Coca-Cola Amatil Ltd & its Subsidiaries - Example

Financial Accounting Name Course Lecturer Date Coca-Cola Amatil Ltd & Its Subsidiaries 2012 Annual Report This paper summarizes the Coca-Cola Amatil Ltd & Its Subsidiaries as seen in the ASX (Australian stock exchange). The paper captures a number of areas falling under the financial accounting department of the company. One of the areas is leasing. In this case, the paper analysis the company’s financial statements regarding leases with the aim of seeing whether the company complies with the relevant accounting standards. The second area is the owner’s equity. Like in the case of the company leases, the paper also highlights the owner’s equity of the company as reflected in the financial statements so as to see whether the owner’s equity complies with the relevant accounting standards. The other areas that are examined in this paper so as to understand whether they are in compliance with the accounting standards are benefits and obligations, cash flow statements, income tax expense, segment activities and intangible assets. Introduction There are different accounting policies adopted by the CCA Company. The following is a summary that outlines the relevant accounting policies used in the company. First, the company has a basis on which it prepares its financial report. The financial report in this case constitutes an extract of the annual financial report of CCA. This annual financial report is prepared in such a way that it meets the Australian Accounting Standards. Besides meeting the Australian Accounting Standards, the annual financial report is expected to be in accordance with Corporations Act 2001and Australian Accounting Standards Board’s pronouncements. In the financial report, all the notes that are normally included in the case of annual financial report are not included. Therefore, this financial report has to be read in line with or in conjunction with the CCA’s annual financial report of the 31 December 2012. The financial report is also prepared based on the historical cost. The exception to this is the financial liabilities and assets. Among the liabilities in this case are the derivative financial instruments, which through the company’s income tax statement, have been quantified at fair value. The presentation of this financial report is done in Australian Dollars. There is also the rounding off of all vales to the nearest 10th of a million dollars, especially in a situation which has not been otherwise specified or stated. As far as the accounting standards are concerned, it is also important to note that the Company constitutes an entity. Being an entity, class order applies (Hirt & Block, 1999). With respect to the relevant accounting standards, the CCA also has a statement of compliance. Under this statement of compliance, the CCA group has embraced all the consequential amendments or changes to Australian Accounting Standards. These amendments are those that were applied on January 2012. The application of these amendments had no effect on the CCA Group’s financial statements. Within the cash flows statement, CCA has made amendment to the reporting of receipts obtained from customers, in such a way that the cash flows become inclusive of services and taxes , excise taxes and duties. This amendment has been made in such a way that it complies with AASB 107’s generally accepted interpretation of the requirements of cash flows statement. The amendment adopted does not affect the net cash flows under operating activities (Friedlob, 2002). In compliance with the accounting standards, the CCA has also adjusted the comparative figures. In this case, it has made the adjustments in such a way that they conform to amendments in the current year’s presentation. The use of estimates while preparing the financial statements calls for management to make assumptions and estimates that affect the reported amounts of expenses, revenues, liabilities and assets, as well as application of policies. The associated assumptions and estimates are based on the company’s historical experience as well as different other factors that are thought to be reasonable under the prevailing circumstances. With these estimates, it is true that the real results may in the end differ from estimates. The underlying assumptions and estimates are reviewed often (Needles, Anderson, & Julies, 1996). There are also the principles of consolidating subsidiaries. In this case, the CCA Group’s consolidated financial statements bring together those of Coca Cola Amatil Limited, the parent entity, and those of its subsidiaries. In this case, the subsidiaries comprise of the different entities over which the CCA group has the authority to govern operating and financial policies, in order to benefit from these business activities. During the assessment of whether the group has power over another entity, the existence and influence of potential voting rights are considered. In this case, the financial statements include the result and information of each subsidiary, right from the time the company gained control until the time it ceases to have power over the entity. During the preparation of the consolidated financial statements, the influences of unrealized losses and gains, balances and all transactions on transactions done between subsidiaries in the group are eliminated (Friedlob, 2002). This paper will therefore, in light of this introduction, reflect on whether the benefits and obligations, cash flow statements, income tax expense, segment activities, intangible assets, leases and owner’s equity are in compliance with accepted accounting standards (Hirt & Block, 1999). Financial Accounting overview CCL has a great strategy analysis. The key of this strategy is to enable CCL to let the Australian beverages market grow by looking for new outlets. The other key of this strategy is to improve the returns of CCL in the main business. CCL is also making heavy investment aimed at increasing fridges in Indonesia. This investment in Indonesia is necessitated by the fact that the country’s GDP growth is very strong. The country also has a low penetration as well as a large population. These factors imply a good growth potential that is long-term. The business of alcoholic beverages constitutes another attractive avenue for growth with which CCL can be in a position of leveraging its distribution and sales infrastructure to full effect. The company has a cost reduction program dubbed The Project Zero. This program is a key contributor as far as profit growth is concerned, especially in core markets that are mature (Coca-Cola Amatil Limited Annual Report 2012). The company has identified value adding projects through to 2015. In order to diversify and become a wider based carbonated drinks company, acquisitions have played a significant part. It for instance, acquired Neverfail in April 2003 for $225 m. the acquisition of SPC Ardmona, and hence diversification into packaged fruit, took place early in 2005. It formed the Pacific Beverages to get in a distribution joint scheme with SAB Miller in 2006. The purpose of this venture was alcoholic beverages distribution (Coca-Cola Amatil Limited Annual Report 2012). Compliance Statement The financial report is consistent with Financial accounting Standards as issued by the relevant statutory. The Group has complied with all the statutes about accounting as provided by the Australian law. CCA has included goods, services tax and levy from its clients. This new change was made conversant with generally accepted accounting standards in regard to Cash Flow Statements requirements. Besides, the legal changes do not affect the operations that constitute the net cash flow activities (Needles, Anderson, & Julies, 1996). In 2011, an election held by the Coca-Cola Amatil Limited company Board of Directors meant to formalize the adoption of the documented legislation according to the relevant Australian accounting standards (Hirt & Block, 1999). Operating Lease and Financial Lease According to the Australian Accounting Standards Board, the non-financial assets of an entity can be obtained through leasing arrangements or an outright purchase. When deciding on whether to buy or lease, a business entity is expected not only to consider the financial consequences or implications of the choice, like the government’s procurement decision factor relating to “value for money” is also expected to consider the long-term strategic precedence as well as qualitative factors . Therefore, it is essential to know the consequence of both options for the entity’s service delivery needs before determining the most preferred option. When an entity is leasing an asset, it only pays for its use over a specified lease term. In the same note, there is no stage at which the asset’s ownership passes to the hands of the entity, unless this is specifically stated in the contract. There are two types of leases according to the Australian Accounting Standards Board. The first type is called finance leases. In this type of lease, all the substantial rewards and risks incidental to or pertaining the ownership of the asset are transferred to the entity leasing the asset. In this case, an entity is obliged to pay full cost or price of the asset at the day of acquisition. At the same time, the entity reserves the full ownership of the asset after making this payment (Needles, Anderson & Julies, 1996). Consequently, when the contract or transaction has been entered into, the finance lease is recorded or indicated as an asset. Like in the case of the option of outright purchase, the asset acquired through a finance lease will start giving rise to depreciation expense, just like the assets that the entity controls would have done. If it is not reasonably certain that the lessee will get the ownership of the asset by the end of the lease period, it is required or expected that the asset will have fully depreciated over its useful life or lease term, whichever is shorter. The other type of lease is the operating lease. According to this type of lease, an entity is given a specific period or time, over which it has the right to use the goods. If the goods stop working within the lease period, the goods have to be replaced. At the end of the lease period, the entity has to return the goods to the leaser (Hirt & Block, 1999). According to the financial report of Coca-Cola Amatil Ltd and its subsidiaries as at 31 December, 2012, the company leasing is in such a way that it acquired a number of assets through leasehold terms. Among these assets are the freehold and leasehold land, freehold and leasehold building, plant and equipment, plant, property and equipment in construction and total property plant and equipment. The report displays some compliance with the Australian Accounting Standards Board. First, the freehold and leasehold land has been separated from the freehold and leasehold building. This has been done in accordance with the AASB rules. The AASB guidelines state that buildings and land are separable assets, which need to be accounted for differently or separately. Even in a situation in which buildings and land are acquired at the same time, their accounting has to be done separately. This separate accounting is what has been done in the Coca Cola Amatil Ltd since freehold and leasehold land and freehold and leasehold building are found in different or separate columns (Friedlob, 2002). As far as depreciation is concerned, there is a difference between land and building accounting. In this case, the useful life of land is unlimited. It therefore, undergoes no depreciation. On the other hand, the useful life of buildings is limited and because of this, it is a depreciable asset. In this regard, the financial report of the Coca Cola Amatil Ltd & Subsidiaries as at 31st December 2012 is in such away that it complies with this requirement. This can be shown by the fact that the column bearing freehold and leasehold land has no depreciation expenses. At the same time, the column bearing freehold and leasehold building clearly complies with the AASB in the sense that it accounts for the depreciation that the building undergoes (Needles, Anderson & Julies, 1996). The other aspect in which the Coca Cola Amatil Ltd & Its Subsidiaries Company leasing as at 31 December, 2012 complies with the AASB concerns the impairment of the building, plant and equipment. According to the AASB standards, the impairments of plant and equipment, and items of property have to be recognized and accounted for in accordance with the Australian Accounting Standards Board. These impairments have to be accounted for so that they can be compensated during the determination of profit and loss. Consequently, during this determination, the impairment is taken as receivable. In the financial report, these items are clearly accounted for in accordance with the abovementioned AASB standards. This is because the value of impairment has been added to the cost of the property, plant and equipment. Finally, the reclassification and transfer construction out of a property have been accounted for in the financial report in accordance with the AASB. This is because this aspect is applicable in land, building, property, plant and equipment. Therefore, the net carrying amount obtained in the financial report captures all the areas and account for them in accordance with the AASB (Friedlob, 2002). Leases are categorized at their receivership to include economic befits and risks in their as either financial or operating leases subsequent ownership. Finance leases include transfers from lessor to lessee considering the resultant incidental economic benefits and risks incurred in passing the property in the leased asset. Material finance in the assets is not including. Trading leases comprise those the lessor successful holds important risks and economic benefits resulting in the ownership of leased property. Charges from operating leases made to the comprehensive income statement using straight line method during the lease term period (Hirt & Block, 1999). Owner’s Equity Owners’ Equity: compliance with the relevant Accounting Standards. According to Australian Accounting Standards Board, there is a particular criterion in which the statement in the changes in owner’s equity has to be presented. According to AASB 101, which was established in September 2007, there is an approach of presenting the owner’s equity, called comprehensive income approach. According to this approach the classification of particular items that the financial report presents changes. Consequently, according to AASB, there are some information that must be presented when stating the changes in owner’s equity. One of this information is the loss or profit for the particular period. In relation to this, the Coca Cola Amatil Ltd & Subsidiaries financial report as at 31st December 2012 has clearly presented the profit of the company. It has therefore, complied with the requirements of AASB in this respect (Needles, Anderson & Julies, 1996). The second information that is required by the Australian Accounting Standards Board to be presented is each item of expense and income for the particular accounting period. As far as the presentation of income is concerned, the Coca Cola Amatil Ltd and Subsidiaries has complied with the AASB. However, regarding the presentation of expense, the financial report of Coca Cola Amatil Ltd & Subsidiaries as at 31st December 2012 does not present any expense. Therefore, there is no clear compliance with the AASB as far as the presentation of expenses is concerned. Still under the income and expense information, the AASB standards require that the total expense and income for the particular accounting period be shown. In the financial report as at 31st December 2012, only the total income is presented as per what the AASB requires. The other information required by the AASB to be present in the financial report is the amounts of equity holder’s transactions. Apart from these amounts being presented, the AASB also require that separate transactions that contribute to the total equity holder’s transaction should be shown. By, considering the financial report of Coca Cola Amatil Ltd as at 31st December 2012, these two requirements have been presented in accordance with the AASB. This is because there is a section in the report showing the total equity holder’s transactions as well as the separate transactions contributing to the total equity holder’s transactions (Needles, Anderson & Julies, 1996). Still under the owner’s equity section, the AASB requires that the balance of retained earnings, which consist of the accumulated loss or profit at the start of the accounting period as well as at the reporting date be presented in the company’s financial report. Apart from the presentation of the balance of retained earnings, the changes that occurred during the period also have to be presented. In relation to the Coca Cola Amatil Ltd & Subsidiaries financial report, there is a clear section of accumulated losses. This means that the company incurred some loses within the accounting period (Hirt & Block, 1999). Finally, it is required by the AASB that the carrying amount for each category of contributed equity be reconciled with each reserve at the start as well as at the end of the accounting period. These items need to be done separately according to the AASB. In the Coca Cola Amatil Ltd financial report as at 31st December 2012, both of these items are presented in accordance with the abovementioned requirement or standard (Friedlob, 2002). Cash flows: compliance with the relevant Accounting Standards. According to the AASB standards, the cash flows that are disclosed must first be classified into three types namely financing, investing and operating activities. In this regard, the financial report for the Coca Cola Amatil Ltd as at 31st December 2012 is clearly in compliance with this. This is because the financial report for the cash flow bears the three classes. Under the class of operating activities, the AASB requires that the presentation of the cash flows obtained from the operating activities has to be done in such a way that direct method is used. The direct method in this case imply that the relevant gross cash outflows and gross cash inflows be reported. In addition, the AASB requires the disclosure of the reconciliation of cash flows coming from operating activities to operating loss or profit after the reporting of the income tax in the profit and loss account. With the direct method of the cash flows presentation, it is possible to get information that may not be available in profit and loss account and in the balance sheet. The AASB also requires separate disclosure of the following cash flows: dividends received, interest as well as other items of same nature received, borrowing costs, interest paid, dividends paid and extraordinary items. Furthermore, cash outflows that are related to income taxes have to be disclosed separately. They are classified as cash flows coming from operating activities. There are however, some cases in which the income taxes are specified to be arising from financing or investing activities (Needles, Anderson & Julies, 1996). As far as investing activities are concerned, the cash flow statement presented in the financial report should contain activities related to the disposal and/or acquisition of such non-current assets such as equipment, plant, and property as well as other productive investments and assets, like securities, which do not fall within the definition of cash. The payments made to obtain other entities’ ownership interests as well as the returns from selling such interests also fall under investing activities. Consequently, as far as this is concerned, the Coca Cola Amatil Ltd & Subsidiaries has clearly complied with the AASB. This is because it has presented such activities as property, plant and equipment, sales rights of the CCA branded products, trademarks, joint venture entity load repaid, discontinued acquisition, other assets, loan to join ventures, long-term deposits investment, operations and entities net acquisitions, other financial assets, software developments and customer lists (Friedlob, 2002). On the other hand, as far as financing activities are concerned, the cash flow statement presented in the financial report must contain those activities that are related to the changing composition and or size of the entity’s financial structure. Such activities include borrowings and equity, which fall outside the definition of cash. The other examples of financing activities are payments of dividends, returns from long-term and short-term borrowings as well as the repayments of borrowings, returns from issuing equity instruments as well as outlays to purchase back such instruments. Consequently, the financial report of the Coca Cola Amatil and Subsidiaries as at 31st December 2012 clearly complies with this. This is because under financing activities the cash flow statement has presented Issued shares proceeds, dividends payable, repaid borrowings and borrowings proceeds (Hirt & Block, 1999). As far as the AASB standards are concerned, the operating activities that must be presented in the cash flow include the payments to employees and suppliers for services and goods, the receipts in relation to the provision of services and goods, cash flows from loans and securities held for trading or dealing purposes. Consequently, the financial report of the Coca Cola Amatil and Subsidiaries as at 31st December 2012 clearly complies with this. This is because under the operating activities in the financial report, there are such activities as income taxes payable, interest and financial costs, income received payments for employees, government and supplies, and receipts (Needles, Anderson & Julies, 1996). Segment Reporting The company operates in four key segments, determine in regard to several factors such as location, goods and services. The Australia, New Zealand & Fiji and Indonesia & PNG trading blocs obtains their revenues from soft drinks manufacturing, distribution and marketing. Alcohol, Food and Services segment deals in manufacturing and distribution of alcoholic drinks and also processing and marketing of fruit and food by-products. This includes provision of after sales services to the subsidiaries and the final consumer. The company operates its net financial costs and taxable income taxes on a joint basis. The performance of each segment is calculated from earnings before their chargeable interest and taxes (Hirt & Block, 1999). The responsibility of the segment of Food and Services is to process and market such products as fruit and other kinds of food products. This segment also plays a role in the provision of cold drink equipment not only to the Australian Beverages segment but also to third party customers. The CCA Group manages its income taxes and net finance costs not on segment but on Group basis. The evaluation of the performance of segment is done on an earning before tax and interest basis. During the evaluation of performance period, there is the relocation of some immaterial business units within the segments. There is also restatement of comparative numbers (Friedlob, 2002). According to the AASB, such aspects of financial report as segment liabilities, segment assets, segment result, and segment expense and segment revenue are clearly defined. These items should also be presented in the financial report as per the AASB. Under segment revenue, the AASB defines it as the revenue reported in the income statement of the entity. The segment revenue includes sales made to external customers as well as sales obtained from the transactions that the segment in question makes with other segments belonging to the same entity. On the other hand, the segment expense is defined as the expense obtained from the segment’s operating activities. The segment expense includes sales made to external customers as well as sales obtained from the transactions that the segment in question makes with other segments belonging to the same entity (Friedlob, 2002). The AASB also requires that the financial report should contain the segment result. In this case, the segment result is obtained by subtracting segment expense from segment revenue. The determination of the segment result is done before any adjustment is made for minority interest. There is also the segment asset. According to the AASB, a segment asset constitutes those operating assets that a segment employs in its operating activities. Apart from segment asset, there are segment liabilities. These refer to the operating liabilities resulting from the segment’s operating activities. With these definitions, the AASB requires that the financial reports be prepare din such a way that the segment liabilities, segment assets, segment expense, and segment revenue are captured (Hirt & Block, 1999). In the Coca Cola Amatil and Subsidiaries financial report as at 31st December 2012, a number of these items are presented in compliance with the Australian Accounting Standards Board. This is because, the financial report has not only given each of the segments separately, but it has also given the different items for segment reporting. Among the segment reporting items are the segment assets and segment liabilities. These have been clearly specified for each of the three segments of the Coca Cola Amatil Ltd and Subsidiaries. the reporting of the segment expenses has also been done under the section of depreciation and amortization expense. The segment revenue section is also present in the financial statement of the Coca Cola Amatil Ltd & Subsidiaries. This section is reflected by the parts bearing the trading revenue as well as the other revenue. Therefore, it can safely be said that the Coca Cola Amatil Ltd & Subsidiaries made the segment reporting in such a way that it complied with the Australian Accounting Standards Board (Needles, Anderson & Julies, 1996). Summary The consolidated financial statements of CCA are made in accordance with the United States’ generally accepted accounting principles. This company consolidates the various entities that it controls by virtue of owning the major voting interests. It also consolidates those variable interest entities that it controls by virtue of being the primary beneficiary. The company uses the equity method for accounting of its investment. In this case, the company has the ability of exercising significant influence over financial and operating policies. It is important to note that consolidated net income of this company includes the proportionate share of the Company of the net loss or net income of these companies. As far as the different aspects of financial accounting, like the reporting of operating leases and finance leases, reporting of owner’s equity, reporting of the cash flow statement and segment reporting are concerned, the financial reports of the Coca Cola Amatil Ltd and Subsidiaries as at 31st December 2012, are in such a way that they are in compliance with the requirements of the Australian Accounting Standards Board. References: Coca-Cola Amatil Limited Annual Report 2012 retrieved from Http: www.ccamatil.com on date: 7th may, 2013. COCA-COLA AMATIL LTD & Friedlob, G. T. (2002). Essentials of Financial Analysis. Hoboken, NJ, John Wiley & Sons. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=151810userid=^u. Hirt, G. A., & Block, S. B. (1999). Fundamentals of investment management. Boston, MA, Irwin/McGraw-Hill. ITS SUBSIDIARIES Needles, B. E., Anderson, H. R., & Julies, E. H. (1996). Study guide A to accompany Principles of financial accounting, Financial and managerial accounting: a sole proprietorship approach, Chapters 1-14, 27 and 28. Boston, Houghton Mifflin. Read More