Wesfarmers And Altura Mining Limited: Revenue, Assets And Liabilities Recognition

Wesfarmers Overview

Discuss about the Contrast And Compare The Revenue Recognition Of Wesfarmers And Altura Mining Limited.

Since the establishment in the year 1941 Wesfarmers was able to become one of the largest conglomerates in Australia. The company has it’s headquarter in Western Australia. The company is engaged in diverse business that includes office supplies, manufacturing of safety and industrial products, liquor, hotel business, supermarkets, chemicals, fertilizers and energy products. It is one of the largest Australian private sectors that have more than 530,000 shareholders and more than 220,000 employees. The company’s primary objective is to deliver satisfactory returns to the shareholders. The objectives of the company is achieved through placing strong focus on protection of the environment, providing healthy and safe working place for the employees and satisfying the requirements of the customers through delivering the service and goods  on professional and competitive basis. The board of the company has 9 directors at present, out of which 8 are non-executive director. The board is committed towards assuring that the board’s composition will include the directors who will bring required mix of experience, skills, diversity and expertise for the decision making purpose of the board. The company’s achievements include enhancement of customer’s offers that includes reinvestment in the value for driving the business growth and enhancing the ranges for merchandise. Further, it invested and optimised the networks for digital channels and retail stores. Moreover, it was focussed on efficiency of production plant and maintaining the growing relationships with the customers. The company also made further improvements in the operational productivity and able to reduce the costs all over the businesses (Wesfarmers.com.au 2018).

On the the mining company Altura Mining Limited was listed under the ASX on 8^th January 2001. The company building the leading position with regard to independent supply lithium raw materials with the world class project for lithium at Pilgangoora that is ready for setting the platform to start its production from 2018. Further, the company has a track record for providing the mining projects on proper time and with budget amount that too with solid off-take partners. It also offers world market that provides considerable growth and demand opportunities which in turn enable the shareholders to look forward for receiving returns over the next few years. Protection of the environment and people is in the top priority list of the company. They further ensure that no person shall suffer any any ill impact owing to taking up a job in Altura. To achieve this objective, the company identifies its responsibilities to maintain the workplace through maintenance and implementation of appropriate environment system management and health safety. At present the company has 7 members on their board, out of which 4 directors are non-executive. All the members have required qualification for smoothly running the business operation and taking required decisions. The company is further committed to achieve the high standard performance on the environmental aspect (Alturamining.com 2018).

Altura Mining Limited Overview

As per the recognition criteria of general purpose financial reporting corporate framework the revenue shall recognized under the income statement if the increase in the future economic benefits associated with the increase in the assets or reduction in the liabilities has been generated and the where the amount can be reliably measured (A Review of the IASB’s Conceptual Framework for Financial Reporting 2018). This signifies that the revenue recognition simultaneously takes place with recognition of the assets increase or reduction of liabilities. Looking in to annual report of Wesfarmers it is recognised that the revenue of the company amounted to $ 68,444 million for the year ended 30^th June 2017. Revenue of the company is measured at fair values of total consideration receivable or received. The revenue is recognised by the company when the following criteria is met –

1. Sale of goods –

Significant part of revenue of the company is generated from sale of the finished goods through –

• Merchandising the goods directly to the customers through retail operation of the company
• Specialty gases and fertilizers
• LNG and LPG
• Coal, both internationally as well as nationally
• Sales made to other businesses of the products for which the company has distribution rights, mainly associated with the industrial safety and industrial maintenance

The company recognizes the revenue in the financial statement when the rewards and significant risks associated with the products has been passed on to the buyer and are able to be reliably measured (De Villiers, Rinaldi and Unerman 2014).  The rewards and risks associated with the product are considered to be passed on to the buyer when the delivery for the products takes place. Further the revenue generated from lay-by activities is recognized when the payment is received from the customers and the customers take the possession of merchandise.

1. Rendering of the services –

With regard to rendering of the services the revenue is recognized based on the completion stage of the activities.

1. Interest –

Interest income is recognized when the interest is accrued on associated financial asset. Further, the amount of interest is determined through using the effective rate of interest method that is the rate used as the discount rate for calculating the future cash flows of the company (Kogan, Sudit and Vasarhelyi 2018).

1. Dividend –

Dividend income is recognized when the company establishes its right to receive payment.

On the other hand, the revenue of Altura Mining Limited is measured at fair values of of total consideration receivable or received. The amount disclosed by the company as revenue are net of returns, rebates, trade allowances and any amount collected on behalf of the 3^rd parties. The company recognizes its revenues while the amount of revenue can be measured reliable and it is apparent that the future economic associated with the product will inflow to the company (Morioka and De Carvalho 2016).

Revenue Recognition

The revenue under the profit and loss account is recognized as follows

1. Goods sale –

Revenue received from bulk commodities sales are recognized while the rewards and risks associated with the product has been passed on to the buyer and are able to be reliably measured.  The rewards and risks associated with the product are considered to be passed on to the buyer when the delivery for the products takes place generally of the basis of Free On Board (FOB).

1. Revenue from royalty –

Revenues received from royalty is recognized in the profit and loss account when the company is established the right to receive the payment.

1. Dividend –

Dividend income is recognized when the company establishes its right to receive payment.

1. Interest –

Interest income is recognized when the interest is accrued on timely basis from associated financial asset. Further, the amount of interest is determined through using the effective rate of interest method that is the rate used as the discount rate for calculating the future cash flows of the company (Zhang and Andrew 2014).

1. Service –

With regard to rendering of the services the revenue is recognized based on the completion stage of the activities.

As per the recognition criteria of general purpose financial reporting corporate framework the asset shall recognized under the balance sheet of the company if the future economic benefits associated with the assets will be the inflow for the company and where the value or the cost of the assets can be reliably measured (Garrett, Hoitash and Prawitt 2014). Looking at the annual report of Wesfarmers Limited it is identified that the assets of the company are recognized as follows –

1. Trade receivables –

Finance advances, loans, trade receivables and any other debtors are classified as the financial assets. The receivables are recognized at fair values initially and eventually it is recognized at the amortised cost through using the effective method of interest reduced by the impairment loss, if any.

1. Inventories –

Inventories are recognized at lower among the net realisable value and cost, whichever is lower. Net realisable value of the inventories is estimated price of sales in ordinary course of business reduced by estimated selling cost.

1. Plant, property and equipment –

Carrying amount of plant, equipment and property is measured at the cost reduced by impairment and depreciation. The asset cost includes the replacing cost of the asset that are eligible to be capitalized and cost of the major inspections, if any.

1. Goodwill and other intangible assets –

Goodwill acquired under the business combination is measured at the cost initially. The cost is measured as cost of the business combination reduced by fair value of contingent liabilities, identifiable liabilities and assets. The intangible assets separately acquired are measured at cost initially and subsequently it is carried at the cost reduced by impairment and amortization cost, if any.

Asset Recognition

On the other hand the assets of Altura Mining are recognized as follows

1. Property, plant and equipment –

Freehold building and land are recognized at cost. The property and plant are measured at cost initially and subsequently the costs are included under the carrying amount of the assets or the assets is recognised as the distinct property, as and when appropriate, if only the the future economic benefits associated with the assets will be the inflow for the company and where the value or the cost of the assets can be reliably measured.

1. Inventories –

Inventories are recognized at lower among the net realisable value and cost, whichever is lower. Net realisable value of the inventories is estimated price of completion in ordinary course of business reduced by estimated selling cost.

1. Loans and receivables –

The receivables and loans are recognized at fair values initially and eventually it is recognized at the amortised cost through using the effective method of interest reduced by the impairment loss, if any.

As per the general purpose financial reporting requirement requirement the liability shall be recognized in the balance sheet if it is apparent that the resource outflow will take place to pay off the current obligation resulted from past event and for which the amount can be reliably measured (Cheng et al. 2014). Wesfarmers recognises its liabilities as follows –

1. Interest bearing loans and borrowings –

All the borrowings and loans initially are recognised at fair values of consideration received reduced by transaction costs that are attributable directly. However, subsequent to initial recognition it is measured at amortised cost through using the effective method of interest rate (Simnett and Huggins 2015).

1. Hedging –

Derivative financial instruments initially are recognized at the fair values when the the contract for derivative is entered into and subsequently are measured at amortised cost through using the effective method of interest rate.

On the other hand, Altura Mining Limited recognises its liabilities as follows –

1. Borrowing cost –

All the borrowing costs of the company are recognized as expenses under the period in which it is incurred.

1. Provisions –

The company recognizes the provision while it has a constructive or legal obligation resulted from the past events and for which it is apparent that the outflow of economic resources will take place and the amount for provision can be estimated reliably (Cajaiba-Santana 2014).

Conclusion

From the above discussion and analysis of financial statement of Wesfarmers as well as Altura Mining Limited that both the companies recognise the revenues, assets and liabilities in their financial statement as per the conceptual framework requirement of General Purpose Financial Reporting (GPFR). However, owing to the difference in operational activities of both the companies they recognize different items in financial statement under revenues, assets and liabilities. However, in recognising any item both the companies followed the requirement of GPFR appropriately. However, the data presentation of Wesfarmers are more clear as compared to Altura Mining Limited as Altura mining did not disclosed the items under distinct heads for all the items.

References

A Review of the IASB’s Conceptual Framework for Financial Reporting. (2018). [ebook] Australian Accounting Standard Board. Available at: https://www.aasb.gov.au/admin/file/content105/c9/ITC29_07-13.pdf [Accessed 17 Apr. 2018].

Alturamining.com., 2018. Altura Mining | Charging Forward with Lithium. [online] Available at: https://alturamining.com/ [Accessed 30 Apr. 2018].

Cajaiba-Santana, G., 2014. Social innovation: Moving the field forward. A conceptual framework. Technological Forecasting and Social Change, 82, pp.42-51.

Cheng, M., Green, W., Conradie, P., Konishi, N. and Romi, A., 2014. The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting, 25(1), pp.90-119

De Villiers, C., Rinaldi, L. and Unerman, J., 2014. Integrated Reporting: Insights, gaps and an agenda for future research. Accounting, Auditing & Accountability Journal, 27(7), pp.1042-1067.

Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality. Journal of Accounting Research, 52(5), pp.1087-1125.

Kogan, A., Sudit, E.F. and Vasarhelyi, M.A., 2018. Continuous online auditing: A program of research. In Continuous Auditing: Theory and Application (pp. 125-148). Emerald Publishing Limited.

Morioka, S.N. and De Carvalho, M.M., 2016. A systematic literature review towards a conceptual framework for integrating sustainability performance into business. Journal of Cleaner Production, 136, pp.134-146.

Simnett, R. and Huggins, A.L., 2015. Integrated reporting and assurance: where can research add value?. Sustainability Accounting, Management and Policy Journal, 6(1), pp.29-53.

Wesfarmers.com.au 2018. Home. [online] Available at: https://www.wesfarmers.com.au/ [Accessed 30 Apr. 2018].

Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting and Finance, 25(1), pp.17-26.