| Amcor Limited | 22743 Business Valuation and Financial Analysis | | | |
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group assignment 2 | Muhammad Farhan | 11340041 | Zahid Mahmood | 11473485 |
Table of Contents Executive Summary 3 Accounting Analysis 3 1. Accounting Policies and Standards 3 Revenue Recognition (AASB 118): 3 Property, Plant & Equipment (PPE) (AASB 116): 3 Intangible Assets (AASB 3, AASB 138): 4 Borrowing Costs (AASB 123): 4 2. Flexibility in Selecting the Key Accounting Policies 4 3. Accounting Strategy Employed by Management & Incentives 5 4. Quality of Disclosure: 5 5. Potential Accounting Numbers and Undoing Distortions 6 Financial Analysis 6
Executive Summary
Having considered the economic
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Having strategically acquired rival businesses in the global financial crisis, set up its Botany Paper Mill and making its Australian division independent, Amcor expects its financials to improve dramatically as the ramifications of its moves unfold.
Revenue Recognition (AASB 118): “Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns, allowances and discounts. Revenue is recognised when the risks and rewards of ownership have transferred to the customer. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, the costs incurred or to be incurred cannot be measured reliably, there is risk of return of goods or there is continuing management involvement with the goods.” (Amcor Limited, 2012, p. 62). The business’ main source of income is sales revenue from packaging solutions and products across the globe. Flexible and Film Packaging has contributed around 40 % of the revenue as shown in graph 3 in appendix A.. Amcor also generates revenue from dividend income, being recognized when rights to receive dividend are established.
Property, Plant & Equipment (PPE) (AASB 116): “Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item including borrowing costs that are related to the
prices were constant but that output varied considerably. These three weeks were thought of as
According to IAS 16, The cost of an item of property, plant and equipment comprises, its purchase price, including
Adjusting entries have four types in which provide a method of breaking down transactions. When a business purchases supplies in order to stock, this would be considered a prepaid expense. After an adjusting entry is made for a prepaid expense, the ledger would reflect the correct portion of that expense, in this case supplies, in which was incurred during a specific time. (Editorial Board, 2012, p. 42) A depreciation expense is a sub category of a prepaid expense. This occurs when an asset is allocated over a certain amount of time. An
Expenses follow natural classification or their functional classifications. Property, plant, and equipment acquired by restricted or unrestricted
Property and Equipment—Depreciation and amortization are provided on a straight-line basis over the estimated useful fives of the assets. The following table shows estimated useful lives of property and equipment.
(2) Accumulated Depreciation- This account accumulates the depreciation over the course of the 12 months. As mentioned above, the appraisal value of PP&E is referred to as “PP&E, net”, which is the original value of $200,000 minus the accumulated depreciation for each month.
a. (i.) According to FASB Statement of Concepts No. 6, paragraph 25, assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. They represent probable future economic benefits controlled by the enterprise. According to FASB Statement of Concepts No 6, paragraph 80, expenses are outflows or other using up of assets or incurrences of liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major, or central, operations. Expenses are gross outflows
Land +8000(1-30%) Equipment =131700 Consideration transferred = 137200 Goodwill =137200- 131700 =5500 2. BCVR entries at 30 June 2010 1) Machinery Depreciation expense-machine Dr 100
The objective of AASB 116 is to stipulate the accounting treatment for property, plant and equipment, make user can understand information about an entity’s investment in its property, plant and equipment, and the changes in entity’s investment. The main issue for property, plant and equipment in accounting are the recognition of relationship between assets, the determination of their carrying amounts, the depreciation charges and impairment losses. AASB 116 required the entity disclose it’s information of gross carrying amount, depreciation method, depreciation rate, useful lives of PPE, accumulated depreciation and reconciliation of carrying amount at beginning of the reporting period and at end of the reporting period.
They accomplish this by sourcing the highest quality ingredients from around the world, combined with innovative research and development to deliver products that have become industry standards in the health supplements sector (Blackmores, 2014).
To account for inventory, the company uses, first in first out policy. Property plant and equipment are recorded at cost less the accumulated depreciation amount. Depreciation is charged on straight line method
ASC 360-10 provides guidance on accounting for property, plant, and equipment, and the related accumulated depreciation on those assets. This Subtopic also includes guidance on the impairment or disposal of long-lived assets. ASC 360-10 notes that long-lived tangible assets include land and land improvements, buildings, machinery and equipment, and furniture and fixtures.
According to this concept the asset is recorded in the books of accounts at the price paid for it and not at its market value. For example: if a business entity purchases a building valued at $15 million from a friend for $12 million, this asset would be recorded at $12 million and not at $ 15 million, because for the business entity the cost was $12 million and not $15 million.
Aurora’s financial performance from 1999 to 2002 was barren and discouraging. The financial ratios in the table above show a clear image of Aurora’s financial situation. It is obvious that Aurora has been facing economic pressures because of the business risks that arose from the intensive competition in the textile industry, which led to the decline in sale margins. Sales after 1999 quickly fell below standards, additionally, sales growth steadily declined at an average of 15.3% (-40% between 1999 and 2002). The company has failed to turn a profit for the past four years, although in 2002 Aurora showed a positive operating profit (See the table above). In order to conserve cash, Aurora was forced to closed several manufacturing operations. Profit margins, ROA, and ROE (which were always negative), and the asset turnover declined, indicating that Aurora has not contracted with assets as fast as the decline in sales. Furthermore, a snap shot into their inventory and accounts receivable indicate major signs of poor management as sales (outstanding) and days inventory have both significantly increased since 1999 (most of the firm’s current assets are account receivables and inventories). Raw material cost also reflect potential management issues, the net sales (as percentage) declined from 54.01% to 44.05%. Aurora needs to manage its expenses to generate profits overall.
CCA is a leading company in the beverage industry in Australia offers a wide range of products in 4 different countries. During the 2014 financial year, the company’s profit margin was increased by 2.9% due to the reduction in company’s expense. The debt to equity ratio was decreased by 22.6% due to the decreases in financial liabilities. RGP is a small to medium size company in the beverage industry offers limited products in the domestic market. During the 2014 financial year, the company’s profit margin was increased by 4.1% due to the increase in revenue and reduction in expenses. The debt to equity ratio was decreased by 16.5% due to the increase in net profit, capital shares and decrease in financial liabilities.