Advanced Financial Accounting: An Analysis of Pact Group Holdings Ltd.

Desklib provides past papers and solved assignments for students. This report analyzes Pact Group's financial accounting.

Advanced Financial Accounting
1

Table of Contents
Introduction:..........................................................................................................................................................3
1-............................................................................................................................................................................ 4
2-............................................................................................................................................................................ 9
3-.......................................................................................................................................................................... 12
Conclusion..........................................................................................................................................................14
References:........................................................................................................................................................15
2

Introduction:
In this study, Pact group holdings limited is selected for the brief study and structure of the
company. This company is founded by Raphael Geminder in 2002. This company has an
area of business in different countries likes New Zealand, India, and Asia. This company is
the largest manufacturer and engaged in the working of manufacturing rigid plastic
packaging products in Australia and also serve his services to the outside of the country.
In this company more than six thousand employees employed and its business area is in
fifteen countries. It has the work of plastic packaging in 22000 different products.
3

1-
The company uses above AAS for compliance. The basic accounting concepts that every
company must follow for the purpose of making their company in long term success. The Pact
group Holding Ltd. company uses the following accounting models and concepts in order to
make good finance reports (Tóth, and Herczeg, 2015).
Going concern: The company makes their financial accounts on the basis of making
assumptions that the company will go in the future for making or providing services.
Conservatism approach: The company used this model of accounting for the purpose of
recording their income and expenses. The revenue is only recorded in the books of accounts
of the company only when the receiving process is completely done while the expenses are
recording as there is a chance of being occurring in the near future.
Separate business entity: When the company registration is completed it is deemed that the
company and the owner of the company are not the same. The accounts are prepared to
keep in mind the company as the first person and all transaction are directly or indirectly
related to the company.
In Pact Group Holding Ltd. company, the company using accounting concepts and
standards for paying the remuneration of the company key managerial persons (KMP’s).
Such KMP’s of the company are that person who nisi in the top of the company likes chief
executive officer (CEO) and chief financial officer (CFO). These are the persons who
influence the overall market of the industry because they are persons who make and take
decisions regarding the company benefits (Jin, et. a., 2015).
Matching concept: This concept of accounting is facilitating the company fiancé
department that revenue and expense for the same period have been recognized in the
books of account. By performing this function, users ensure that the company financial
statement has been fulfilling all the requirement of concepts and able to make belief in this
report.
Central-bridge Pty Ltd gives 13 properties in two countries on lease to the Pact Group
Holding Ltd. 3 in New Zealand and ten in their Home country i.e. in Australia. The total
4

annual rent of the leased properties was $ 6.1 million (dollar) for the year ended June 30 th,
2018. The rent that was payable by the company is under the lease contract and it is
based on the independent valuation and market conditions at that time when both the
party (lessee and lessor) made contract between them.
The Pact Group Holding Ltd. company recognized the income or revenue generated from
the sale of goods at that time when the risk and rewards are transfer to the customer fully.
The price of the product of the company is determined or based on the quality of the
product. The company recodes the income that was generated from the sale of goods at
fair value of the product that has been received or receivable for the benefits of the
economy of the country (Hoyle, et. al., 2015). The company assets valuation is based on
historical cost and leased terms. For example, if the sale during the accounting period was
$ 1.6 million over the period then it should be recorded on the assumption of matching the
concept of accounting principles and concepts.
5

In the above table of remuneration, the company was not using Australian Accounting
Standards (AAS) for the payment of salary to the employee of the company.
Australian accounting standards are set by the independent agency of the Australia that is the
Australian Accounting Standards Board. The standards of the accounting provide a
framework of the company financial performance and also enable the users to see its
financial position by analyzing or study the company statement like balance sheet and income
statement or profit and loss account. Australian government (AAS) 139 is related with the
financial instruments for recognition and measurement AAS 16 is related with a lease of the
assets and AAS 128 is related with investments in associates and joint ventures for the non-
profit organization.
6

Financial reporting includes the finding of the financial related information to various types of
stakeholders about the overall financial performance and position of any organization over the
mentioned time period. Stakeholders such as creditors, investors, agencies of government
and debt providers (Cascino, 2019). In such companies, the chances of financial reporting
may be quarterly or annually. Financial reporting can be of many types: statement of financial
position, income statement, cash-flow statement, change in equity statement, notes to
financial statements and prospectus (when a company offers Initial Public Offer), etc. Here
the financial reporting issues which take place are:
1. Proper valuation of equity transactions.
2. The total impact on financial related statements of the financial crisis.
3. A proper discussion of management and their analysis.
4. Under old standards of accounting, a lessee categorizes the leases as either operating or
financial lease. Whereas in newly coming standards, the lessee will be needed to know lease
liabilities and lease assets in the financial position statement for all the leases.
Pact group is operating and functioning in Australia so it is needed to make the financial
reports which are prepared at the end of every financial year and afterward it is mandatory to
be properly audited so that no hindrances occur during the process of accounting. However,
sometimes a company may try to avoid these financial reports making and then face the
problem.
7

Theories of accounting used to explain the old procedures and practices to get a better
understanding and also for providing a logical set of principles that form the general structure
of reference for the purpose of evaluating and developing the sound practices of accounting.
It also helps in understanding the brief knowledge of accounting standards for the Pact
Group’s concern. Measurement is said to be a very important part of accounting. By this, the
best alternative can be chosen which will provide benefit or advantage to the Pact group Ltd.
Measurement of accounting helps in calculating the financial and economic operations or
activities in terms of money or some other units. Comparing and evaluation of the accounting
data can be done with the help of this. Information of accounting gives useful performance
measures and financial related position. So, it needs to give information about assets and
liabilities value, overall business value, etc. Accounting theories involve both historical
methods of accounting study and practices of accounting that will be used current or present
financial implementation. Also, if there is any change found related to the financial reporting
and financial framework by the specialists. Advantages of accounting include it helps in
preparing the financial related statements properly, also a comparison of results can be done,
helpful in making the decisions, business records maintenance and also beneficial in
providing related parties the information (Tóth, and Herczeg, 2015). On the other hand, it has
some disadvantages also that include manipulating of the accounts, information of accounting
is somehow based on the estimation, and sometimes information of accounting is treated as
unfair. Functions of accounting are:
1. Finding out of the P&L.
2. Helpful in the decision-making process.
3. Maintaining the systematic records.
4. Also helpful in finding out of the financial related position of the company.
5. Securing and properly control the business-related properties.

8

2-
A conceptual framework which was developed by the standard of accounting setters that
isimportantly based on the identification of good practice from which principles can be
derived. The method of identifying good practice is directly related to objectives that were
assumed of financial reporting. Attention must be paid to conceptual consistency and the
process of development naturally includes conceptual up. The conceptual frameworks can be
written in descriptive or in prescriptive style or sometimes in both ways. They are importantly
regulating since they give a set of principles as a setting guide and understanding the
standards of accounting (Langham, et. al., 2015). The main purposes of the framework can
be discussed as follows:
1. To help in the preparation of financial statements by applying the proper accounting
standards and also helps in dealing with the related topics.
2. To help the board in the development of future standards of accounting and also in reviewing.
3. Helping the auditors information of opinion as to whether financial statements match with the
accounting standards.
This conceptual framework is very much important as far as accounting's concern as this
plays a very crucial role in formulating the policies and also the standards (Ernst, et. al.,
2016).
9

It has been seen that there are numerous types of Australian Standards and understandings
are issued but not adopted by Pact Group Holdings Ltd. and also not yet become effective at
the end of June 2018. Following are the standards that create an impact on the Pact Group at
the initial stage:
New Amendments
or Standards
Financial Year of Pact that
it is effective if not
adopted early
Impact on financial results of
Pact
AASB 16: Leases Starting 1 July 2019 This standard basically sets out
the principles for the
presentation, measurement,
identification, and findings of
leases and needs lessees in the
accounting of all the leases on
balance sheet model just like
financial leases of accounting in
AASB 17. There is a requirement
of the lessee to know about the
liability for payment making
(liability of lease) whereas an
asset shows the right for using
the given asset during the term of
the lease(Hoyle, 2015).The lease
payments principle components
will be changed into operating
activities from financing activities
of the cash-flow statement.
10

AASB 15: Revenue
from Customers
contracts (will swap
AASB 111:
Construction
Contracts) and AASB
118: Revenue and
Starting 1 July 2018 Currently, Pact Group presently
recognizes the revenue when the
revenue recognition established
motive has been achieved which
is usually on the goods delivery
or shipment(Jin, 2015).But after
coming into existence of the new
standards, products revenue that
chases the overtime revenue
recognition model will for sure be
known before the delivery person
on the particular terms of a
contract. The overall financial
impact of this standard will be
shown in the financial statements
for the period of 6 months i.e. 31
December 2018. The Pact Group
will be adopted on the basis of
modified retrospective effectively
from 1 July 2018.
AASB 9: Financial
Instruments
Starting 1 July 2018 Introduction of a new model of
credit loss for the calculation of
impairment of financial assets is
done under this. After adopting
this standard there is not so large
impact on the Pact’s financial
statements but the following
changes are discussed below:
1. Calculating the discount on trade
sale and some other receipts will
bring forward to balance date and
its treatment can be done with
the help of the income statement.
2. For Group’s financial liabilities
that are measured at fair value
through P&L, the income and
loss element changes in the
Group’s self-credit risk will now
be considered in the other
comprehensive income in place
of P&L account.
11

3-
The impaired assets are the company owned assets. The market price of such assets is less
as compared with the balance sheet of the listed company. The value of which the value of
the assets have been reduced such as company' s assets, goodwill, and long term assets
that have been purchased used for the long term in business due to the reason of these
assets carrying value is minimum for a longer span of time for impairment. The company
records its impaired assets loss in the income statement or its profit or loss account by
adjusting or verifying carrying value. Those assets are impaired nature in which the budgeted
cash flow is directly related to the Pact Group Holding Ltd.'s assets. Capital assets of the
company are depreciated as per the instruction of carrying a cost of the assets. If the
impaired capital assets then the amount of depreciation for the period should be adjusted
accordingly (Bond, et. al., 2016).
At the time of lease contract between the lessee and lessors, the lessor should consider the
leased assets in its financial statement and recorded as receivable in the same amount to the
net investment made in the lease. In the contract of lease, the lessor should use the interest
rate as implicit for evaluating the net investment. That cost that had been made while making
a contract of lease shall be recognized in the staring measurement of the net investment. And
the amount that has been received shall be reduced from the income of the company over the
lease term rate (Brumm, and Liu, 2019).
Following are the amount has been included in the net investment in the lease contract:
 Variable lease payments.
 Any residual value guarantor that had made promised to pay, in case of the default of the
lessee.
 Fixed payments (subtract any payable of lease incentives).
Sources: By Authors, 2019
Carrying cost is that value of money in accounting terms in which the company used to write
the number of their psychical assets at down value (original cost – total depreciation up to the
period). In case of o purchasing intellectual assets, the carrying price of the assets is written
at actual cost i.e. purchase price minus amortization expense. The company used such
carrying cost in their business on the company (Pact Group Holding Ltd.) current and non-
current assets and also liabilities.
12
Carryingcost