Accounting Financial Analysis Report: Myer Corporation & AASB Impact

This financial analysis report examines Myer Corporation's accounting practices, focusing on the impact of Australian Accounting Standards Board (AASB) standards, particularly AASB 117, AASB 9, AASB 15, and AASB 16. It discusses the classification of leases, the recognition of lease incentives, and the implications of adopting new accounting standards on financial instruments and revenue recognition. The report also assesses potential economic consequences, including external and competitive risks, associated with these changes. The analysis covers the impact of AASB 16 on lease payments and the effect of AASB 15 on revenue recognition, highlighting potential volatility in financial reporting. Desklib provides access to this and other solved assignments for students seeking study resources.

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

2
ACCOUNTING FINANCILA AND ANALYSIS REPORT
Table of Contents
Answer 1....................................................................................................................................3
Answer 2....................................................................................................................................4
Answer 3....................................................................................................................................5
References:.................................................................................................................................8

3
ACCOUNTING FINANCILA AND ANALYSIS REPORT
Answer 1
The AASB 117 standard deals with leases. This standard requires:
 a lessor and a lessee to classify the lease. The classification can either be a finance
lease or an operating lease. This depends on its economic substance
 An operating lease recognises lease payments as an expense on a straight line basis, .
The systematic basis represents the time pattern of the basis of the user(Tan‐Kantor,
Abbott and Jubb 2017).
The objective of this standard is to prescribe lessors and lessees. This relates to the
disclosures of aggregate accounting policies in relation to leases. According to this standard,
a lease is an agreement. In this agreement the lessor conveys the lessee an asset in exchange
for a payment . This is set for a fixed time period. A lease can be classified as a financial
lease if it transfers all the risks and rewards that are related to ownershop of assets . It can be
classified as an operating lease if it does not transfer all the risks and rewards that are
entitled to ownership. The lease shall recognise lease as assets and their liabilies in the
balance sheet . This valuation will be done at a similar amount to the fair value of the
property that is leased (Wong and Joshi 2015).
In terms of the company Myer , the accounting policy of lease rights represent the
amount that is paid in advance to take over the store site leases from the existing leases
Lease rights are amortised over the term of the lease. In addition to the renewal options, thse
lasing rights are of judicious certainty that can be utilised at the time of acquiring the rights
of the lease. It also has a support office that provides lease in relation to the excess office
space that is identified within the premises of the office. the valuation is based on the
discounted future cash flows that operates under a non cancellable lease . This non

4
ACCOUNTING FINANCILA AND ANALYSIS REPORT
cancellable laease will expire in 2022. The expected future expected rental income is to be
subtracted to arrive at the actual valuation (Laing and Perrin 2014). The organisation has
other number of leases as well. These leases include fixed rental leases. As per the AASB
117 the total rentals over these leases are being allocated on a straight line basis . The above
facility signifies the gap between the future lease payments and the future expenses. A part
of the office lease is recognised during the period,. Due to this a recognition, a provision
has been written back. This will reflect the readjusted total future expense that is expected
over the lease term that is remaining
Answer 2
Lease incentives are received on entering . They are recognised as deferred income .
They are ammortised and charged to the income statement on a straight line basis over the
period of the lease.
The proposed accounting policies relating to the leases include:
 The company will lease most of its stores and warehouses under non cancellable
operating leases. These will all expire within one to 30 years. These leases have
escalation clauses, varying terms and rights of renewal. By renewing the lease, the
lease terms are negotiated again (Drew, Kortt and Dollery 2015)
 As per AASB 116, a lease was released in February 2016 by the AASB. This
statement analyses the classification between operating lease and financial lease. It
will result in the recognition of a front loaded pattern of expense for most leases . This
will also happen when there is payment of annual rentals. This will be valid from
January 2019. It is probable that there will be a material impact on the consolidated
statements of the company. It is also possible that in future years the leases that are
currently classified as operating lease will need to be brought on the balance

5
ACCOUNTING FINANCILA AND ANALYSIS REPORT
sheet.Further the current lease that is recognised as an operating expense needs to be
substituted with a depreciation charge(Yao, Percy and Hu 2015). The company is
currently undergoing how the impact of the new standard will provide an estimate of
the financial impact .
Answer 3
The company has made new and amended standards adopted by the Group. It has applied the
following new standards or will apply in the future:
 AASB 9- Financial instruments- These discourses the arrangement and recognition of
financial assets and liabilities. It also presents a new rule for hedge accounting . It
also undertakes a new impairment model . This model is used for financial assets. The
standard is not valid till January 2018. There will be no material impact on the
financial liabilities. This is because the new requirement only affects the financial
liabilities accounting. These are chosen at fair value through profit or loss. Further
the company does not have liabilities of this nature..The company has not evaluated
how the new rules will impact the hedging requirements. However it does not expect
the impact to be material . The disclosures are however required in the financial
statements(Joubert, Garvie and Parle 2017).
 AASB 15- Revenue from contract with customers- It is a new recognition standard.
This is the standard that states that revenue must be recognised when the control of
goods or services are shifted by the customer at a price called transaction price. This
standard is not valid till January 1 2018. In this case, the company does not expect a
significant impact from this standard.
 AASB 16- It was realised in February 2016. this was realised by the AASB. This
standard removes the classification that is distinguished between operating and

6
ACCOUNTING FINANCILA AND ANALYSIS REPORT
financial lease. It also makes way for a single accounting model. The new model
requires the recognition of leased asset. It also requires the recognition of a
conforming lease liability. All assets have a lease term of more than 12 months . The
separate recognition of the depreciation charge that is accrued on the leased asset will
be recognised as lease liability(Handley, Wright and Evans 2018). There are also
accounting changes over the duration of the lease. This standard is valid from
January 1 2019 if and only if AASB 15 is also adopted in an earlier manner. The
implementation of AASB 16 is expected to have a material impact on the financial
statements because of a lessee with a substantial portfolio . Further , the operating
lease expense is recognised in the income statement . This expense will be replaced
with a depreciation and finance charge.
Answer 4
The potential economic consequences for changes in account standard include:
 External risks- Macro economic factors including the Australian dollar fluctuations in
interest rates , and poor consumer confidence, affect the company’s influence to attain
growth. The company regularly examines and uses economic data .These will help
alleviate the impact on sales . The new hedging practices will be able to fight the the
business ‘s cyclical policy (Han 2014).
 Competitive risks- The retail industry of which Myer is a part of is extremely
competitive. The company’s position of competitiveness may be negatively
obstructed by the possibility of entry of new players in the market. These new
accounting standards will provide a more competitive edge to Myer
 AASB 16 will lead to an faster recognition of lease payments. These payments will be
recognised in the profit and loss statement. The deprecation and interest component

7
ACCOUNTING FINANCILA AND ANALYSIS REPORT
that is attached as part of the lease expense under this new standard will be higher in
the early years . In a simple lease agrrement however the simple lease expense will
be recognised under the current accounting standard. (Dudin et al. 2016)
 In terms of implementing AASB 15 the revenue recognition is done upon the
satisfaction of accounting standards. This new standard will require the entity to
measure the obligations that the performance demands. Further it determines what
value do they assign to each performance obligation. In this way the recording of
revenue is met. This may result in a noteworthy surge of the revenue recognition’s
volatility.. The same will be applicable for Myer as well.

8
ACCOUNTING FINANCILA AND ANALYSIS REPORT
References:
Wong, K. and Joshi, M., 2015. The impact of lease capitalisation on financial statements and
key ratios: Evidence from Australia. Australasian Accounting, Business and Finance
Journal, 9(3), pp.27-44.
Tan‐Kantor, A., Abbott, M. and Jubb, C., 2017. Accounting Choice and Theory in Crisis: The
Case of the Victorian Desalination Plant. Australian Accounting Review, 27(3), pp.273-284.
Laing, G.K. and Perrin, R.W., 2014. Deconstructing an accounting paradigm shift: AASB
116 non-current asset measurement models. International Journal of Critical
Accounting, 6(5-6), pp.509-519.
Drew, J., Kortt, M. and Dollery, B., 2015. What determines efficiency in local government?
A DEA analysis of NSW local government. Economic Papers: A journal of applied
economics and policy, 34(4), pp.243-256.
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.
Noaman, N., Ouda, H. and Christiaens, J., 2018. Indexing financial reporting information for
heritage management. Economics and Management.
Yao, D.F.T., Percy, M. and Hu, F., 2015. Journal of Contemporary Accounting &
Economics. Journal of Contemporary Accounting & Economics, 11, pp.31-45.
Joubert, M., Garvie, L. and Parle, G., 2017. Implications of the New Accounting Standard for
Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance
Sheet. Journal of New Business Ideas & Trends, 15(2).

9
ACCOUNTING FINANCILA AND ANALYSIS REPORT
Handley, K., Wright, S. and Evans, E., 2018. SME Reporting in Australia: Where to Now for
Decision‐usefulness?. Australian Accounting Review.
Ramos, P.L., Dey, D.K., Louzada, F. and Lachos, V.H., 2018. An extended poisson family of
life distribution: A unified approach in competitive and complementary risks. arXiv preprint
arXiv:1805.07672.
Han, M.F., 2014. Measuring external risks for Peru: insights from a macroeconomic model
for a small open and partially dollarized economy (No. 14-161). International Monetary
Fund.
Dudin, M.N., Frolova, E.E., Lubenets, N.A., Sekerin, V.D., Bank, S.V. and Gorohova, A.E.,
2016. Methodology of analysis and assessment of risks of the operation and development of
industrial enterprises. Calitatea, 17(153), p.53.