In this report an adamantine study has been prepared on the basis financial tools and annual report of selected company name Wesfarmers Ltd. This report contains all the required details and information which is used to gauge the business performance of Wesfarmers Ltd. There are several parts of annual report of Wesfarmers Ltd which are used to analysis the true value of organization. There are several parts such as depreciation methods charged on the machineries of Wesfarmers ltd, carrying assets value shown in the consolidated financial statements and standard followed to depict the true and fair value of organization. This report is used to analysis whether company has been following standard rules and regulations to reflect the true position in the financial statement of company.
Property plant and equipment- These are the fixed assets which are shown in the fixed assets of liabilities side of balance sheet of company (Cholakova & Clarysse, 2015). Annual report of company consisted with the consolidated financial statement of Wesfarmers which reflects all the assets and liabilities of company. These are the vital to organizations but cannot be liquidated and based upon the nature of business. These are recorded in the company’s financial statements in the balance sheet. However, Wesfarmers ltd has been recording its property, plant and machinery at its book value. There are several adjustments which have been made to identify the carrying value of assets such as disposal and write off value, depreciation and amortization, transfer between classes and foreign exchange movements (Brigham & Ehrhardt, 2016).
The total carrying amount of property, plant and equipment at the end of the year would be as fellows (Wesfarmers Ltd, 2017).
|
Particular |
Amount $ Million |
|
Property |
1547 |
|
Freehold land |
|
|
Building |
928 |
|
Plant and Equipment |
940 |
|
Leasehold improvements |
|
|
Plant, vehicles and equipment |
6207 |
|
Mineral lease and development |
583 |
|
Total Plant value |
10205 |
(Wesfarmers Ltd, 2017)
The main composition of Property and plant and equipment is related with following parts which are shown as below.
|
Particular |
Amount $ Million |
|
Property |
1547 |
|
Freehold land |
|
|
Building |
928 |
|
Plant and Equipment |
940 |
|
Leasehold improvements |
|
|
Plant, vehicles and equipment |
6207 |
|
Mineral lease and development |
583 |
|
Total Plant value |
10205 |
Property of Wesfarmers ltd is accompanied with freehold land and building. These are the places which are used by Wesfarmers ltd for its business functioning. On the other hand, Plant and machinery of Wesfarmers ltd is accompanied with lease hold improvement, plant, vehicles, equipment, mineral lease and development. These are the main components of property plant and equipments of Wesfarmers. However, clear bifurcations in the amount of these assets have been given in the given table as above (Wesfarmers Ltd, 2017)
These assets have been valued on the basis of its book value. In addition to this, in order to identify the true value of these property plant and equipments an impairment test has been done. This test will be used to identify the carrying value of assets and its actual value. Therefore, identified profit and loss will be adjusted in the capital reserve account of Wesfarmers (Black & Gilson,1998).
Depreciation is the amount of expenses which is charged from the profit and computed with the help of certain methods on all the fixed assets of organizations. All the items of plant, vehicles, equipment, mineral lease and development are the main components of property plant and equipments of Wesfarmers has been depreciated on a basis of straight line basis over their useful lives. The cost of assets includes cost of replacing parts and other eligible capitalization amount. Straight line methods are used to compute the fixed amount of depreciation using certain rate of depreciation. The estimated useful life of building is between 20 to 40 years. On the other hand, plant and equipment is between 3 and 40 years. However, Land being non depreciable assets would not used for charging depreciation. However, there is review proposed by IASB to Wesfarmers Ltd that using revenue based method to calculate depreciation of assets is not appropriate because revenue generated by company is not certain (Wesfarmers Ltd, 2017).
Wesfarmers Ltd has global level of business functioning. Therefore, in order to run business for long run it has used various fixed assets in its value chain activities. Straight line method has been adopted by organizations for charging depreciation on its assets. Company did not disclose the rate of depreciation charged on its assets but it has disclosed all the information related with the useful life of organization. The estimated useful life of building is between 20 to 40 years. On the other hand, plant and equipment is between 3 and 40 years. However, Land being non depreciable assets would not used for charging depreciation (Wesfarmers Ltd, 2017).
Depreciation is the amount of money charged form the profit and loss account for the possible wear and tears of assets. This is charged with a view to create an amount of provision which could be used by organization for buying new assets in future (Wesfarmers Ltd, 2017).
Depreciation amount charged by Wesfarmers Ltd
|
Particular |
Amount $ Million |
|
Property |
– |
|
Freehold land |
|
|
Building |
26 |
|
Plant and Equipment |
124 |
|
Leasehold improvements |
|
|
Plant, vehicles and equipment |
959 |
|
Mineral lease and development |
53 |
|
Total Plant value |
1162 |
There is no deprecation has been charged on the freehold land. Building of Wesfarmers Ltd has been charged by $ 26 million depreciation in the given years (Sujan and Abeysekera, 2007).
Consolidated depreciation and amortization amount shown the financial statement of Wesfarmers ltd in both years
|
Particular |
2015 ($Million) |
2016($ Million) |
|
Depreciation and amortization |
1219 |
1296 |
Depreciation amount has been charged from profit and loss account of company. It helps Wesfarmers to reduce its profit amount and also help organization to save tax from its business functioning. There are several methods and policies have been followed by organization to charge deprecation on its fixed assets named plant and machinery of Wesfarmers ltd is accompanied with lease hold improvement, plant, vehicles, equipment, mineral lease and development. Depreciation amount have been charged on these assets on the basis of straight line method (Wesfarmers Ltd, 2017).
Wesfarmers ltd is an international company which has been running its business on global level. It is evaluated that company has made several business transaction throughout the time to make expansion in its business functions. However, in the last year company purchased home base hardware business in UK and Ireland. These types of purchase assisted value chain activities of Wesfarmers Ltd to make good amount of improvement. The group of Wesfarmers Ltd has also entered into financial lease on office, retail and distribution properties and motor vehicles. The main investment of Wesfarmers Ltd was related with acquisition of home base hardware business which has provided good amount of improvement in its business functioning. However, goodwill acquired in business combination is initially measured at cost. On 27th February 2016 Wesfarmers Ltd acquired 100 % of home retails group plc holding in home base for £340 million (A$665 million). This was the biggest investment plan made by Wesfarmers ltd in its business functioning. All the directors and management department of Wesfarmers ltd are more inclined towards creating long term value in the business functioning of organization. However, apart from investing money in home base hardware business Wesfarmers ltd has also invested its valuable funds in its inventory and other products purchase for the smooth running of its business functioning. Company has also made investment to buy property, plant and equipment $ million 1899 in the current years. This has resulted into increment in the overall total assets of company. However, the proceeds of borrowing of $ 2360 million has helped company to buy new property and machinery in its business functioning (Wesfarmers Ltd, 2017).
Construction and under constructional the investment made by Wesfarmers ltd to acquire home base hardware business was completely new business. There was no requirement to make changes and customization in its value chain activities.
All the cost and other expenses incurred by Wesfarmers Ltd has been treated as operating expenses and has reflected in the operating activities of cash flow statements. On the other hand, these expenses have been charged by Wesfarmers ltd from its profit and loss account in the same year. This wills not only reduce the overall profit of company but also result into tax saving for the organization.
Capitalization of borrowing cost
Wesfarmers Ltd has used weighted average cost of capital to book its borrowing cost for 2016. It has also booked all its borrowing cost incurred by as operating expenses in the given years with a view to charge it from the profit and loss account.
There are several commitments which have been made by the directors and managers of company with its stakeholders. Company has planned to develop its business in several other countries. Company has been committed to reduce the environmental footprint associated with the production of annual report and also planned to minimize its environmental impact. In addition to this, company has been committed to provide customer led business and continually providing the best quality of services to its clients and other stakeholders. In the annual report of Wesfarmers Ltd, it is given that commitment has been provided by company to lead customer’s services which is supported by ongoing investment. The main commitment of Wesfarmers Ltd is with its stakeholders which it has not reflects in the financial statements due to its restriction to the financial aspects. Company has committed to provide best quality of contents to its customers from its value chain activities (Wesfarmers Ltd, 2017).
Wesfarmers Ltd has been running its business in supermarket business. It is evaluated that company has increased its total revenue to $m 64984 in 2016 which is 10% higher than the result shown in 2015. In addition to this, overall net profit of company has also increased which reflects true results of organization. Wesfarmers Ltd has also increased its total assets by $ 382 million which provides that company has been running its business very effectively and invested good amount of money to buy tangible and intangible assets. On the other hand, company has decreased its total liabilities amount by $ 2459 in 2016 as compare to data shown in 2015. There are several changes which have been noticed in the financial performance of company. It could be inferred that investors who want to create value on their investment are need to make their investment on long term purpose.
Conclusion
This report contains all the required details and how Wesfarmers has been booking its financial and non financial transactions in its books of account. It is observed that company has been following traditional method to charge depreciation on its assets. On the other hand, with the help of impairment test, Wesfarmers Ltd has booked true value of its all tangible and intangible assets in the books of account of company. After evaluating all the data given in the annual report of Wesfarmers Ltd, it is observed that company has good amount of growth in its business functions. Investors who want to create value from their investment should invest their money for long run. However, in short run due to the sluggish market conditions, company may fails to create good amount of profits.
References
Sujan, A. and Abeysekera, I., 2007. Intellectual capital reporting practices of the top Australian firms. Australian Accounting Review, 17(42), pp.71-83.
Barton, D. & Wiseman, M., 2014.Focusing capital on the long term. Harvard Business Review, 92(1/2), pp.44-51.
Beck, T., 2016. Long-term Finance in Latin America: A Scoreboard Model. Inter-American Development Bank.
Black, B., & Gilson, R. (1998). Venture capital and the structure of capital markets: Banks vs stock markets. Journal of Financial Economics, 47, 243–277
Brigham, E.F. & Ehrhardt, M.C. (2016). Financial Management: Theory & Practice. 15th ed. Boston: Cengage Learning.
Cholakova, M., &Clarysse, B. (2015). Does the possibility to make equity investments in crowdfunding projects crowd out reward-based investments? Entrepreneurship Theory and Practice, 39(1), 145–172.
Wesfarmers Ltd, 2017 Annual report. Retrieved on 7th April, 2017 from https://www.wesfarmers.com.au/docs/default-source/reports/2016-annual-report.pdf?sfvrsn=4
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