ACCG224: Financial Accounting Analysis Report on Wesfarmers

This report provides a comprehensive financial analysis of Wesfarmers, focusing on its accounting policies and estimates related to Property, Plant, and Equipment (PPE) in accordance with AASB 108 and AASB 116. The analysis examines the company's application of professional judgments in areas such as asset valuation, depreciation methods, and useful life estimations. The report highlights the significance of these judgments in financial reporting and their compliance with accounting standards. It reviews Wesfarmers' accounting practices, including the straight-line depreciation method and the determination of asset impairment. The report offers recommendations for improving the clarity and comprehensiveness of financial disclosures, particularly regarding PPE. The analysis emphasizes the importance of adhering to accounting standards and the impact of estimates on financial statement accuracy.

Running head: ACCOUNTING FINANCIAL ANALYSIS REPORT
Financial Analysis
Name of the Student:
Name of the University:
Author’s Note:

1ACCOUNTING FINANCIAL ANALYSIS REPORT
Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Accounting Policies.....................................................................................................................3
Wesfarmers Accounting Policies and Estimates.........................................................................4
Application of Professional Judgements.....................................................................................5
Recommendations............................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

2ACCOUNTING FINANCIAL ANALYSIS REPORT
Executive Summary
The aim of the assignment is to conduct an analysis on the various accounting policies and
concepts used in accordance with the AASB 108 and the applicability of the same in the various
professional judgments made by companies. The key accounting standards that has been
reviewed and analyzed were the AASB 108 Accounting Policies and AASB 116 Property Plant
and Equipment for the purpose of analysis. The applicable accounting standard that was taken
into consideration was the AASB 116 Property Plant and Equipment. Further, on a later note a
recommendation was also provided for the management of the company for the purpose of
improvement in the accounting policies followed in the context of PPE of the company.

3ACCOUNTING FINANCIAL ANALYSIS REPORT
Introduction
Accounting policies and estimates used by companies should be in well compliance with the
AASB 108. There are various professional judgments made by the company while valuing and
classifying the assets and liabilities of the company the applicability of the same within the
context of AASB 108 and accordingly, it is important to review the same. The company that has
been selected for the purpose of analysis is the Wesfarmers Company whereby the accounting
policies and estimates used for measuring the PPE will be of crucial importance for the purpose
of analysis of the report.
Discussion
Accounting Policies
The accounting policies and estimates especially applies to a transaction, other event
condition for the purpose of better classification and recording of items stated. As stated in
“Paragraph 8 of AASB 108”, the Australian Accounting Standards sets out the various relevant
and reliable accounting information (Garbowski et al., 2019). It is important that the company
well adheres with the accounting policies guided by the Australian Accounting Standard Boards.
It is clearly stated in “Paragraph 13 of AASB 108” that an company apply its accounting
policies for various similar transactions that is observes, unless the AASB specifically requires or
has a specific set of laws that needs to be adhered for the purpose of classification and
categorizing the items (Aasb.gov.au 2019). The changes in the accounting policies can be well
referred with the “Paragraph 14 of AASB 108” stating that an entity can change the accounting
policy given the fact that it is indeed required by the Australian Accounting Standards. The other

4ACCOUNTING FINANCIAL ANALYSIS REPORT
key instance when the same can be allowed is when the application of changes results in
providing reliable and relevant information about the various effects of transactions reported in
the financial statement of the company.
It is accordingly important that while making various judgements and assumptions in the
context of items reported the management of the company should refer with the AASB 108,
whereby in the “Paragraph 11 of AASB 108” the board clearly states out the requirements.
While making judgement and assumptions it is important that the definitions, recognition criteria
and the various types of measurement concepts used for the purpose of valuation and reporting
of the stated items are well in the context of AASB 108.
Wesfarmers Accounting Policies and Estimates
The accounting policies and estimates used by the company for the purpose of
recognition of the Property, Plant and Equipment is done at the cost value less any impairment
and depreciation value associated with the asset. The cost value reported in the books of account
includes the cost of the assets less any cost that would be attributable in replacing and are
eligible for the purpose of capitalisation (Wesfarmers.com.au 2019).
The key estimates used and applied for the purpose of estimating useful life, residual or
scrap value and various amortisation methods are applied by the company that is well applicable
with the AASB 16. Items reported in the financial statement such as property, plant and
equipment are well depreciating by applying the straight line method of depreciation over the
estimated useful life of the asset. The estimated useful life for the Properties (Building) has been
taken at 20 and 40 Years respectively, for Plant and Equipment a useful life of 3 and 40 years
have been recorded by the company.

5ACCOUNTING FINANCIAL ANALYSIS REPORT
Application of Professional Judgements
The “AASB 116 Property Plant and Equipment” accounting standard well guides the
entities and companies for the purpose of classification and recording of various types of assets,
determining the carrying values and the associated depreciation charges for the asset. The
standard is applied in the case of accounting for property, plant and equipment, except the fact
that when the standard requires a different way of accounting treatment for the specified assets
(Aasb.gov.au. 2019).
The professional judgements that have been applied by the company are in the
context of recognition of the carrying value of the property plant and equipment, scrap or
residual value of the assets and the useful life of the assets for the define d period of time. The
professional judgement that are applied by the company are well within the “AASB 116
Accounting Framework” that has helped the company in recognizing and classifying the assets
of the company (Prichici and Ionescu 2015). The estimated useful life for the Properties
(Building) has been taken at 20 and 40 Years respectively, for Plant and Equipment a useful life
of 3 and 40 years have been recorded by the company, which has been well applied by studying
the industry standards where in nature and characteristics of the underlying property has been
well assessed by the company (AASB 2013). The review of the assets of the company in terms
of reviewing the carrying value and fair value of the assets are well compared on a yearly basis
which is well done as per the industry standard levels. There are several key accounting
estimates that the management of the company has applied for the purpose of classification and
recording of the assets for, which relevant disclosures has been made in the footnotes of the
company (Ahmed and Duellman 2013). It is necessary as stated in the AASB 116, that
assumptions and judgements made by the management of the company should be well in

6ACCOUNTING FINANCIAL ANALYSIS REPORT
compliance with the applicable recognition criteria and standards that satisfies the criteria and
assumptions stated. The company also recognizes an impairment charge on an annual basis if
during the review process there is a material difference noted in the carrying and fair value of the
assets. Impairment charges are directly treated as an expenses in the income statement of the
company which is well followed in the industry and is required by the AASB 116 (Yao, Percy
and Hu 2015).
Recommendations
The accounting policies used by the Wesfarmers Company has been well compliant with
the applicable AASB 116 where concepts, recognition criteria and measurement of assets was
well followed with in the standard. The accounting policies used by the company in the context
of various estimates and professional judgments used was found to be compatible with the
AASB 108. However, while evaluating the financial footnotes it was seen that the company
should on a more comprehensive or in a detailed manner present other relevant and crucial data
that might be useful for the analysts and shareholders of the company in analyzing the financial
position of the company.
Conclusion
Adherence and compliance with the accounting policies and standards is an important
matter as the same helps in giving a base to the various assumptions and judgements used by the
company for reporting a value related to asset. The key accounting standards that has been
reviewed and analyzed were the AASB 108 Accounting Policies and AASB 116 Property Plant
and Equipment for the purpose of analysis.

7ACCOUNTING FINANCIAL ANALYSIS REPORT

8ACCOUNTING FINANCIAL ANALYSIS REPORT
References
AASB, C.A.S., 2013. Property, Plant and Equipment.
Aasb.gov.au. 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB108_08-15.pdf [Accessed 24 Sep.
2019].
Aasb.gov.au. 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB116_08-15_COMPoct15_01-18.pdf
[Accessed 24 Sep. 2019]..
Ahmed, A.S. and Duellman, S., 2013. Managerial overconfidence and accounting
conservatism. Journal of Accounting Research, 51(1), pp.1-30.
Garbowski, M., Drobyazko, S., Matveeva, V., Kyiashko, O. and Dmytrovska, V., 2019.
Financial accounting of e-business enterprises. Academy of Accounting and Financial Studies
Journal, 23(2).
Hodgson, A. and Russell, M., 2014. Comprehending comprehensive income. Australian
Accounting Review, 24(2), pp.100-110.
Prichici, C. and Ionescu, B., 2015. Cloud Accounting–A New Paradigm of Accounting
Policies. SEA–Practical Application of Science, 1 (7), pp.489-496.
Wesfarmers.com.au. 2019. [online] Available at: https://www.wesfarmers.com.au/docs/default-
source/asx-announcements/2018-annual-report.pdf?sfvrsn=0 [Accessed 24 Sep. 2019].

9ACCOUNTING FINANCIAL ANALYSIS REPORT
Yao, D.F.T., Percy, M. and Hu, F., 2015. Fair value accounting for non-current assets and audit
fees: Evidence from Australian companies. Journal of Contemporary Accounting &
Economics, 11(1), pp.31-45.