David Jones Limited Accounting Systems - Assignment Example

David Jones Limited 1. What the company includes in its definition of Cash for the purpose of preparing its cash flow statement; -Cash flow from operating activities- the company includes receipts from customers, payment to suppliers and employees, commission received, interest received, borrowing costs paid and income tax paid in this category. -Cash flow from investing activities- the company includes payment for property plant and equipment, payment for software and net proceeds from sale of property in this category. -Cash flow from financing activities- the company includes dividends paid on ordinary shares and net proceeds from borrowings in the category. 2. David Jones Limited’s net operating cash flows for the financial year 2012 were $196,737,000 with cash inflows related to operating activities mainly comprising of receipts from customers which amounted to 2,058,903,000. These are related to the company’s business in that the company mainly generates revenues from selling its products to customers. Commissions received were also of substantial amounts and amounted to $ 54,498,000. 3. The company’s net investing activities cash flows amounted to $(81,373,000) with inflows related to investing activities mainly resulting from net proceeds from sale of property which amounted to $111,000. On the other hand, the cash outflows related to investing activities were mainly composed of payments for properties plants and equipments which amounted to $70,009,000 as well as payments for software which amounted to $11,475,000. 4. The company’s net financing activities cash flows amounted to $(103,594,000). The main cash inflows related to cash flows from financing activities coming from net proceeds from borrowings which amounted to $7,000,000. The main cash outflows related to financing activities resulted from dividends paid to ordinary share holder which totaled to $110,594,000. 5. The company’s free cash flow is calculated as follows; Free cash flow = Net operating cash flow –capital expenditure- cash dividends Net operating cash flow = $196,737,000 Capital expenditure =$(70,009,000 + 11,475,000) Dividend paid = $110,594,000 Thus; free cash flow = $ 196,737,000-(81,484,000+ 110,594,000) = $ 4,659,000 The company has a free cash flow of $ 4,659,000. -----------…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………. 6. The net increase in cash for the financial year 2012 is $11,770,000. This can be seen from the increase in cash and cash equivalent in 2012 to $20,530,000 from $8,760,000 in 2011. This increase mainly resulted from in creases in net cash flows from operating activities from $182,438,000 in 2011 to $196,737,000 in 2012. There was also a significant decrease in net cash flows used in financing activities from $106,810,000 in 2011 to $103,594,000 in 2012. 7.The income statement and the balance sheet at times includes cash that has not been received although the company may have rendered services or sold goods to earn the cash as in credit sales. The statements also subtract cash that is supposed to be paid to those we owe although we might not yet have given them the cash. As such, it means that the amount shown in the balance sheet may not be the actual amount that the company has. Furthermore, the statements also include some items that do not incur any cash for instance depreciation. As such, the company will not accurately plan and budget for its finances using either the balance sheet or the income statement. The cash flow statement is the statement that shows the correct amount of cash that the company has in its disposal. Hence it is better to use it in planning than using the balance sheet or the income statements. As such, I prefer to examine cash flow reports rather than income statements and balance sheets because cash flow information removes the impact of arbitrary allocations that occur under accrual accounting. 8. i) The following are the external users of the company’s financial statements; a) Creditors- these include ……………………………………………………. (Include suppliers and banks) they would be interested in the statements to enable them determine Wesfarmers credit worthiness. This would enable them in determining how easily the company is able to meet its financial obligations and hence be able to set the terms of their credit to the company depending on their assessment of Wesfarmer’s financial health. Their assessment of the financial reports will also help them determine whether or not to offer credit facilities all together. b) The government – the government would be interested in the company’s financial statements for tax purposes. This will enable the tax man to determine whether the tax returns filed by / on behalf of the company are credible. c) Investors – these are potential investors and would be interested in the statements in order to analyze the feasibility of investing into Wesfarmers. They would be interested in knowing whether they will make reasonable returns on the money they in vest into the company before they can actually commit their money into the company. d) Customers – Customers like ------------------ would be interested in the company’s financial statements in order to determine its financial soundness. Wesfarmers financial soundness is important to them as it will assure them that the company will be a stable source of supplies for them in future. e) Regulatory authorities –they would include ------------------------ and would be interested in ascertaining that Wesfarmers company’s financial disclosures are in line with the laid down rules and regulations. The rules and regulations are aimed at protecting shareholders interests and those of other stakeholders that may rely on the company’s financial information to make various decisions. ii) Internal stakeholders who may be interested in the Company’s financial reports include; a) Share holders – the Wesfarmer’s company’s shareholders would be interested in the company’s annual report so as to know whether their company is operating profitably and that their investment is being managed well. This will also help them in making decisions on what to do with their investments. Depending on the information, they may either decide to keep them or dispose them or even buy more shares. b) The company’s board of directors –Wesfarmers Limited board of directors would be interested in the financial statements since they would want to know whether the company is being effectively managed and hence decide on areas of improvement. They would also want to use the statement s in order to decide whether or not to declare a dividend for the shareholders. c) Top management Wesfarmers company’s top management such as the chief executive officer would be interested in the company’s financial statements so as to know how effective they are in managing the company. The report will also help them make various managerial decisions that relate to financing, operations and investment. In addition, they will use the information in advising the board on whether or not to declare a dividend. d) Wesfarmers company’s employees – the employees would be interested in determining the company’s financial soundness in a bid to make decisions on whether to continue working in the company or to seek for employment else where. This will also guide them in making decisions on whether to request for bonuses or salary increases. 9 David Jones Board of Directors structure: The board of directors is composed of both executive and non executive directors with the majority being non executive directors. In this regard, the board has six independent directors and two executive directors. This is in line with ASX recommendations that the board should have majority of its members being independent directors. The chairman of the board is a non executive director. This is in line with the provisions of ASX that requires that the board be chaired by an independent director. In addition the chairman of the board is not the chief executive officer neither is the chief executive officer the chairman of the board. This is in line with the provisions of ASX that require that the same individual shall not exercise the roles of the chief executive officer and the board chairman at the same time. The board has also established a remuneration and nominations committee which is in charge of nominating new directors among other things. This is in line with ASX recommendations for the board to establish a nominations committee. As such, the structure of David Jones board of director is therefore in line with the provisions of ASX on corporate governance as outlined in principle 2 (page 11). David Jones audit committee composition: Principle 4 of ASX recommendations on corporate governance calls for safeguarding of integrity in financial reporting and thus provides for the board to establish an audit committee. In line with this recommendation, the company has established an audit committee. The committee is composed of four members in line with ASX recommendations that recommends for the committee to have at least three members. The committee members are independent non executive members in line with ASX which recommends that the members of the committee be independent and non executive directors. The committee is also chaired by an independent director as ASX recommends. As such, the company has fully complied with ASX recommendations on corporate governance as far as the audit committee is concerned. Remuneration committee The board has appointed a remunerations and nominations committee in line with the provisions of ASX principle 8. The principle recommends that shall remunerate fairly and responsible and hence calls for the company to establish a remunerations committee. The company’s remuneration and appointments committee is composed of three members who are independent and non executive. This is in line with the recommendations of ASX that the committee be composed of independent directors. In addition, the committee is chaired by a non executive independent director in line with the recommendations of ASX. Thus, the company has fully complied with the recommendations of ASX in regard to the structure of remuneration committee. Conclusion: As observed above, the company’s corporate governance statement is in line with the guidelines identified by the ASX with particular reference to board, audit committee and remuneration committee structure. 10. The company has included a sustainability report in its report. Examples of sustainability information provided in the annual report include; -social and environmental responsibility with regards to the company’s people, -the company’s commitment to occupational health and safety -the community -The environment Read More