Comprehensive Financial Analysis of Woolworths: Key Accounting Aspects

This report provides a detailed analysis of Woolworths' financial performance, corporate governance, and key accounting aspects. It begins with an overview of corporate governance, highlighting the company's commitment to compliance, regulations, and the ASX Corporate Governance Council's recommendations. The report then examines the role of the Audit Committee in internal compliance, risk management, and accounting policies. Furthermore, it explores Woolworths' sustainability initiatives, including its corporate responsibility strategy focused on people, planet, and prosperity. The analysis also covers solvency, with an assessment of the company's current ratio and its implications. The report delves into specific accounting topics such as goodwill on acquisition, gain on bargain purchase, and impairment, providing definitions and examples. The conclusion emphasizes the importance of these financial elements in understanding Woolworths' overall financial health and strategic decisions.

Company Accounting

Contents
Memorandum...................................................................................................................................2
Question 1........................................................................................................................................2
Corporate Governance.................................................................................................................2
Audit Committees........................................................................................................................3
Sustainability................................................................................................................................4
Solvency.......................................................................................................................................5
Question 2........................................................................................................................................6
Goodwill on acquisition...............................................................................................................6
Gain on bargain purchase.............................................................................................................6
Impairment...................................................................................................................................7
Bibliography....................................................................................................................................7

Memorandum
MEMORANDUM
To: The Board of Directors
From
Date: May 3, 2018
Subject: Technical aspects of consolidation
This memo is about some of the technical aspects of consolidation like updating of IT systems.
The breakdown in system may lead to force online customers to stop their shopping the
consolidation will make the systems more updated.
The consolidation will make the company utilize the supermarket warehouse service in
Australia’s capital cities. This help in security of food items and keeps safe from environmental
risks. The company will be able to acquire market power so that strategies implemented would
not be at the expense of competitive food system. It will also improve the transparency between
the suppliers and the supermarkets. It will also improve the goodwill of the organization and will
lead to form a good and loyal customer base (Bariacto & Nunzio, 2014).
I encourage a fun and competitive environment in the organization and I recognize that we
certainly be more profitable with consolidation and collaboration strategies.
Thank you

Question 1
Corporate Governance
Good Corporate governance is Woolworth’s strategy towards the enhancing the long term
shareholder value. The management is committed towards implementation rules and regulations
to meet compliance and disclosure. It follows recommendation and principles of the ASX
Corporate Governance Council. The company is subject to rules, regulations, and contractual
arrangements and exposed to adverse legislative changes.
Corporate governance of the company consists of number of key documents and policies. Every
year the corporate governance is led out by the describing the governance framework and the
work done in the previous financial year.
The company has a Compliance framework and policies to facilitate legal compliance and
internal protocols. It provides training programs to make employees aware about the legal,
regulatory and internal policy requirements. The code of conduct also includes the policies of
corporate governance.
The board of members has a range of skills and experience to support the effective corporate
governance in the organization. They focus on customer led transformation in the food and other
products, are committed to exceptional corporate governance standards. The organization is
committed to social responsibility initiatives and workplace safety management, mental health
and physical well being.
Board of members is expertise in managing legal, public policies and corporate affairs issues.
They also have experience of monitoring company’s culture and setting remuneration framework
for people management (Woolworths Group, 2016).

Audit Committees
The Audit Committee is a committee of the board of Woolworth’s limited. The committee is
responsible for assisting board in internal compliance, risk management and accounting policies.
They are responsible to meet with external or internal auditors. Audit committee plays an
important role of compliance and auditing of reports.
Responsibilities of the committee are
 Make recommendation in selection, appointment of external auditor.
 Formal review of auditors appointment
 Review the scope and terms of external audit.
 Establish coordination between internal and external audit programs.
 Review the quality of external audit.
 Resolve issues arising from audit reports.
 Review the non audit services policy
 Review effectiveness of internal control process of the company.
 Review the scope, plan and budget of internal audit.
 Monitor the objectivity of internal audit.
 Resolve issues arising from internal audit reports.
 Appointment and replacement of internal audit team.
(Woolworths Group, 2018)
Sustainability
The company is following its Corporate Responsibility Strategy for the long term sustainability
of the organization. Woolworths CEO Ian Moir said ““We have made substantial
progress over the past four and a half years, and sustainability remains a key

aspect of our business strategy and a commitment that our staff, our
suppliers and our customers share,”
Woolworth’s framework for long term sustainability
People
 Working for gender equity and letting the senior manager positions to be held b women.
 Encouraging diversity by increasing indigenous number of people in team.
Planet
 Zero food waste plan
 Reducing carbon emissions from the company.
Prosperity
 Encouraging customers to use Woolworth’s products in a sustainable and healthy way.
 Working on fair and equitable business with Woolworth’s suppliers.
People(encouraging Diversity)
Planet (For a healthy Australia)
Propserity(Founded on trusted relationships)

The first strategy launched by Woolworth for sustainable development was “Doing the right
thing”. The company is constantly making efforts for the corporate social responsibility and
sustainability.
Other examples of Woolworth’s sustainability initiatives include Employment parity initiative,
Gender equity, and free fruits for kids and waste audits etc. (woolworthsgroup.com, 2016)
Solvency
The solvency ratio is used to measure the long term debt and other obligations of the company.
The current ratio defines the capability of the company to convert its current assets into liquidity.
It determines the liquidity of the organization.
The Woolworth’s current ratio is below one that points towards the lower liquidity of the
company. The company faces problem in meeting its short term obligations with its liquid assets.
The company has lower solvency ratio that indicates the good profitability of the company
(Woolworths Limited, 2017).
Question 2
Goodwill on acquisition
Goodwill is an intangible asset. Goodwill arises due to acquisition of one company by another.
The company will acquire more goodwill on acquisition of new firms. Goodwill of the company
is represented by loyal customer base, brand name, customer relationship and patents etc.
The value of intangible assets is increasing in the balance sheet of the company. The increase in
the goodwill to asset means that company is acquiring new firms. That indicates that company is
reporting a higher amount of goodwill in the market.

The company with its expansion and acquisition of other companies is capturing the large market
share with higher goodwill and better customer base in the industry.
Goodwill is an important asset to any organization as it defines the image of the company in the
market. The high goodwill has higher brand value in the market leading to more trust among the
people. Goodwill makes easy to retain the new customers and acquire new customers.
Gain on bargain purchase
Bargain purchase can be defined as the acquisition of assets for less than fair market value. The
company is receiving gain on bargain purchase. It is obtained on acquiring the other corporate
entity on less than the market value of its net assets.
The company to calculate bargain purchase should follow these steps
 Record assets and liabilities at market value.
 Record the fair value to be paid to the owner of the assets.
 Record the difference between the fair value and paid value of the assets.
Purchased goodwill is an intangible asset. With its acquisitions it has become nation’s largest
chain of variety stores. Woolworth is exploding store departments into shops of their own and is
making acquisitions to increase goodwill and profitability. The company has revaluated its assets
on acquisition of equity accounted investment in MGW Hotels Pty Ltd.
The company is following the strategy of acquiring other firms for the profitability and
increasing goodwill.
Impairment
Impairment can be defined as a permanent reduction in the value of company’s fixed assets. For
testing of impairment the total profit or other benefit related to asset is compared with its book
value.

The company has also received impairment loss on goodwill. The company’s accounting policy
for testing of impairment is consisted with 139 intangible assets.
Example of impairment is acquisition of CODB that led to impairment of $35.3 million.
Impairment of an asset or reduction in property or equipment leads to reduction in funds
employed. Impairment of non financial assets is included in critical accounting judgments and
estimates (Accounting Tools, 2018).
References
Accounting Tools. (2018, April 5). Bargain Purchase. Retrieved from Accountingtools.com:
https://www.accountingtools.com/articles/bargain-purchase-definition-and-usage.html
Bariacto, N., & Nunzio, J. D. (2014, July 17). Market Power in the Australian Food System.
Retrieved from Uturedirections.org.au:
http://www.futuredirections.org.au/publication/market-power-in-the-australian-food-
system/
Woolworths Group. (2016, September 9). Corporate Governance. Retrieved from
Woolworthsgroup.com.au:
https://www.woolworthsgroup.com.au/icms_docs/182380_Corporate_Governance_State
ment.pdf
Woolworths Group. (2018). Audit, Risk Management and Compliance. Retrieved from
Woolworthsgroup.com.au/:
https://www.woolworthsgroup.com.au/icms_docs/138192_Audit_Risk_Management_and
_Compliance_Committee_Charter.pdf
Woolworths Limited. (2017). Annual Report. Woolworths Limited.

woolworthsgroup.com. (2016). We bring a little good to everyone, every day. Woolworth's
group.
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