company has employed the historical cost basis of measurement to determine the carrying
amount of various assets with the following items using the alternative methods as shown in pg.
63.;
On pg. 117, property plant and equipment are taken at their historical costs less any depreciation
(appendix I). this disclosure of the measurement basis is important to various investors to aid
them make key investment choices.
Other measurements in soul pattinson company.
 Software taken at historical cost less any amortization (pg. 125).

ADVANCE FINANCIAL ACCOUNTING 9
 Other intangible assets stated at cost less acc. amortization
DEPRECIATION.
According to the policy of soul pattinson, property, plant and equipment that were acquired
under the finance lease are to be depreciated using the estimated useful life of the asset (pg. 113).
Straight line method of depreciation is used to determine the depreciation of various assets
Amortization is applied on the intangible assets of the company using straight line method based
on their useful lives as shown below;
IMPAIREMENT
Goodwill and other intangible assets of the company with long useful lives are not subjected to
amortization but instead tested for impairment on an annual basis as shown in pg. 125 of 2018
annual report (Horton, Macve& Serafeim, 2011, pg. 493).
RELEVANCE AND FAITHFUL REPRESENTATION.
Relevance of the financial information implies that the information contained in the financial
statements must be relevant to the final user to assist him in the decision of investment choices
(Karğın, 2013, pg.73). It must influence the decision made by the user by helping him/her make
relevant judgement of the past activities of the company, determine on the current and predict on
future. For example, the information of a particular asset concerning present conditions will be of
benefit to the user in projection about the future behavior to adapt to various economic
conditions (Song, Thomas & Yi, 2010, pg. 1373). This role of the information has a key function
of determining the future set up of the entity in terms of budgets and various programmes.the
data regarding the situation of the entity at some time and its past achievement is utilized to
predict the next situation of the entity and various interested parties needs such as dividends
distributed to shareholders, earnings of employees and wages, stock values and the entity’s
liquidity. To be capable to utilize accounting data to project on the coming and previous events,

ADVANCE FINANCIAL ACCOUNTING 10
various information must be properly disclosed such as abnormal incomes generated or expenses
incurred by the company. All these items must be explained so as to aid in predicting on the
future adequately (Nobes &Stadler, 2015, Pg. 591).
Faithful representation of the financial information implies that accounting data must present
transaction and activities of the company in a faithful and transparent manner. For example, the
statement of financial position of the company must portray items such as assets, liabilities and
equity of the company as at the date of the balance sheet in a trues and reliable manner. This is
achieved by employing the correct measurement methods and recognition of revenues and
liabilities using the correct technique. Most of the accounting information normal portray data
and information that is not stated faithfully due to the problems in the methods of measurement
and recognition of key financial items like the determination of the goodwill could be hard to
establish in a very reliable manner leading to its misstatement in the books of accounts.to ensure
that financial information is presented in a very faithful manner, it is always good for the
company to provide supporting notes that usually accompany financial statements to disclose
various assumption used in measurement and recognition of various items in the financial
statements and the risks associated thereof. For information to be faithful therefore, it must be
complete in presentation, error free and must portray the neutrality (Macintosh, 2009, pg. 265).
Relevance and faithful representation therefore are both important if financial information is to
present true and useful information to various users. Information that is free from errors will be
relevant to the user in that it will give an information that will be utilized to the benefit of the
user such as true position on the company based on carrying values of different elements
EXAMPLES OF HOW RELEVANCE IS BROUGHT OUT IN THE FINANCIAL
STATETEMENT OF SOUL PATTISON COMPANY.
 In pg. 58 of the annual report, it is disclosed that earning per share from all operation
were 111.47 cents and 139.36 cents in 2018 and 2017 respectively. This information is
very relevant to potential and current investors of the group (appendix II).
 Under note 20 pg. 105, it is disclosed that the group faces diverse risks such as finance
risks and industry risks e.g. currency, interest rate risks and other liquidity risks. All these
risks will affect the performance of the group and therefore must be disclosed so that
relevance of the statements is achieved.

ADVANCE FINANCIAL ACCOUNTING 11
 As shown in the appendix III, various notes accompanying financial statements have
been prepared to explain various judgements and estimated concerning some key
financial elements. This disclosure is relevant to the users in making various decision.
 Depreciation and amortization of assets is done using straight line basis with estimated
useful lives of the assets. This disclosure helps users make relevant decisions (Fusy,
2009, pg. 1871).
 The disclosure of various subsidiaries shares performances like APEX’S share increase
shown in pg. 23. this information gives financial statement its relevance characteristic.
HOW FAITHFUL REPRESENTATION IS BROUGHT OUT IN THE FINANCIAL
STATEMENTS OF SOUL PATTINSON.
 Under note 21, pg. 109, fair value of some financial assets and investment properties are
disclosed that they are estimated for purposes of disclosure. This information underpins
faithful representation feature of financial statements.
 In pg. 127, calculation of goodwill is disclosed to be using some assumption and to
determine its impairment. This assist user to make key decisions. they disclosed some
assumptions used in estimation of useful lives of long term assets based on historical
experiences and their impairments through projecting undiscounted cash flow.
 In pg. 81, it is disclosed that the group seek independent valuation of some assets while
the fair values of net assets are based on provisional assessments. This is in line with
faithful representation.
 In pg. 137 under note 36, treatments of accounting information based on new standards
have been highlighted to ensure that all relevant matters that appertain to the preparation
standards are disclosed. This is in compliance with faithful representation.
 Under note 31, trade and other receivables are stated at their amortized costs. This is in
line with truthful representation of financial statements
 Under note 27 pg. 122 it is disclosed that exploration, acquisition and evaluation costs are
to be shown separately and initially recognized at costs. This statement is in line with
standards of preparation of financial statements of mining companies and thus represent
faithful characteristic.

ADVANCE FINANCIAL ACCOUNTING 12
 In pg. 124, goodwill is disclosed not to have been amortized but instead tested for any
impairment on yearly basis. This is faithful representation.
CONCLUSION
In conclusion, SOUL PATTINSON COMPANY limited has portrayed various accounting
concepts in the preparations of their financial statements and complied with issues of good
measurements and shows good qualitative characteristics of relevance and faithful
representation.