CO5122 Accounting for Corporations: Wesfarmers Financial Report

This report analyzes the financial performance of Wesfarmers, an Australian conglomerate. It examines the nature of Wesfarmers' activities, its equity structure, and share price fluctuations. The report delves into the company's fixed assets, external debt, and intangible assets, including impairment considerations. It highlights key business segments, financial debt, and the impact of acquisitions like Catch.com. The analysis covers the composition of equity, share price trends, debt-to-equity ratio, and the effects of impairment on intangible assets. The report also discusses the company's performance in HY2019, including key business segments and financial metrics, with references to the annual report and relevant financial literature. The report provides a comprehensive overview of Wesfarmers' financial health and performance, based on its annual report and industry analysis.

Running Head: ACCOUTNING FOR CORPORATIONS
ACCOUTNING FOR CORPORATIONS

Running Head: ACCOUTNING FOR CORPORATIONS
Contents
Nature of the activities of Wesfarmers.......................................................................................3
Composition of the company’s equity.......................................................................................3
Share price..............................................................................................................................4
Share price analysis....................................................................................................................5
Elements in category of fixed assets......................................................................................5
External debt..............................................................................................................................6
Intangible assets.........................................................................................................................7
Impairment of intangible assets of Wesfarmers.........................................................................8
Key business fragments stay stable in HY2019...................................................................10
Summary..................................................................................................................................11
References................................................................................................................................12

Running Head: ACCOUTNING FOR CORPORATIONS
Nature of the activities of Wesfarmers
Wesfarmers is an Australian conglomerate, which is headquartered in Perth, Western
Australia. Currently with the team of 223000 employees, Wesfarmers Limited has expanded
its business in range of differentiated arrangement of activities including equipment, office
supplies, attire and retail chain retailing; coal mining and dissemination; concoction and
manure assembling; and circulation of modern security items (Wesfarmers, 2019).
Wesfarmers tends to be one of the most renowned companies that hold a greater market share
in with most of the interests which are predominant in Australia as well as New Zealand. It
has grown into one of the largest organizations of Australia and hence a detailed
understanding has been carried out to understand most of the sections of the annual report in
detail. The equity, the share price, a clear discussion of fixed assets, debt financing and
intangible assets as well has been analysed to get a proper understanding (Williams &
Dobelman, 2017).
Composition of the company’s equity
In case of Wesfarmers the equity is composed of several elements such as issued
capital, reserved shares, retained earnings and reserves. Over the period of the last two years
the structure has been same. The share capital of Wesfarmers Limited was $22754 and the
same has been decreased to $9971 in the current year 2018. The issued capital has decreased
which states that shares have been sold. The reserves are also in the negative balance and this
states that the extra reserves have been used up to settle down the liabilities (Wesfarmers,
119-110, 2019). The equity plays a vital role in formation of the business at the initial level.
Moreover there is a necessity of the balance between the debt and the equity.

Running Head: ACCOUTNING FOR CORPORATIONS
Share price
The closing share price of Wesfarmers can be observed in the annual report of
Wesfarmers. The share price was 39.03 in the year 2015 and the same reached to 36.16 after
various fluctuations. The share price as on 30th June 2019 is 36.16 per share. The relationship
with the share capital as given in the balance sheet is for the purpose of the calculation of the
overall value of equity. The share price has fallen but it has continued to rise up on the same
day closing at 36.16 and the new opportunities will hit the price even more up after the
acquisition of Catch.com for A$230 million. This will also accelerate the online offerings and

Running Head: ACCOUTNING FOR CORPORATIONS
also leads to the fulfillment of the capacity (Wesfarmers, 94-95, 2019). The offer cost of
Wesfarmers Ltd rose 1.07% during Tuesday's exchanging session, finishing the vacation day
at an unequaled high of A$38.89 per share. All up, the gathering's benefit after expense
(NPAT) from proceeding with activities became 10.4% during the primary portion of the
2019 financial year.
Share price analysis
Despite the fact that the organization has gone under weight from examiners as of
late, financial specialists have in any case offered the offer value 23% higher YTD. A string
of yet to be concluded acquisitions are probably going to have added to this ongoing financial
specialist energy. For instance, Wesfarmers Ltd as of late stood out as truly newsworthy
when it went into consent to secure Catch.com for A$230 million. As Wesfarmers keeps on
growing its advanced impression, the securing of Catch.com will probably help quicken the
organization's online contributions and satisfaction capacities. Other arranged acquisitions,
for example, consent to get lithium designer Kidman Resources likewise address Wesfarmers'
longing to venture into business sectors of consistently developing significance. Whenever
endorsed by investors, Wesfarmers expects the Kidman arrangement to be settled by
September (Simply Wall Street, 2019). During Wesfarmes' entire year results declaration,
speculators will probably be quick to check whether any advancement has been made on the
Kidman Resources securing – given that the organization recently noticed that it anticipated
that this arrangement should be settled in September.
Elements in category of fixed assets
Plant property and equipment in category of fixed assets have been decreased in
comparison to the previous year. In this year the sale of the property, plant and equipment has
also been seen in the annual report of Wesfarmers. The cash while selling of the property was

Running Head: ACCOUTNING FOR CORPORATIONS
realized for $529 million and the same were $77 million less in comparison to the previous
year at Bunnings offset. Due to continuous and favorable commercial conditions the proceeds
have been powerful. As per the balance sheet fixed assets have been sold and disposed of in
comparison to the previous year. The company also availed the gain on disposal worth $124
in the year 2019. In case of impairment of the property plant and equipment, the impairment
has been settled successfully (Wesfarmers, 120-124, 2019).
External debt
The external debt can be termed as the loan taken from outside authorities and
institutions. These credits, including interest, should as a rule be paid in the cash in which the
advance was made. To win the required money, the acquiring nation may sell and fare
products to the moneylender's nation. The net debt in comparison from the previous year has
been reduced from the previous year from $3933 to $2500 which means, that the debt has
been settled. The debt to equity ratio has been increased from 17.3% to 25.1% in the year
2019 due to the sale of shares and settlement of the debt as well. Net financial debt, at the end
of period comprises of interest bearing liabilities as well as net of cross currency interest rate
swaps. The main of the company is to diversify the funds and formulate the new financial
strategy. The major scenario is that in March 2019, one of the bonds worth $500 million
matured and this was repaid with the help of the existing cash balance. The debt has been
cleared in order to invite the working capital requirement for better working of the operations
and the facilities (Lewis & Tan, 2016).

Running Head: ACCOUTNING FOR CORPORATIONS
The net financial debt position can also be analyzed with the help of the picture
above. The operating leases and the bank facilities and bonds form the part of fixed financial
obligations. Apart from this, Wesfarmers has introduced the new program of initiative that
deals with the proper conversation with the investors, shareholders and stakeholders (Huang,
Ritter & Zhang, 2016).
Intangible assets
The fiscal reports of auxiliaries are set up for the same revealing period as the current
company is dependent on accounting arrangement. Changes are created to display any
different bookkeeping arrangements that may exist. In setting up the combined fiscal

Running Head: ACCOUTNING FOR CORPORATIONS
summaries, all intercompany parities and exchanges, pay and costs and advantages and
disadvantages coming about because of intragroup exchanges have been wiped out.
Intangibles are combined from the date on which control is gotten to time period on which
the control is arrangement. The procurement of intangibles is represented utilizing the
procurement strategy of accounting (Wesfarmers, 127-128, 2019).
Impairment of intangible assets of Wesfarmers
An acknowledgement has not been perceived on uncertain life intangibles for which
the conveying esteem has been evaluated as recoverable through deal, steady with the
gathering's training and methodology to expand investor returns. Intangible resources
obtained independently are estimated on beginning acknowledgment at cost. The expense of
immaterial resources procured in the process of the business on the date of acquisition.

Running Head: ACCOUTNING FOR CORPORATIONS
The treatment of the impairment assets possessing the particular time period are
amortized on the basis of the SLM method. A deferred tax liability which has not been
recognized on the basis of the carrying value is treated as a part of the sale. At the time of the
initial recognition, intangible assets are recorded at the cost and the amortization and any
impairment losses. The list of the impairment has been listed below and this has also affected
the financial performance. The amount of the impairment that has been included is of $1167
million (Wesfarmers, 128, 2019).
There is a particular treatment of the impaired assets in case of the reversal of
impairment when the assets no longer exist. In such case of reversal of impairment the
reversal amount is recognized in profit and loss account and the depreciation is also charged
or adjusted in the near future accordingly. The impairment phase of AASB 9 has been
implemented from July 1 2018. This has also resulted in the changes in the accounting policy.
Impairment assessments are typically complex is nature (André, Dionysiou & Tsalavoutas,
2018).

Running Head: ACCOUTNING FOR CORPORATIONS
Key business fragments stay stable in HY2019
Wesfarmers Ltd 2019 half-year results underscore the organization's intrigue as a
steady, blue-chip stock to financial specialists. The overall net group’s profit after tax
(NPAT) from proceeding with activities became 10.4% during the primary portion of the
2019 financial year. Office works saw amazing top-line development of 8.2% in the main
half – driven by coming up and online deals development. The organization's Kmart Group –
which incorporates both Kmart and Target – saw progressively unobtrusive income
development, up less than 1% for the half. Indeed, even still, the organization recorded
twofold digit development in computerized deals – basically determined by the execution of
purchase presently pay later administrations and snap and gather administrations (IG.com,
2019).
Wesfarmers industrials additionally posted great top-line development, seeing its all-
out income increment by 7.2%. Around there Wesfarmers stays positive, keeping up that

Running Head: ACCOUTNING FOR CORPORATIONS
information and advanced change will help improve store network efficiencies and construct
stock abilities throughout the following 12 to year and a half (IG.com, 2019).
Summary
From the overall analysis of the annual report of Wesfarmers it can be stated that the
retained earnings. The retained earnings of Wesfarmers have turned out to be negative in
comparison to the previous year 2018. Earlier the retained earnings were $176 and it
converted into $208. The major reasons for the retained earnings at the end the year to be
negative mainly because of the income tax expense, dividends provided. The net profit after
tax is $1.9 billion and the same have been increased by 13.5% for continuing operations and
moreover the financial performance which results in the return on investment. The increase in
the net profits from $1197 to $5510 has been the real reason for the increase in the earnings
per share of the company. The earnings per share have also increased from 124.6 cents per
share to 171.5 per share. The financial costs have also seen a sunk and this resulted in
acceleration of the overall net profit of the company. The net profit increased from 13.5 %
and reached till $1.9 billion. Bunnings and office works are the key contributors. The share in
the Coles Group tends to be 15% and they are not used for setting off the gains of the Kmart
group.

Running Head: ACCOUTNING FOR CORPORATIONS
References
André, P., Dionysiou, D., & Tsalavoutas, I. (2018). Mandated disclosures under IAS 36
Impairment of Assets and IAS 38 Intangible Assets: value relevance and impact on
analysts’ forecasts. Applied Economics, 50(7), 707-725.
Colla, A. (2017). Corporate governance in 2017: Failures and wins. Governance
Directions, 69(4), 217.
Huang, R., Ritter, J. R., & Zhang, D. (2016). Private equity firms’ reputational concerns and
the costs of debt financing. Journal of Financial and Quantitative Analysis, 51(1), 29-
54.
IG.com, (2019). Wesfarmers share price climbs to all-time high of $39.02 at the open.
Retrieved from https://www.ig.com/en/news-and-trade-ideas/wesfarmers-share-price-
hits-all-time-highs-of--38-89-per-share-190724
Lewis, C. M., & Tan, Y. (2016). Debt-equity choices, R&D investment and market
timing. Journal of financial economics, 119(3), 599-610.
Simply Wall Street, (2019). Wesfarmers. Retrieved from
https://simplywall.st/stocks/au/retail/asx-wes/wesfarmers-shares
Wesfarmers, (2019). Annual report. Retrieved from
https://www.wesfarmers.com.au/docs/default-source/asx-announcements/2019-
annual-report.pdf?sfvrsn=0
Williams, E. E., & Dobelman, J. A. (2017). Financial statement analysis. World Scientific
Book Chapters, 109-169.