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Barwa fainancial - Case Study Example

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(Assignment) Case Study: Barwa 2009 Annual Report a. Cash and Cash equivalents is an item reported in Barwa’s balance sheet and it is subcategorized into a number of elements. In order to classify ‘Cash and Cash equivalents’, the Barwa considers items which are “subject to insignificant risk of changes in their fair value, and are used by the Group in the management of its short term commitments” (Barwa annual report)…
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Download file to see previous pages The main amounts are; cash in hand 79, balances with reputed banks 16,663 (7,497+9,166), and wakala placements 942,500 (in thousands of Qatari Riyals). The Barwa keeps comparatively low cash balance in hand as a part of its credit risk limiting strategy. b. Barwa’s total Cash and Cash equivalents at the end of the year 2009 represent 979,217,000 Riyals (Barwa annual report). From Barwa’s consolidated statement of cash flows for the year ended 31st December 2009, it is evident that the organization used cash for a variety of purposes. Accounts payables constitute one of the major cash uses for the year. Similarly, the cash flow statement reflects that the Barwa used cash for ranges of investing activities including payments for acquisitions of property under development and investment property, payments for establishment and acquisition of associates, payments for the purchase of financial assets, and payments for the purchase of plant and equipment (Barwa annual report). In addition, the organization has dealt with some financing activities include payments for purchase of land and dividend payments. Social contributions, office and administrative expensed and other miscellaneous expenses were the other items that contributed to cash expenditure. c. Barwa mainly practices impairment allowances in its accounting practices. As per the annual report, the impairment allowances represent Barwa’s estimated incurred losses ‘in its receivables and balances from financing activities’. From the framed accounting practices of Barwa, it is obvious that a specific loss component constitutes the main part of this allowance and it is directly associated with individually significant exposures. The element of allowance is visible in the organization’s construction contracts. During the progress of the construction contract, an allowance is maintained for contingency mechanism and it relates to gross margin recognition. It is computed on the basis of percentage of completion certified. Similarly, in order to state the receivables and balances from financing activities, the impaired allowances are deducted from the obtained amortized cost and the resultant figure is recorded. It is observed that due from various parties is not completely recoverable; hence, the Barwa has also marinated impairment allowances for such receivables. d. Barwa has formulated specific provisions for classifying its receivables from financial activities. These formulated provisions clearly comply with the Qatar Central Bank requirements. For this purpose, the Barwa classifies the receivables due for more than 90 to 180 days as substandard; whereas the organization considers it doubtful when the receivables due for more than 181 to 270 days. Finally, those receivables which are due fore more than 270 days are considered to be loss assets (Barwa annual report). This classification seems to be more practical so that it would increase the reliability of financial statements. The firm does not write off any dues before the maturity period of nine months. This time period gives maximum opportunity to the debtors to clear their accounts; therefore, this provision assists the organization to avoid future corrections to a large extent. Probably, ...Download file to see next pages Read More
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