Earnings Disclosures and IFRS

Question: Discuss about the Earnings Disclosures and IFRS. Answer: Introduction: Currently the Target does not provide any kind of investment for Wesfarmers, whereas it depicts a change in its goodwill and asset valuation. However, according to the conceptual framework investment in Target should be recorded as historical costs recoding the overall cash or cash equivalent paid during the acquisition of the company. In addition, under impairment costs the overall decline in intangible and tangible assets of the company could be depicted. In addition, the impairment loses could be depicted from annual report of the company, which in turn help in portraying the adequate financial health. Malone, Tarca and Wee (2015) mentioned that conceptual framework allows companies to take adequate assumption on the overall asset valuation, which could help in strengthening their total assets. On the other hand, Vicentijevic, Jovic and Petrovic (2015) argued that the rising impaired assets of the company are warning signal of unethical measures used in preparing annual report of the organisation. Thus, in impaired expense Wesfarmers could conduct the overall investment of target. Depicting the relevant accounts in which Wesfarmers recorded investment in Target: Wesfarmers mainly recorded the overall investments conducted in Target in form of impairment expenses in their 2016 annual report. In addition, the impairment expenses conducted by Wesfarmers are mainly recorded in profit and loss statement. Moreover, there is no other accounts accept the notes to financial statement where Wesfarmers mainly conduct the impairment disclosure. In this context, Darrough, Guler and Wang (2014) mentioned that notes to financial statement holds all the relevant explanation for the listing conducted in cash flow, income, and balance sheet statement of the company. Furthermore, under the expense section of notes to financial statement impairment expenses of both Goodwill and plant is mainly mentioned. Moreover, segregation of impartment expenses on Target is not provided in the financial accounts, whereas it is mentioned in notes of finance. In page 86 of the annual report income statement of Wesfarmers is mainly depicted, which contains description of the i mpairment expense enlisted in total expenses. Besides, in page 97 of the annual report mainly depicts the notes of expenses, which contains the impairment expenses listed by the company. Filip, Jeanjean and Paugam (2015) stated that impairment loss is mainly recorded for disclosing the loss in value, while the company conducts no actual cash outflow. Depiction of the changes in goodwill is portrayed in page 102 of the annual report. Figure 2 mainly states the division of impairment expenses recognised by Wesfarmers for Target. The impairment expense of Target is mainly mentioned in the page 118 of annual report, which is adjusted in goodwill and plants. Moreover, around $1,208 million is depicted as goodwill revaluation, which mainly states the change in current strategic plan of Target (Wesfarmers.com.au 2017). Moreover, decrease in the overall plant and equipment is conducted to depict the overall loss incurred from revaluation. Jordan and Clark (2015) stated that companies to depict accurate value of the non-current assets mainly conduct revaluation of assets. Moreover, Wesfarmers also listed impairment expenses conducted on Curragh by revaluing the predominantly plant, vehicles and equipment. Depicting the impact asset write-down had on profitability of Wesfarmers: The overall impairment expenses mainly decreased the overall profitability of the company for current fiscal year. In addition, the impairment expense mainly increased the total expenses incurred in the income statement. Moreover, decline in revaluation of plant and goodwill could be witnessed in balance sheet. The asset write down had impact on both income and balance sheet statement of Wesfarmers. Linnenluecke et al. (2015) mentioned that impairment expense are non-cash spending, which has no effect on cash flow statement of the company. In addition, the news of more than 2 billion in impairment loss has negatively reflected on the share price of Wesfarmers. Lastly, the impairment loss mainly decreased the net profit of the company from $2,440 in 2015 to $407 in 2016 (Wesfarmers.com.au 2017). Depicting the impact of investment in Target on the financial performance of Wesfarmers: The overall figure 3 mainly states the investments conducted by Wesfarmers in Target and performance generated from the venture. However, in 2016 the overall return on capital employed went negative to 8.2, which was due to the declining profits achieved by the company. In addition, negative EBIT of 195 incurred by Target mainly resulted in profit reduction of Wesfarmers. This decline in EBIT mainly included the restriction provision of $145 million, but excluded the $1,266 million of non-impairment cash (Wesfarmers.com.au 2017). This change in the EBIT mainly states ability of the company to generate higher revenue, which in turn hampers Wesfarmers annual profits. The loss and impairment generated by Target mainly declined both its revenue and profits of Wesfarmers for 2016. Malone, Tarca and Wee (2015) mentioned that impaired lose incurred by companies does not reflect on the actual cash flow, while net profits decline for the fiscal year. This fall in non-tangible assets such as g oodwill mainly depicts the change in strategic move of the company, which does not project the required future growth. Thus, the evaluation of the annual report mainly states that the investment in Target is mainly a liability for Wesfarmers, which is mainly degrading the creditability of the company. In addition, the losses in impairments have negatively reflected on the share price of the company, as shareholders are uncertain of the growth prospects (Nugent, Pomelnikov and Webb 2017). Depicting the impact of Woolworths profit after investment in Masters: The annual report of Woolworths mainly depicts the discontinuation in the operations of Master, which was due to increased loses incurred by the subsidiary. In addition, figure 4 mainly depicts the overall decline in EBIT of Master, which contributed negatively to the overall profits of Woolworths. Moreover, exiting the overall Masters could inflict a total loss of $1.89 billion (Woolworthsgroup.com.au 2017). In addition, the declining profits of Masters negatively reflected on the overall income statement of Woolworths for 2016. In addition, the loss from discontinued operations, $3,188, was the main expense, which reduced the overall profits of the company. Roberts (2013) mentioned that losses from subsidiary companies are directly reflected on the overall performance of the parent company, which in turn reflects on the strategic move adopted by the management. Figure 5 mainly depicts the negative impact of discontinued operations, which increased impaired expenses of Woolworths for 2016. The impairment store cost of $3,005.1 was mainly incurred in 2016, which declined the overall profits of Woolworths for 2016 (Woolworthsgroup.com.au 2017). Vicentijevic, Jovic and Petrovic (2015) cited that impairments expense of plant and machinery and degraded value of its noncurrent assets, which negatively reflects on financial performance of the company. Thus, in page 99 and in 56 overall depiction of investment in Masters could be identified. In addition, it mainly states that Woolworths is mainly discontinuing the operations in Master, which is hampering overall profitability of the company. Reference: Darrough, M.N., Guler, L. and Wang, P., 2014. Goodwill impairment losses and CEO compensation.Journal of Accounting, Auditing Finance,29(4), pp.435-463. Filip, A., Jeanjean, T. and Paugam, L., 2015. Using real activities to avoid goodwill impairment losses: Evidence and effect on future performance.Journal of Business Finance Accounting,42(3-4), pp.515-554. Jordan, C.E. and Clark, S.J., 2015. Do Canadian Companies Employ Big Bath Accounting When Recording Goodwill Impairment?.International Journal of Economics and Finance,7(9), p.159. Linnenluecke, M.K., Birt, J., Lyon, J. and Sidhu, B.K., 2015. Planetary boundaries: implications for asset impairment.Accounting Finance,55(4), pp.911-929. Malone, L., Tarca, A. and Wee, M., 2015. Non-GAAP earnings disclosures and IFRS.Accounting and Finance. Nugent, J.H., Pomelnikov, A. and Webb, K., 2017. Intangibles: The Impaired Accounting Challenge. Roberts, P.W., 2013. The profit orientation of microfinance institutions and effective interest rates.World Development,41, pp.120-131. Vi?entijevi?, K., Jovi?, Z. and Petrovi?, Z., 2015. The impact of impairment of receivables on the reality of financial reporting in the Republic of Serbia. Wesfarmers.com.au. (2017). [online] Available at: https://www.wesfarmers.com.au/docs/default-source/reports/2016-annual-report.pdf?sfvrsn=8 [Accessed 26 Jan. 2017]. Woolworthsgroup.com.au. (2017). [online] Available at: https://www.woolworthsgroup.com.au/icms_docs/185865_annual-report-2016.pdf [Accessed 26 Jan. 2017].