According to the scenario that has been provided in the case study, it is seen that Wentnor Diary Company Ltd is associated with operating their business in the dairy farms and have expanded their business by purchasing new factories that manufactures milk products. The Chief Financial Officer of the organization is in the need of recognizing the units that are associated with the creation of cash for the business in order to undertake the impairment of the assessment according to AASB 136.
According to the paragraph 6 of the AASB 136, which has been disclosed by the Australian Accounting Standards Board, the cash creating unit can be explained as the recognition of the smallest asset groups, which are recognizable and which have the ability to create cash and are even considered to be free from the other kinds of asset groups.
According to the provisions that have been laid in the AASB 136, the investigations of impairment of the assets are in need of the comparisons of the amount that is recoverable and which has to be made with the value of the assets that is higher and which is in use and the fair value subtracted by the disposal cost of the assets. The value that is in use according to the required standard is explained as follows:
There are several assets, which have been utilized in some of the organizations, which does not have their own and individual cash flows and these assets can only establish cash flows when they are considered together within an asset group that are similar in nature. In accordance to the case study of Wentnor Diary Ltd, the tools and the machines that are utilized for the purification and the extraction of the milk by the firm, does not have the ability to construct their own cash flow statements. The significant cash flow creating product for the firm has been milk that is initially extracted and then purified from the help of the machines. The equipment when utilized together can be regarded to a cash generating mechanism. The tools and the machines which is utilized by the organizations is a blend that is useful for the creation of inflow of cash for the companies.
There are numerous factors that needs to be considered by the Chief Financial Officer prior to recognizing the cash creating units of the assets. The Chief Financial Officer of the organization requires to initially gain knowledge that the cash generating units are the minimum value of the assets, which can by their own create cash flows for the companies. The reasons and the factors that have been disclosed in Paragraph 69 and continues till Paragraph 71 of the AASB 136, explains how the management administers the functions and the activities of the organization, which is inclusive of the product lines, specific locations and the regional and the district locations. The Chief Financial Officer looks to gain an understanding of how he would be able to recognize the units that are generating cash of the organizations by making use of the precise standards, which have been disclosed by the AASB.
The cash generating units of the organizations requires to be identified from a specific time frame to the other unfailingly for any kind of assets unless there are observations that there are several alterations related to the asset. The identification of the cash generating units is need of precise verdicts on the section of the management and even by following the AASB 136, which is based on the impairment of the assets of the organizations.
According to the scenario that is provided in the question, the essential ratios that needs to be calculated and which are reliant on the profitability, capital structure, solvency and efficiency. The ratios are an essential requirement equipment, which is utilized in order to assess the financial activities and the performance of Woolworths Ltd. The computation of the various ratios, which have been explained in the appendix portion signifies the significant ratios which explains the overall financial performance of the organization.
The current ratio of the organization addresses that the liquidity scenario of the firm is not at all effective as the forecast has been explained to be lower than 1. The acid test ratio, which is provided in the calculation within the appendix part even addresses the fact that the organizations are going through liquidity problems. The acid test ratio and the current ratio of the company has been found to be 0.330 and 0.793. The ratio even discloses the fact that the forecasts of the current ratio and the acid test ratio has fallen from the forecasts of the last year, which makes it pertinent that the organization has limited liquid cash, which can be discovered be a problem. The gross profit margin of the company has risen from the last year, which recommends that the organization is developing and expanding with respect to their profitability. The rise in the level of gross profit of the firm is even regarded to be a financial gauge of the organization. The company has essentially enhanced with respect to the gross profit margin of the organization. It is seen that the receivable turnover ratio of the firm has even indicated a rise, which is regarded to be a positive and significant sign for the organization and this is shown with the help of the ratios that have been constructed. The receivable turnover ratio even recommends that the credit plans and policies of the firm is very much effective and strong, which is an outcome of the fact that the receivable turnover ratio of the firm is positive and encouraging. The return on the net sales and the return on assets of the firm has terribly enhanced with respect to their business activities from the values that have been attained in the last year and the figures that have been attained have been shown in the appendix section. In the year 2016, the outcome of the return on equity and the return on sales have indicated the fact that the company Woolworths Ltd indicates returns that have been negative from which the functions of the business has enhanced essentially and thereby have made the returns which are received by the organization suitable and vital. The return on equity is looked upon to be a financial gauge, which is assesses the probable business investors in order to undertake decisions, with respect to whether they are going to undertake investments in the company shares or not. Furthermore, the return on equity that has been looked upon to be encouraging even addresses the fact that the organization is able to satisfy the requirements of the shareholders and thereby gaining precise and suitable returns for the same. The dividend payout ratio of the organization has even developed vitally from the last year and this indicates that the organization is currently associated with the principle of wealth maximization for the shareholders who are related to the organization. In the year 2017, the dividend payout ratio for the firm has been 70.35% and the percentage has improved drastically from the assessments that have been made in the last year. Therefore, from the explanations that have been made earlier, it is pertinent that the organization is favorable in order to undertake investments and therefore the shareholders has to undertake investments in the shares of the firm. On the other hand, the organization has to enhance and maintain their liquidity scenario and accordingly make sure that the organization does not go through any kind of crisis related to liquidity. Therefore, it can be explained that the investors need to undertake investments in the company shares.
According to the ratios that have been calculated and is explained in Requirement A, the acid test and the current ratio of the firm have explained that the firm does not have ratio values that are encouraging in the year 2017 and the values have been 0.330 ad 0.793. The ratio, which have been computed for the firm does not have any similarity with the precise standards and the value has been 2:1 for a current ratio and the ideal ratio for acid test ratio has been 1.5:1. According to the ratio of the concerned organization, it can be stated that the attained values are not in line with the ideal standards and therefore this explains that the firm may be going through liquidity issues which is essential to rectify from the normal mind set of the organization.
According to the concerned question, which comprises of a paragraph that is disclosed in the annual report of “Qantas Ltd”, which is associated to the interpretation of the foreign currency in the domestic currency. The company has been associated with transactions that have been made foreign in the year during which the company received income and in order to record these revenues in the financial statements, it is essential for the firm to translate this kind of transactions. The technique that is utilized frequently by most of the firms in order to undertake the translations has been the current rate process.
The factor due to which the transactions related to foreign exchange takes place is because of the variations that takes place in the foreign currency rate with respect to the domestic currency. This arises because of several factors like the inflation rate in the domestic and the foreign countries, the policies that have been constructed by the government and several other factors. The variation that is discovered in the comprehensive income statement and any kind of gains is transported to the “foreign currency translation reserve account”.
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