Group Video Report: Financial Analysis of Wesfarmers Ltd (2016-2017)

This report analyzes the financial performance of Wesfarmers Ltd, a major Australian retail conglomerate, focusing on the 2016 and 2017 financial years. It examines the company's primary activities, financial and social performance, including revenue and profit changes, and contributions to the community. The report compares the Profit or Loss of the Year with the Total Comprehensive Income, discussing any differences and potential extraordinary events. It also explores the impact of the new lease accounting standard (AASB16) on Wesfarmers' assets, liabilities, and profit, as well as the company's handling of intangible assets and goodwill, including impairment testing and the identification of cash-generating units. The report also includes minutes of the group meetings.

Introduction
The aim of this report is to identify various accounting principles and concepts
practiced by Wesfarmers Ltd along with the changes in their financial and social
performance within the last 3 years. The following discussions are made based
on the company’s annual reports for the 2015-2017 financial year.
Questions:
1. Explain the primary activities of Wesfarmers and discuss its financial
and social performance in FY 2016-17 in comparison to the previous FY
2015-16.
As one of the top leading Australian listed companies, Wesfarmers Ltd is a major
retail conglomerate company founded in 1914 where its main headquarters is
located in Perth. The company has a diverse range of operations predominantly
within Australia and New Zealand, these main activities involve retail, chemicals,
energy, fertilisers, coal mining, industrial and safety products. As the largest private
employer in Australia, with around 223,000 employees and a shareholder base of
515,000 in total, Wesfarmers held the largest revenue figure of $65.98 billion in the
2016 financial year, overpowering companies such as Woolworths and BHP Billiton.
Due to its wide range of distinct operations, Wesfarmers act as a parent organisation
to top retail businesses such as Coles, Bunnings, Kmart and Target, including
companies such as Blackwoods and Workwear Group from the industrial sector.
Apart from that, the company represents itself as a major investor in the BWP Trust
and Wespine industries, owning 50% of the sawmill company. The financial
performance of Wesfarmers has improved immensely in the last 3 years, with a
3.82% increment in the company’s sales revenue from 2016 to 2017 and an increase
of 5.49% from 2015 to 2016. As for its social performance, Wesfarmers has made
major progresses on different aspects of the business, such as safety, ethical
sourcing & human rights, diversity and community contributions. The injury rate has
been reduced to 16% in the previous year compared to 15.2% in 2015; Diversity has
expanded from over 3,000 indigenous workers to 4231; The company has also
contributed more than $73 million in direct funding to community organisations in
2017.

2. Secondly i will be speaking about the statement and Compare the Profit
or Loss of the Year with the Total Comprehensive Income aswell as this
i will discuss the nature of the difference (if any) between the two
figures in the two financial years and identify whether the difference is
related to extraordinary or non-recurring events.
The profit and loss statement of the year of 2017 has been compared with the 2016 and
2015 statement of the company in order to identify the financial performance improvement of
the company. On the basis of the annual report (2017) of the company, it has been found
that the financial performance of the company has been improved at great level with 3.7%
increment in the sales revenue(65,981,000,000 in the 16/17 annual report to 68,444,000,000
in the 17/18 annual report), The main differences in revenues between the two financial
years was their increase in sale of goods in which (65,500 million to 68,033 million) and gain
on disposal of assets which doubled (61 million to 123 million) wesfarmers has also stated
that they believe this rise may have come from the increase in the use of their loyalty
program which increased from $246 million in expected revenues to $267 million as well as
an increase in the use of gift cards which also increased from last year from $198 million in
expected revenues to $217 million .
608.33% in net profit margin of the business (Morningstar, 2018). The net profit level has
been improved at huge level because of the various economical impact on the company in
the year of 2016 (Sustainability report, 2017) . Due to which, the profitability level has been
reduced form 2015 to 83.32%.

3. Focus on the leases agreements the company has entered, as a lessee.
As the new lease accounting standard (AASB16) will be enforced from
2019, the company is probably still applying the previous accounting
standard (AASB117). Discuss how the new accounting standard will
impact the assets, liabilities and profit of your company.
Wesfarmers has engaged in operating lease commitments as a lessee for a total
of $19,554,000,000 however this can be further narrowed down to contracts
ending within a year($2,410,000,000), greater than one year but not more
than five years ($7,986,000,000), and more than five years ($9,158,000,000).
Under the old accounting of leases method (AASB 17) there was a large
amount of restrictions as to what would be place onto the however, with the
new accounting standard for leases(AASB16) introduces a single lessee
accounting model and requires a lessee to recognise assets and liabilities for
all leases with a term of more than 12 months, unless underlying asset is of
low value. As a lessee Wesfarmers would be required to recognise a right-of-
use asset representing its right to use the underlying leased asset and a
lease liability representing its obligations to make lease payments. Therefor
as Wesfarmers a required to recognise the right to use of the asset the total
lease liability for an individual lease will be reduced, but separated into
another expense of the amount recognised as right to use, in which will
reduce the cash asset in the balance sheet.

4. Focus on intangible assets and goodwill in particular. After carefully
examining how the company carries impairment testing, explain what
the cash generating unit are and identify the criterion for their choice in
your company.
Intangible asset is an asset which does not have any physical evidence such as
intellectual property, goodwill, brand recognition etc. the recognition of intangible
asset in an organization could be done in various ways on the basis of the nature
of the company. On the other hand, the goodwill is one of the intangible asset
which is managed by each of the company. the valuation of goodwill is complex
for the business because it could be changed at any time.
In case of Wesfarmers limited, the annual report (2017) explains $ 18,936
million goodwill and intangible assets of the company in the year of 2017 which
has been lowered from $ 19,073 in 2016. Below is the process of intangible
calculations of the company.
Figure 1: Intangible assets
(Annual report, 2017)

The above image of the goodwill and intangible asset explains that the company
follows the impairment testing in the below situations:
● The company at least identifies the intangibles and goodwill amount annually.
● If there is any indication about the impairment of the assets which has already
been impaired in last year impairment testing process
● If there is any indication that the previously recognized assets worth has been
changed (Annual report, 2017).
If the assets of the business do not make independent cash inflows and the value
of the assets which is in use, could not be estimated around its fair value than
the asset is tested for the impairment process as the part of cash generating
unit (CGU) (Annual report, 2017).
The annual report (2017) of the company further explains that initially, it has been
measured by the company at cost (cost of the business combinations – net fair
value) of the company. But along with the time, few changes have been done by the
business to get the better worth of the goodwill.
Further, in case of intangible assets, it has been recognized that all the intangible
asset of the company has been calculated on the basis of the cost method only.
However, the management team and revaluation team of the company evaluates the
amortization period and method periodically and measure the outcome in order to
make the required changes in the performance of the business.
Financial not 17 of annual report (2017) adds that the impairment process is done by
the business annually and at the time of recognition of any changes in the assets
etc. the impairment process is done by the business on the basis of DCF, net asset
valuation model etc. It expresses that the Wesfarmers has recognized the
performance and valuation in better manner.
Conclusion:
Appendix 1
MINUTES
Meeting 1
Date 19/9/18
Time2:00-3:40

Location: Rmit building 80 level 4 outside study area
Attendees: Emily Chew, Jordan McLaughlin
Apologies: Donghwa lee (available over messenger)(migrane)
Previous meeting date
Item Discussion/Outcomes Action & Person responsible
New business Planning of questions We delegated the questions
evenly between the three of us
before arriving at the meeting
with the expectation they we
should be able to finalise
during todays meeting(all)
Working through questions We had finished Qs 1,4 and
are looking to get them into
presentation form for
Saturday(all)
Date, time & location of
next meeting
22nd of sep in building 80
11:30 to 12:30 (booked
room)
We booked a room so that we
are able to record in a quite
and professional environment
(all)
Meeting 2
Date 22/9/18
Time 11:00
Location 80/9/14
Attendees: Emily chew, Jordan Mclaughlin

Apologies :Dongwha (migrane)
Previous meeting date 20/9/18
Item Discussion/Outcomes Action & Person responsible
Business from previous
minutes
Be ready to present your
allocated presentation
material.
We all agreed to meet today to
film our presentation
New business Presented our allocated
material during the time frame
we had booked for a room
Emily and Jordan both
presented (Dongwha was
absent)
Dongwha suggested that he
would finalise and edit the
video
Dongwha to be completed by
due date on Sunday

Date, time & location of
next meeting
Over Facebook messenger Over the next two days to
finalise submission of
assignment (All)