Words: 2920
I also confirm t has not been submitted to another Institution for academic purposes. I understand that assignments will not be accepted for marking without a completed form. Signature: Juanita Lama Name: Juanita lama Date: 28/12/2014 Table of Contents Tasks 3 1 . Conceptual framework 3 2. Usefulness of kingfisher’s financial statements Tasks 4 1. Income statement 4 1. 1. Revenue (sales): 4 1. 2. Gross profit: 4 1. 3. Selling Expenses:4 2. Balance sheet 4 2. 1 . Asset’s 2. 2. Liabilities 5 3. Owners equity 5 TASK 2(b) 5 1 . Management commentary 2.
Kingfisher’s management commentary and its effectiveness to fill the information gap 5 TASK 3. 6 1. Revenue and its treatment 2. Usefulness of revenue for performance analysis 6 3. Segmental Reporting 7 4. Usefulness of Segmental Reporting in Performance analysis 7 Task 4 7 1 . Goodwill and Accounting policy about it by kingfisher Pl. To satisfy user’s need 7 2. Intangible assets and Accounting policy about it by kingfisher Pl. To satisfy user’s need 3. Controversy between goodwill and intangible assets 8 TASK 5 8 1. Income statement 8 2. Cash flow statement and its elements 9 3.
Relationship between the cash flow and income statement 9 4. Differences teen cash flow and income statement 9 Appendices 10 References 12 Task 1 1 . Conceptual framework The conceptual framework sets Out the framework for the preparation Of financial statements and comes under AS 1 Presentation of Financial Statement. It requires financial statements to encompass with fundamental and enhancing characteristics. Fundamental characteristic involve relevancy and faithful representation while the enhancing characteristics involve comparability, verifiability, timeliness and understand ability.
Relevance can be defined as the ability of the reported information to influence economic sections through providing information to the users, relating to the amount and timing of cash flows for predictive and confirmatory purposes. A logical component of relevance is materiality which states that information is relevant if it is able to influence economic decisions. Users like investors, lenders can look at financial statements as to see whether the company is able to generate profitability. Faithful representation requires information to be presented of any bias and from error.
Information is not faithfully represented when it is purposely designed to influence users’ decisions in particular direction. In the following tasks we will be analyzing that how the Kingfisher has tried not to misstate the figures. For instance, the revenue recognition from inter-group has been neglected as it will overstate and is not a sale to the final consumers. Its involvement will cause the financial statements as not being faithfully represented. It has been tried to present as what has happened during a year either as in the form of figures or strategic report.
At the same time users can look at kingfishers past data, current performance future forecast by kingfisher official report and website. 2. Usefulness of kingfishers financial statement The usefulness Of Kingfisher financial statements will be analyses from the perspective of lenders.. Lenders can look at the current asset ratio if it is greater than 1, implies that there are sufficient assets to pay for the liabilities. Lenders may be interested in the current ratio and the availability of cash and its strengthening position.
Current ratio is the ratio of current assets to current liabilities which has improved from 1. 06 times from previous year to 1. 22 times in current year. The cash flow statement gives the reflection of cash position which shows the strength in terms of liquidity as there is large increase in cash and cash equivalents from Emma to Emma in 2013/14. The earnings per share shows 24% increase as compared to last year which shows that investors may expect that company will be paying more dividends and will be profitable in the future too and help for future investment decision.
Task 2 (A) 1. Income statement Income statement is a financial statement that measures a company’s financial performance over a specific accounting period. 1. 1 . Revenue (sales): It is the company’s value of sales of goods and services to its customers. It indicates the primary source of revenue generated by the business from sale f goods of services. It seems that most of the Increase in sales is coming from the acquisition of Romania business of 5. 2%. (1 1 , 1 25-10,573/10,573) 1 . 2.
Gross profit: Gross profit is a business’s remaining profit after selling a product or service and subtracting the cost related with its production and sale.. Kingfisher Pl is using its resources for cost of sales by 4. Times more in current year. 1. 3. Selling Expenses: It includes expenses resulting from the company’s efforts to make sales including expenses such as sales commissions, advertising, promotional materials, rent off the sales office etc. The selling expense is increasing by 4. 15% in 2013/14. 2.
Balance sheet According to Ammonia (201 1) “Balance sheet is statement which shows financial position of business. It shows assets and liabilities grouped properly and classified in specific manner. Some of the main elements of balance sheet are as follows: 2. 1 . Assets Assets are the resources that a business uses to operate its business. Assets are categorized as either current or non-current assets. Current assets Non-current assets -Inventories, cash in hand, cash at bank, trade receivables and other receivables, prepaid expenses etc.
Assets that can be converted into cash within a year. -Plant and equipment, goodwill, intellectual property etc. -Assets which cannot be converted into cash within a year. Kingfisher’s current assets has increased from EYE to Emma in 2013/2014 Kingfisher’s non-current assets have decreased from EYE to Emma in 201 3/2014. . 2. 2. Liabilities Liabilities are the obligations to transfer future economic benefits to external parties and categorized as follows: Current liabilities Non-current liabilities -Accounts payable, customer’s advances, taxes payable, overdraft, short term loans.
Expected to be paid within a year. -Long term borrowing, bond payable, bank loan, mortgages etc. – Not expected to be paid in a year. Kingfisher’s current liabilities have decreased by 2. 78% in 2013/2014. Kingfishers current assets have decreased by 18% in 2013/2014. 3. Owner’s equity Owners’ equity is the residual interest in the assets of a business after liabilities are deducted. Equity represents the amount belonging to the owner once all financial obligations have been met for e. G. Retained earnings (or accumulated losses), and reserves.
Capital is any cash or assets the owner has contributed to the business. Kingfisher,s total equity has increased by Error-n from 2012/13 to 2013/14 TASK 2(B) 1 . Management commentary Raman and Remain(2013) defines management commentary as a narrative report which gives a context within to interpret the financial position, financial position and financial performance and cash flows of and entity. It also supplies management with an opportunity to explain its objectives and its strategies for achieving those objectives. 2.
Kingfisher’s management commentary and its effectiveness to fill the information gap For Kingfisher, management commentary is an important element of their communication tit the capital markets, supplementing as well as complementing the financial statements. According to Daniel Bernard (chairman, kingfisher) the year was difficult due to the challenging economic environment has affected many markets such as France where the high level of unemployment and higher taxes have lead to consumer uncertainty. Despite of this weak economic backdrop, kingfisher was able to recommend an increase in the full year dividend of 4. % making a total of 9. Up. There is also mention about 5. 5 billion of operating cash from their business model over the last six years and threatened of their balance sheet by eliminating financial net debt and reinvestment off 1. 7 billion to underpin future prospects. Moreover, in kingfisher’s management commentary, they have talked about their continued good progress of strategic agenda, commitment to create themselves as a leader in home improvement retailing, diversity workforce policies, plans for organic growth and portfolio to maximize their economic returns.
In addition, they have explained also about their corporate social responsibility and positive contribution to society. All the information has been presented in simple and easy languages. This type of information available in Management commentary helps user to evaluate kingfisher’s prospects and its general risks, as well as the success of management’s strategies for achieving its stated objectives and it has the ability to attract the users to invest in it.
So, Kingfisher has been able to manage and bridge the gap between the different types of users very effectively and has provided all the information required to make economic decision. TASK 3. 1. Revenue and its treatment AS 18 Defines revenue as the gross inflow of economic benefits arising from the normal operative activities. Benzene,201 0) Kingfisher Pl. Being in home improvement business has involved in the sale of furniture either online or through stores earning revenue. Entities also carry out disposal of plant and equipment, income received from interest classified as Other Income and headed separately.
According to AS 18, five criteria Of Revenue are as follows: Kingfisher’s revenue recognition can satisfy the criteria of AS 1 8 as to sales of in-store products are recognized at the point of cash receipt and when Group fulfils its obligations to supply the awards and where the vouchers or loyalty mints are capitalized when the customers start using it. Initial direct costs added to carrying amount of the leased asset and recognized on a straight line basis over the lease term. 2.
Usefulness of revenue for performance analysis Revenue is the biggest item in income statement and acts as the barometer of past success and future prospect. It impacts on users’ interpretation. It can be used for various performance indicator ratio such as gross profit margin ,operating profit margin , net profit margin and return on capital employed etc. If revenue is not clearly stated, then all of performance measurement will e useless. At the same time in order to avoid the overstatement of revenue, revenue excludes inter-group transactions, Value Added Tax, trade and staff discounts.
As, their inclusion will not only overstate the profit figure but also cause understatement of expenses causing misstatement of financial statement and will fail to comply with faithful representation and ultimately users will not get right information. 3. Segmental Reporting According to FIRS 8 Operating Segments reportable segments are the operating segments with both external and intersecting sale being 10 % or ore than that, assets, profit or loss being 10% of the combined reported assets, reported profit or loss. Kingfisher Pl. Operates in 9 countries but the only reportable segments recognized are KICK & in year 2013/2014. . Usefulness of Segmental Reporting in Performance analysis Information about segments is useful to all stakeholders of business to assess risks, earnings, business growth, profitability, capital requirements, and return on investments which can vary among segments of a business. Consolidated balance sheet provides combined information where it is impossible to find UT the performance of each segment and users may struggle to gather relevant data. Segmental information minimize this problem. It helps to identify the segment of business which causing changes in significant financial statements items.
It gives information to stakeholders about which business segment is performing well and profitable. The percentage of sales for all the reportable segments of Kingfisher Pl is nearly equal in current and last year with only 1 % decrease in the current year which is due to economic recession but the sales from Other international countries has increased by 1. % in 2013/14 which may be due to acquisition of Brimstone in Romania. France is contributing the highest retail profit of Emma to the Parent company but the asset of France has decreased from El *mom to El ,mom in 2013/14.
Kingfisher financial statement has accompanied with the standards related to Revenue and Segmental Reporting although nothing has been disclosed about online sales and revenue earned making transparency an issue. However it seems to satisfying the needs of users. Task 4 need Goodwill is an intangible asset which can be found in the assets section of a company’s balance sheet. It can be company’s brand name, solid customer base and good customer relations. According to memories (201 1) “goodwill is the present value of firm’s anticipated excess earning.
It is a payment for expected future profits: since it is based on assumed future earnings it can be highly contentious”. The synergies brought from the acquisition of Brimstone Romania companies, has added El mm to goodwill to group accounts, representing future economic benefits. According to FIRS 3 Business Combination, goodwill must be carried at cost less accumulated impairment losses and must be tested annually for impairment. The treatment in Kingfisher account is in accordance with the standard. Chinese business is suffering with impairment loss of El mom in 2013/14 due to loss of sales and new format store opening.
The impairment loss arises if the recoverable amount is less than the carrying amount. The accounting treatment of goodwill requires net present value of expected future cash flows to determine the recoverable amount of cash generating units which is highly subjective due to assumptions and estimates involved. It makes understanding of goodwill difficult for the users. At the same time, it is official to know from where the increase in goodwill or impairment loss is coming from for a user like Abdul because of absence of financial knowledge and its term.
However, the analysts or sophisticated person may be able to use the notes given and financial statements to make economic decisions. 2. Intangible assets and Accounting policy about it by kingfisher Pl. To satisfy user’s need Intangible assets are assets having no physical value but can be very valued for a firm to its long-term success or failure. Intangible assets appear, nowadays, as an important for business and those who use the information. Because of its linkage and contribution for certain businesses, it is very important and useful for stakeholders to make decisions..
Intangibles such as patents, copyrights, licenses, secret formulas, franchise, trademarks, etc. Are identifiable intangibles. The extents of investment in the intangible assets determine the ability of company to try to generate and maintain future market share. There is Meme increase in the intangible asset’s investment for Kingfisher Pl. The only intangible asset in Kingfisher Pl is Computer software. Acquired computer software licenses has been epitasis’s on the basis of the costs incurred to acquire and bring to use to specific software. The costs of this soft. Are is amortized over the estimated useful lives of two to ten years. 3. Controversy between goodwill and intangible assets Intangible assets are sometimes confused with the concept of goodwill. For instance, the concept of the company’s good reputation is a Concept embedded in goodwill whereas corporate brand value is a specific intangible asset that can be measured and valued. Despite of controversy involved, one cannot ignore the items as it makes valuation very difficult. If we take Tests LLC. As an example, its goodwill and brand image decreased due to the overstatement of profit.
So if revenue is link to profit and it is related to goodwill as the misstatement may cause decrease in reputation and goodwill at last. Paisa(2014) stated that Goodwill is tagged to a business and cannot be sold or purchased independently, whereas other intangible assets like licenses, patents, etc. Can be sold and purchased independently. Goodwill is perceived to have an indefinite life (as long as the company operates) while other intangible assets have a definite useful life and are amortized over those years. TASK 5 It is a financial statement that measures a company’s financial performance over a specific accounting period.
It also shows the net profit or loss incurred over a specific accounting period. Discussion about elements of income statement is in task two. 2. Cash flow statement and its elements Cash flow shows the liquidity and lists money coming and going out under the different set of activities like operating, investing and financing activities. ( Argentines,201 1) . Operating activities are the principal activities of a business. The cash generated by Kingfisher Pl is increasing from Emma in 01 2/13 to Emma in 2013/14. Investing activities are the purchasing or disposing activities of a business.
For instance net cash flow from investing activities shows the cash outflow to be increased by 1 1 % (301-271/271). The financing activities relate to the long term borrowing and financing activities which may change the finance and capital structure. Now, the Kingfisher’s ability to convert the profitability of 25. 9 % to liquidity of 34. 17% will be analyses. It shows that the cash conversion ability of Kingfisher Pl has increased from 1. 29 in 2012/13 to 1. 37 in 2013/14 which means that company s now able to convert each El to El . 37 of cash. Not only this, the largest amount of cash available makes it a cash cow.
The overall cash flow in 201 3/14 is more than 1; the firm is generating enough money to cover the working capital and other business requirements whereas financial strength seems to be little feebler in 2012/2013 as cash flow is less than 1. Finally, it is worthwhile to produce both the statements as they serve different purposes and both are useful for the users to make economic decisions. 3. Relationship between the cash flow and income statement The purpose of both financial statements is to provide appropriate information to internal and external users who need to make decisions.
Both statements provide unique, accessible and necessary information to help decision makers choose the best possible resource allocation option. The profit and loss recognized in income statement is included in the cash flow statement under the segment of cash flows from operation after adjustment of non-cash transaction. Operating activities generally include the cash effects of transactions and other events that enter into the determination of net income. 4. Differences between cash flow and income statement Cash flow has no accounting standards in it while the income statement is prepared on the accrual or matching concept.