Discuss about the Financial Statement of JB the Hi-Fi Limited.
A financial statement is important for every organization and it helps the related parties to frame a decision regarding the prospect of the company. Financial reporting comprises of disclosures and other relevant accounting policies that enables preparation of the report. JB-HiFi is a reporting entity and discloses the relevant information for the users (Deegan, 2011). The preparation of the task is done with the help of the annual report. It is from the annual report that various information regarding PPE its recognition and revaluation is done. Further, the balance sheet is evaluated and researched to trace the intangible assets and its reporting. The noncurrent assets are even put to a discussion where the evaluation in part is discussed whether it went upward or downward. Hence, the total discussion and explanation have been done with the help of the annual report. For an entity, all the major information is present in the annual report and the same is considered by the stakeholders for the purpose of decision making.
Items of PPE revalued by the entity during the current FY or the last year
Plant, property, and equipment (PPE) form a major part of the company’s non-current assets. In order to procure such PPE, the company requires balances of cash that will result in the decline of figures of cash and cash equivalents. Therefore, an increase in the company’s property, plant and equipment, will also result in an increment in depreciation expense. The accounting policy followed by the company is that Plant and Equipment and leasehold improvement are reported at historical cost net of any impairments and deprecation accumulated till the reporting date. The historical cost comprises all such expenses which can be related directly to the assets reported. The straight-line basis method of calculation of depreciation is used so as to facilitate the net cost of the asset being written off over the useful life of the asset expected with consideration to its estimated residual value. A review of the methods of depreciation, net realizable values of the assets and the expected useful and productive life of the assets is undertaken at the end of the each reporting period to account and provide for any such changes and the effect of the same is done on a prospective basis. If the carrying value of the asses exceeds its net realizable value, then an impairment loss is recognized (JB-Hifi, 2017). Alternatively, the higher of the fair value of the asset and its value in use is also taken to be the net realizable value of the asset.
From the information available in the annual report, it can be said that evaluations of Property, Plant and equipment and leasehold improvements have not been reported to have taken place during the current year or the previous year.
Any asset is considered to be productive and value generating as long as there are tangible returns from the same. Once the returns and benefits from the asset are stopped, then such asset is considered to be non performing and non value generating and thus it has to be written off or derecognized. In case this treatment is required to be adopted for any asset, then the net of the carrying amount of the asset and the sale proceeds received is to be recognized in the Income statement either under other expenses or under other income depending upon the amounts realized (Hamilton et. al, 2011).
From the Annual report, it can be ascertained that the breakup of the various items that are clubbed under other expenses has not been provided, hence it is not possible to provide the financial amounts involved in the derecognition of such assets which might or might not be forming a part of the other expenses.
From the Statement of Financial Position for period ending 30/06/2017, reported amount of intangible assets is $1,026.6m whereas it was $98.5m for the previous year ending 30 June 2016 (JB-Hifi, 2017).
An extract from the Annual Report is as under:
(JB-Hifi, 2017)
Goodwill can be typically construed as the extra cost paid by the company to acquire another company. This extra cost is understood in relation to its fair value of the assets of the company acquired and the actual amount paid for the same. The useful life of goodwill cannot be defined typically and so it is considered to be indefinite. Hence the reporting amount of goodwill is shown as the net of any impairments, losses and write offs. The same has been shown in the financial statements with the noted containing a proper highlight to the same. Thereby, it can be said that the information is portrayed in a diligent manner (JB-Hifi, 2017).
Apart from goodwill, assets like brand names, Location premiums, and rights to share in profit can also be construed to have indefinite useful lives and follow the same treatment as goodwill. Another reason for the same can be seen in a way that the management intends to use these assets indefinitely in the future periods (Kieso et. al, 2010). Whenever such events or circumstances take place which provide reasons for a change in the assessment of the indefinite useful life, then an assessment is done to review the same and in most cases this is done on an annual basis.
For impairment evaluation, grouping of assets is done at such stages where they are able to independently generate cash flows and not in any Cash Generating Unit to the extent possible. Moreover, at each reporting period non financial assets apart from goodwill are also tested for impairment. To benefit from the synergies, goodwill is clubbed with the CGU or the CGUs of other entities within the group (JB-Hifi, 2017).
Where a visible impairment in goodwill is calculated, it is first accounted towards the amount of goodwill and then to write down the value of other assets within the CGU or group of CGU. Such amount of impairment loss is accounted for in the Income Statement. Thus it can be understood that the impairment is allocated on a pro rata basis and first towards goodwill and then towards other assets.
When any operation is disposed, then the profit or loss on disposal of goodwill is accounted for in the Income Statement.
An extract of the reported amounts from the Annual Report in relation to goodwill and impairment testing is presented below:
Upon acquisition of the Good Guys, the goodwill arising of $701.5m has been reasonably allocated to JB Hi-Fi Australia CGU ($134.6m) and the balance to The Good Guys CGU ($566.9m) which is based upon the earnings the group is expected to contribute as a result of the acquistion (JB-Hifi, 2017).
The calculation of the recoverable amount is on the basis of the value in use calculations. The management approves the financial budgets for a period of five years and cash flow projections are used at a discount rate of 10.00%. For the time period beyond five years, a long term steady growth rate of 2% has been used as it is the average industry growth rate and usually used by the consumer industry.
In relation to previously mentioned analysis, the key assumptions that have been utilized by the Group in utilizing such computations consist of efficiencies of the costs, growth in sales, and discounting rate (JB-Hifi, 2017). Furthermore, the assumptions in relation to the effectiveness of CODB and growth in sales are dependable upon past experiences and the Group’s expectation of financial and operating performance for each cash-generating unit (CGU). As the discount rate is different for various risk profiles, the weighted average cost of capital is arrived at by working out a reasonable average of these rates for varying risk profiles.
JB Hi-Fi New Zealand has shown a poor performance and so the goodwill of the same has been impaired with the same being expensed off in the Income Statement. The same has been highlighted in an appropriate manner. The presence of such elements leads to a proper decision making and gives weight to the principle of the disclosure.
The items included in Non-Current assets are Deferred tax assets, other noncurrent assets, plant and equipments and intangible assets.
Items like Deferred tax of the Group are accounted for by utilizing the available balance on the Statement of Financial position to provide for the temporary variations among the amounts reported in the taxation purposes and balance sheet. The measurement rate of such deferred tax items is anticipated where the period of settlement of the liability or asset realization is done on the basis of the enacted rate of tax or significantly applied on the reporting date. Furthermore, it must be taken into account that the deferred taxes of the Group will defer recognition if such timing differences emerge from a first time recognition and the transaction is such that it can neither impact the gains or taxability of the profits in relation to such assets and goodwill (Parrino et. al, 2012). The Statement of Financial Position portrays a net position of the deferred tax assets against the deferred tax liabilities. The offset between the deferred tax assets and liabilities is possible only when it is in relation to the taxes levied by the same authority and there is a possibility to carry forward and set off such taxes and liabilities against the assets in the future years. The current tax and deferred tax usually form a part of the Income Statement. Where the taxes relate to equity, it is recognized directly to equity and does not form a part of the Income Statement. These balances contain the temporary differences attributable to provisions, inventories, deferred revenues and other items (JB-Hifi, 2017).
(JB-Hifi, 2017)
There is no upward or downward revaluation with respect to the deferred tax assets. The reason for the same is due to the fact that the entities within the group have entered into a tax sharing and funding agreement. In line with the principles of Consolidation, each entity within the group agrees to pay to the head entity an amount equivalent to its liability and vice versa and such amounts are disclosed as receivables or payables in the consolidated financial statements (Peirson et. al, 2015).
With reference to intangible assets, impairment testing is carried out every year. Moreover, an impairment loss for such intangibles is identified as the excess of the net realizable amount over its carrying amount. The upward or downward revaluations are carried out by assessment of the assets and the annual report contains the accounting principles adopted by the company in such cases (Brigs, 2013).
The annual report contains all the specific details that are needed for decision making, however, there are certain items where the details are not provided by the organization. The details of any specific assets being revalued upwards or downwards are not available in the annual report. Due to the take over of the Good Guys, goodwill is recognized. The annual report contains a detailed note explaining the same.
Due to the unavailability of any specific information in the annual report, details of any upwards or downwards revaluations of noncurrent assets cannot be provided. However, the details of total non-current assets of the Group can be observable from the annual report. In the year 2016, such total non-current assets amounted to $289.9 million whereas, in the year 2017, it increased to $1281.6 million (JB-Hifi, 2017). This sheds light on the purchase of additional non-current assets betwixt 2016 and 2017.
References
Brigs, A. (2013) Financial reporting & analysis, Mason, Ohio: South-Western.
Deegan, C. M. (2011) In Financial accounting theory. North Ryde, N.S.W: McGraw-Hill
Parrino, R, Kidwell, D. and Bates, T. (2012) Fundamentals of corporate finance. Hoboken, NJ: Wiley
Peirson, G, Brown, R., Easton, S, Howard, P. and Pinder, S. (2015) Business Finance, 12th ed. North Ryde: McGraw-Hill Australia.
JB-Hifi. (2017) JB-Hifi annual report & accounts 2017 [online]. Available from: https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf [Accessed 27 April 2018]
Hamilton, K., Hyland, B. and Dodd, J. L. (2011) Impairment: IASB-FASB Comparison. Drake Management Review.[online]. 1(1), pp. 55–67. Available from: https://pdfs.semanticscholar.org/8d8f/5fd070193d6fa52e79d1dee9cc6632159d8a.pdf [Accessed 27 April 2018]
Kieso, D., Weygandt, J., Warfield, T; Young, N. & Wiecek, I . (2010) Intermediate accounting. Toronto: John Wiley & Sons Canada.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download