The label of the report is Financial Investigation of JB Hi-Fi Limited. Financial Investigation of the company totally dependent on different financial parameters present in the company’s financial statement. The financial parameters are reflected by different account balances in the consolidated Financial Statements of any company which has been derived and shown in the Annual report by the management. The report has been prepared to assess the effect of these account balances on the financial fitness of the company.
The report has been prepared in different sections consisting of the aims of the report. The first section identifies the different values that have been shown in Consolidated Financial Statement by the company. The next section specifies the normal balances that have been presented in the Annual Report of the company and the debit or credit effect on decrease in respective account balances. The third section describes the effect on other account with an increase in the balances of the respective accounts. In this manner report has been prepared considering the Annual Report of JB Hi-Fi Limited for the year ended on 30th June, 2017.
The account balances has been reflected in the Consolidated Financial Statements consists of the balances of all the units, associates, joint venture subsidiary etc. as on year end and reflects the total value for the company which the company owns and owes on the reporting date (Sinha, 2012). The below are certain items with the value which has been shown in the consolidated financial statements as on 30th June, 2017:
The cash and cash equivalents are the financial assets held by the company on a particular date which shows the financial strength in terms of the liquidity of the company. These include highly runny asset such as deposited in banks, paper currency, coin currency, and cash at different places of the company petty cash, short term investment, money market accounts, and savings in banks.
The value of the cash and cash equivalent as per Note no 20 of the Consolidated Financial Statements is $ 72.8 million as on 30th June 2017.
Inventories categories in Operating Assets of the company are the stock in hands of the goods in which business traded. Inventories can be Finished Goods, Raw Material and Work in Process. In the given company, Inventory consists of Finished Goods only and is valued as per the normal accounting practice which states lower of cost or net realizable value.
The value of the Inventory as per Note no 7 of the Consolidated Financial Statements is $ 859.9
Million as on 30th June 2017.
Sales revenue is regarded as the gross receipts of the company or the turnover of the company. It is the receipts generated from the operations of the business of the company. The company has received the revenue from three sources namely sale of goods, income from commission and provisioning of services.
The value of the Sales Revenue as per the Consolidated Statement of Profit or Loss is $ 5628.0 million as on 30th June 2017.
The other income is in the nature of income and is shown in the statement of profit and loss. As per the note number 30 of the financial statements, the other income includes the gain or loss that the company has earned on the hedging and derivative instruments. It includes two portion cash flow hedges and investment hedges.
The value of the Other Income as per the Consolidated Statement of Profit or Loss is $ 2.0 million as on 30th June 2017.
Plant and equipment is the assets of the company through the utilization of which the company will be able to perform its functions in an effective and efficient manner. Plant and equipment are valued at cost less the depreciation and the impairment if any. Plant and Equipment is considered as the major part of the assets of the company. It represents the part of net worth of the company.
The value of the Plant and Equipment as per the Consolidated Statement of Balance Sheet is $ 208.20 million as on 30th June 2017.
Interest expense represents the cost of borrowing the loan from the financial institutions or the banks. The interest expense are generally booked when the company has borrowed the amount for the expansion of the company, for making the investment like purchase of car, machinery or any other similar thing. Borrowing costs which does not forms part of the noncurrent assets are expensed in profit and loss account.
The value of the Interest Expense as per the Consolidated Statement of Profit and Loss is $ 10.70 million as on 30th June 2017.
Sales and marketing expenses are generally incurred by each and every company for promoting the products and services of the company across the market and also across the globe. The sales and marketing expenses play a very important role in bringing the growth in the business. The said expenditure is counted as the major expense head in the statement of profit and loss under the indirect expense.
The value of the sales and marketing Expense as per the Consolidated Statement of Profit and Loss is $ 580.10 million as on 30th June 2017.
The occupancy costs are the expenses incurred for occupying any kind of space for the purpose of the business like taking the space on rent or lease. It represents the indirect expenses of the company and forms the major part of the expense as it depicts as to where the business is running and how much is the cost of that premises.
The value of the Occupancy Expenses as per the Consolidated Statement of Income Statement is $ 248.60 million as on 30th June 2017.
Trade and other payables represent the amount which is required to be paid to the persons from whom the company has made the purchases of goods and services. It represents the short term liabilities of the company and hence is recorded under the head Current Liabilities. It includes the amount of Goods and Services tax payable to the government and other creditors and accruals of expenses of the similar nature.
The value of the Trade and other payables as per the Consolidated Statement of Balance Sheet is $ 647.80 million as on 30th June 2017.
Borrowing represents the amount that the company has obtained the loan from the financial institutions or banks. The company’s borrowings consist of the unsecured loan obtained from the bank to finance the acquisition of The Good Guys. The loan has been obtained for three to four year period and from different banks in consortium. Therefore, they have been grouped under the head Non Current Borrowings.
The value of the Borrowings Non Current Assets as per the Consolidated Statement of Balance Sheet is $ 558.80 million as on 30th June 2017.
The normal account balance is defined as the assumption or the expectation that the ledger accounts will be classified as with debit balance or credit balance. This expectation is based on the chart of accounts and the rules of accounting. It is not fixed. There may be the changes in account balances like the debit balance account ay have credit balance at the year end. These changes generally happened depending upon the nature and size of the business (Ingram, 2008; Snyder, 2009). The following are the type of the accounts and the normal account balances that have been mentioned.
Cash and Cash Equivalents have the debit balance. In case to decrease the cash and cash equivalents head, the credit side will be affected which in turn will reduce the debit balance of the account.
Inventories in hand have the debit balance. In case to decrease the inventory head, the credit side will be affected which in turn will reduce the debit balance of the account.
Sales Revenue has the credit balance. In case to decrease the sales revenue head, the debit side will be affected which in turn will reduce the credit balance of the account.
Other Income has the credit balance. In case to decrease the Other Income head, the debit side will be affected which in turn will reduce the credit balance of the account.
Plant and Equipment has the debit balance as appeared in the Consolidated Balance sheet of the company. In case to decrease the Plant and Equipment head, the credit side will be affected this in turn will reduce the debit balance of the account.
Interest Expense has the debit balance and is appeared in the statement of profit and loss. In case to decrease the interest expense head, the credit side will be affected. This in turn will reduce the credit balance of the account.
Sales and Marketing Expense has the debit balance and is appeared in the statement of profit and loss. In case to decrease the Sales and Marketing expense head, the credit side will be affected. This in turn will reduce the credit balance of the account.
Occupancy Expense has the debit balance and is appeared in the statement of profit and loss. In case to decrease the Occupancy expense head, the credit side will be affected. This in turn will reduce the credit balance of the account.
Trade and Other Payables have the credit balance and are appeared in the statement of Balance Sheet. In case to decrease the trade and other payables head, the debit side will be affected. This in turn will reduce the credit balance of the account (Kothari and Ball, 2014).
Borrowings (Non Current) have the credit balance and are appeared in the statement of Balance Sheet. In case to decrease the Non- Current Borrowings head, the debit side will be affected. This in turn will reduce the credit balance of the account (White, Sondh, and Fried, 2005.).
In case of the following accounts, the other account which will be affected are as follows:
If cash and cash equivalent is increased then the other following accounts will be affected:
If inventory is increased then the other following accounts will be affected:
If Sales revenue is increased then the other following accounts will be affected:
If Other Income is increased then the other following accounts will be affected:
If Plant and Equipment is increased then the other following accounts will be affected:
If Interest Expense is increased then the other following accounts will be affected:
If Interest Expense is increased then the other following accounts will be affected:
If Interest Expense is increased then the other following accounts will be affected:
If Trade and Other Payable are increased then the other following accounts will be affected:
If Borrowings are increased then the other following accounts will be affected:
Recommendation & Conclusion
JB Hi Fi Limited is an Australia Based company and is listed in the Australia Stock Exchange. The company has been growing since its inception and has been regarded as the strong performer in Australia. The company is engaged in the retailing business for consumer products including the electronic items and software. The annual report of the company contains the financial statements of the company detailing the each account head with the corresponding balances at the year end. The whole report has been formed on account balance of ten accounts – Cash, Inventories, Sales Revenue, Other Income, Plant and Equipment, Interest Expense, Sales and Marketing, Occupancy Expenses Trade and Other Payables and Borrowings which is Noncurrent in nature. As per the above analysis made, the accountancy plays a very major role in determining the nature of account and the normal account balance. It tells about how one account may be affected, increase or decrease, with the change in the other account. The report has helped in understanding the accounting concept and treatment of double accounting system as to how changes in one account balance affects the change in other account balance. To conclude with the study, the account balances of ten accounts have been discussed and detailed.
As per the above analysis, it is recommended that the account balances shall be analysed properly and with proper accounting rules, concepts and procedures.
References
Bryer, R.A., 2013. Double-entry bookkeeping and the birth of capitalism: accounting for the commercial revolution in medieval northern Italy. Critical perspectives on Accounting, 4(2), pp.113-140.
Ingram, R.W., 2008. A note on teaching debits and credits in elementary accounting. Issues in Accounting Education, 13(2), p.411.
Kothari, S.P. and Ball, R., 2014. Financial statement analysis. Mcgrew-Hill Companies.
Phillips, F. and Heiser, L., 2011. A field experiment examining the effects of accounting equation emphasis and transaction scope on students learning to journalize. Issues in Accounting Education, 26(4), pp.681-699.
Sinha, G., 2012. Financial statement analysis. PHI Learning Pvt. Ltd..
Snyder, H., 2009. Double-Entry Bookkeeping. Library Administration and Management, 13(1), pp.23-25.
Weygandt, J.J., Kimmel, P.D., KIESO, D. and Elias, R.Z., 2010. Accounting principles. Issues in Accounting Education, 25(1), pp.179-180.
White, G.L., Sondh, A.C. and Fried, D., 2005. Analysis of Financial Statement. Analysis.
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