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Integrated Accounting Reports

A Complete understanding of a business financial performance is critical for having a successful operational environment. Hence, the accuracy of financial statements is essential.  The AACL (Australian Agricultural Company Limited is a business that is a form of small part time farms to large commercial operations.The financial statements given in the Annual Report are completed in order to track the company’s financial status inclusive of liquidity, equity, income and cash flows.

The company must make fair value adjustments, as it is necessary. The total cattle production is $300,026,000, cattle expenses are $61,768, feed lot expenses are $37,985 and operating margin is $200,273,000; after fair adjustments, fair value made . The total gross operating margin total up to $241, 751

Looking at the table in appendix 1:

(AACL, Pg 46)

This report suggests that there are complexities of applying for fair value to cattle assets in livestock farming in the Australian Agricultural Company. As per the consolidated statements, in appendix 2 (AACL, Pg 54-59) ; it is suggested that farming is feasible for this (CPC12; E&Y and FIPE, CAFÉ,

2010p. 281);  “Fair Value is the amount for which an asset would be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. The fair value is listed in the consolidated statements have, must not be defined as market value. (Ludicibus and Martins, 2007p.11)

(Barth, 1994), Lisboa and Scherer (2006); address the topic and suggest that fair and true are different from one another. When we take the fair value measurements as per the IFRS, or AASB; it is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between m ........

iven in the Annual Report are completed in order to track the company’s financial status inclusive of liquidity, equity, income and cash flows.

The company must make fair value adjustments, as it is necessary. The total cattle production is $300,026,000, cattle expenses are $61,768, feed lot expenses are $37,985 and operating margin is $200,273,000; after fair adjustments, fair value made . The total gross operating margin total up to $241, 751

Looking at the table in appendix 1:

(AACL, Pg 46)

This report suggests that there are complexities of applying for fair value to cattle assets in livestock farming in the Australian Agricultural Company. As per the consolidated statements, in appendix 2 (AACL, Pg 54-59) ; it is suggested that farming is feasible for this (CPC12; E&Y and FIPE, CAFÉ,

2010p. 281);  “Fair Value is the amount for which an asset would be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. The fair value is listed in the consolidated statements have, must not be defined as market value. (Ludicibus and Martins, 2007p.11)

(Barth, 1994), Lisboa and Scherer (2006); address the topic and suggest that fair and true are different from one another. When we take the fair value measurements as per the IFRS, or AASB; it is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  As per fair value application in livestock farming an entity could potentially recognize an asset costing when:

  1. The entity controls the asset as a result of past events – it is suggested as per the statement
  2. It is possible that there could be future economic benefits amounted with the asset
  3. The fair value of cattle or the cost of the asset may be measured reliably

As per Note 3, of the Annual Report, it is suggested that the fair value inputs of cattle summarized the true value of assets.

IASB (2006). IAS 41. Agriculture. Developed by the International Financial Reporting Interpretations Committee and issued by the International Accounting Standards Board, London.

 Iudicibus, S. and Martins, E. (2007) Uma investigação e uma proposição sobre o conceito e uso do valor justo. Revista Contabilidade e Finanças.

Lisboa, L.; Scherer, L. M. (2000) Fair value accounting e suas aplicações nas atividades agropecuárias. In: Congresso Brasileiro De Contabilidade, 16. Goiânia. Anais do 16º Congresso Brasileiro de Contabilidade [cd-rom]. Goiânia: CFC. T332. Trabalho. Trab332.doc

 Barth, M. E. (1994) Fair value accounting: evidence from investment securities and the market valuation of banks. The Accounting Review, v. 69, n. 1, p. 1–25.

CPC (2007) CPC 02 (R1) - The effects of changes in foreign Exchange rate. Developed by Comitê de Pronunciamentos Contábeis, Brasília

The total sales revenues, increased by approximately $ 45,236 from 2016 to 2017 and the cattle fair value adjustments total up to $ 25,448

In the opinion of the writer it is suggested that the audited financial information is complete and reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of results for the interim periods. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes

  1. Change in fair value of property $2,285,000
  • (you will find additional information in answering this question in Note A4 on pages 57 – 59)

As per the Consolidated statement on Page 57, the fair value of property has changed from opening balance and closing balance point of view given the fact and figures that suggest that there has been an increase in the various types of property values.

There are two occasions where the standard permits departure from current fair value: at the early stage of an asset’s life; and when fair value cannot be measured reliably on initial recognition. The first exemption is a practical expedient. The standard allows that cost may approximate fair value where little biological transformation has taken place since the initial cost was incurred. The same applies when the impact of the biological transformation on price is not expected to be material [IAS 41 para 24]. The second exemption would be that fair value cannot be reliably measured is almost never relevant.

 

  1. Net profit after tax, $71,586,000 and compare this item to total comprehensive income of $102,065,000 in the Consolidated Statement of Comprehensive Income for the year ended 31 March 2017 (page 47).

Net profit after tax is the earnings of the company after the charge off, depreciations, expenses and tax. This will be the remaining amount to be paid to the shareholders [IAS 27 para 9]. The other comprehensive income (OCI) generally are not classified into a category because, the income, revenue is not yet realized so it cannot be included in the P&L account. The consolidated statement of comprehensive income will have items which have not been realized yet.

Total comprehensive income =other comprehensive income + profit and loss not reclassified + PAT.

The revaluation of land and buildings which are not realized yet is not classified to P&L( Page 57 , Report). Similarly the items which are reclassified subsequently are also categorized as F4- Reserves, which are not yet realized and hence there is a difference in PAT and the total consolidated income.

Lynn L. Rees and Philip B. Shane (2012) Academic Research and Standard-Setting: The Case of Other Comprehensive Income. Accounting Horizons: December 2012, Vol. 26, No. 4, pp. 789-

 

FASB Statement 130: Reporting Comprehensive Income (June 1997)

http://www.retailinvestor.org/earnings.html

Part B

  • Maximum of 500 words
  • 9 marks

 

Looking at the Consolidated Statement of Financial Position as at 31 March 2017 (page 48), discuss the following items:

  1. Livestock $269,850,000 (under Current Assets) and Livestock $392,632,000 – under Non-Current Assets
      • you will find additional information in Note A3, pages 54 – 56, to assist you in answering this question

 

Livestock according to the agricultural accounting standards are considered in A3( page 56) , the classification of the livestock is given in detail in livestock fair value. The value of 5 types of livestock are considered , commercial and stud breeding herd , trading cattle , unbranded cattle, feedlot cattle.

 

The livestock can be grouped in both current and non current assets as given in the consolidated financial position.

 assets of the livestock are classified as current assets and noncurrent assets; this classification is based on the assumption that the breeding cattle are not responsible for current cash revenues. The breeding cattle or the unfit for business cattle are generally classified into noncurrent. So with this understanding and also with the help of the valuation format given in the Notes A39 (Page 54, Financial report) , we can group the noncurrent and current asset livestock.

 

The average value per head of the cattle is determined based on the total value of the livestock present in the farm.

 

So based on the classification, the sum of the two types of cattle, commercial and unbranded cattle will give us the total sum of the noncurrent assets because they don’t contribute to the current receivables.

 

 

  1. Property, plant and equipment $792,373 (under non-Current Assets)
      • you will find additional information in answering this question in Note A4 on pages 57 – 59).

Property plant and equipment in this scenario is anything other than industrial property and improvements , usually the fair value after deducting the depreciation.

 

 to the table, the property and improvements are calculated at the re-valued amount after the date of revaluation. The re-valued amount is less than the depreciation on building and impairment losses. Likewise if we consider the industry and improvements cost, they are also calculated in the same way[IAS 41 para 24].

Lisboa, L.; Scherer, L. M. (2000) Fair value accounting e suas aplicações nas atividades agropecuárias. In: Congresso Brasileiro De Contabilidade, 16. Goiânia. Anais do 16º Congresso Brasileiro de Contabilidade [cd-rom]. Goiânia: CFC. T332. Trabalho. Trab332.doc

 Barth, M. E. (1994) Fair value accounting: evidence from investment securities and the market valuation of banks. The Accounting Review, v. 69, n. 1, p. 1–25.

 

 

 

  1. Borrowings $362,918,000 (under Non-Current Liabilities)
      • you will find additional information in Note C1, page 62, to assist you in answering this question

 

The borrowings of the company are from two ways one is the current and noncurrent liability, these two liabilities together account for the total borrowings of the company.

 

According to the borrowings table, it understood that the noncurrent liabilities are handled by the long term loans like leases, secured bank loan and convertible notes. This composition accounts for more than 90% of the loan in the company because the current loan is around $3691,000 and the total noncurrent liability is around $362,918,000 and if it a company which is well established , it will have long term debts. So this means that the agricultural company can spare fixed repayment of the loan from its balance.

 

Part C

  • Maximum of 500 words
  • 12 marks

 

Looking at Note E1 and E2 on page 69, discuss the following items:

 

  1. Future minimum lease payments under non-cancellable operating leases for land and buildings of $7,718,000

According to the commitments table which falls under the unrecognisable items of the consolidated report, the lease payments which are non- cancellable includes components which for all the years under the agreement. This lease payments also considers into account the risk of defaulting and it also calculates if the payment is delayed.

The non cancellable operating leases are generally non cancellable but only in scenarios like

  1. Any contingency in the farm
  2. If a new agreement between the lesser has been created for the same asset.

So these scenarios will be able to cancel the operating leases, and a lease for land is to make sure the lease is certain under scenarios [IAS 41 para 19].

 

 

We can see that the total for Mar’17 comes around 7718,000 and is falling in noncurrent assets because the leases are falling under that category in the liabilities side.

  1. The possible impact on Australian Agricultural Company of the introduction of Australian Accounting Standard AASB 16, Leases which will be effective for periods beginning on or after 1 January 2019

 

If the AASB 16 has been introduced in the, the amount of lease payments left will be calculated based on new standards. After the advent of the AASB 16, the leases are not anymore classified as either ‘operating’ or ‘finance’, they are grouped to one [IAS 41 para 24].

Once AASB 16 is effective from January 2019, the changes would include

1. For lessors the finance and operating lease distinction is prevalent.

2. The right of use asset will be entered in the balance sheet as a lease liability. This will add to the total liability.

 single lessee model will require the company to record liabilities of leases which are less than 12 months old. So in this table, we can clearly see that new lease payment will not differentiate between operating and finance so instead of subtracting from the operating non cancellable lease payments everything will be done at a time. If in this case there are two total commitments such as the total leased land and buildings and the total minimum lease payments will (Page 79).

Copeland, T., & Weston, J. (1982). A Note on the Evaluation of Cancellable Operating Leases. Financial Management, 11(2), 60-67. Retrieved from http://www.jstor.org/stable/3665025

 

  1. Other commitments

Other commitments will include if the company has taken up any other contracts and that details are also be recorded in the payments. This will be under non recognisable items and will be added in their liability. The details of any futures, swaps or options are to be recorded along with the actual underlying asset of the security(Page 69). The details of the security are market to the market value at the recorded date.

  1. Contingencies

There can by any claims done by public on the property, cattle or anything the company owns. The funds for these risks should be accounted in the contingencies and can be recorded with the estimate done(Page 70). The contingency accounting is done only when the losses are probable and an estimate of such losses can be derived.

The contingency should be available even if there are not likely to receive any claims. The contingency fund should be always available to resolve the claims.