The Current Liabilities of JB Hi-Fi - Case Study Example

Individual Assessment-Accounting Name: University: Course: Tutor: Date: PART A- JB Hi-Fi Ltd 1. The current liabilities of JB Hi-Fi has increased over the year by $2898. The class of current liabilities recorded under the classification ‘current liabilities’ include trade and other payables, financial liabilities, current tax liabilities, provisions and other current liabilities. Other payables according to note 18 include current liabilities such as trade payables, goods and service tax payables, deferred payments and other creditors. Other financial liabilities comprise of interest rate swap. Provisions on the other hand include employee benefits and lease provisions. Under other current liabilities contains lease accrual and lease incentives. Current liabilities represent amounts owed by the JB Hi-Fi Company to other parties Marshall, McManus & Viele, 2011). 2. The major liabilities of JB Hi-Fi are grouped into two; current and non-current liabilities. Apart from the above mentioned current liabilities, the company has also non-current liabilities under categories; borrowing, provisions, other non-current liabilities and other financial liabilities. To start with, JB Hi-Fi has only unsecured bank’s borrowing of $124,331. For provisions, the company has made provisions on employee benefits, lease provisions and other provisions. Other provisions are made on lease accrual and incentives. Provisions for liabilities represent an amount set aside by the company for expected amount to be owed by the company by the end of financial period. Provisions from non-current liabilities has been at the center of accounting profession discources (Borio & Lowe, 2001). 3. For current liabilities, provisions include items such as employee benefits and lease provisions. Employee benefits include financial or other benefits in which monetary value is attached that is owed to the employees of the company. Lease refers to a contract between two or more parties where one party gives land or property to another party for an agreed period of time while expecting returns on a periodic out of it. Therefore, provision for lease is an amount set aside by the company in order to meet unexpected lease expenses by the end of the financial year. According to IAS 37, ‘a provision is a liability of uncertain timing and amount’. Therefore, the treatment of provisions for employee benefits and lease expenses satisfies the provisions of the IAS 37. This definition took effect from the period commencing 1st July 1999 (Street, 2002). 4. The amount raised by interest-bearing loans for the financial year ending June, 2013 is $124,331. This is for both secured and unsecured bank loans. The bank loan has decreased by $25,444, an amount that has been repaid. The bank loan was lower in the year 2013 compared with the previous year’s amount of $149,775. In this year JB Hi-Fi had not borrowed any secured loan which was the case in the previous year. This could explain the low interest-bearing loan in 2013 financial year. 5. In the current year, there are no secured loans but unsecured loan amounts to $124,331. In the previous year, the secured loan amounted to $149,775 while there were no unsecured loan. Secured loans are those loans to which Company’s properties are attached to while unsecured loans are those which to don have company’s properties attached to it. 6. The non-current borrowings that are due to be paid within a period of 2 years are the unsecured borrowings. The secure loan can take between 2 and 5 years to be repaid depending on the amount itself. However, in the financial statement of JB Hi-Fi, there is no loan that is due in due in 5 years’ time because the company’s seems to be using short term financial sources to finance most of their operations. 7. There are non-current provisions in the JB Hi-Fi Company’s statement of financial position. These non-current provisions represent amounts which are timing and amount uncertain that are expected to cover a period more than one year. For instance, the non-current provisions items employees’ benefits and lease are amounts which the company are not certain about but are expected to be payable after a period of more than one year. PART B- Country Road Ltd The income tax expense cannot be seen in the income statement of a partnership. In a partnership, the individuals are not a separate legal entity to the business and their coming together for the purposes of profits makes the partnership. Partners are charged income tax from the profits and other income shared using the profit sharing ratio. Each partner’s profit is taxed individually through the graduated income tax scale. Therefore, each partner’s share of profit and incomes from other specified sources are individually assessed and tax not the business itself. This is because the business is not a natural person so that it can be taxed; therefore, partners’ taxable income is assessed for every individual and taxed separately. The only things that you will see in their income statement are the profits shared in the appropriation account. In the consolidated income statement of Country Road Ltd, the tax expense is recorded there because the company is in itself an artificial person; to mean that it is a separate legal entity from its owners. It can own resources, sue and be sued and so is taxable on its own (Pickering, 1968). The available profit is usually appropriated in the appropriation account or changes in equity statement. The appropriation involves the process of adjusting profit through addition and subtraction of accounting items that depend on the profit. For instance, in the statement of changes in equity of Country Road Ltd, the profit after tax is adjusted through adding the amount received from shares issued and deducting any expenses incurred in dealing associated with issuing of shares, and dividends given in that financial year. The allocation of total profit available for appropriation in partnership involves adjusting the profit by adding interest on drawing and deducting partner’s salary and interest on capital to obtain the amount of profit to be shared by partners in a profit sharing ratio. Therefore, the difference between appropriations of profit between a company and a partnership is that a company uses retained profits to adjust owner’s equity value while in partnership appropriation uses profit after tax which is adjusted and shared among the partners using the profit sharing ratio. Issue Capital of a company is the amount of capital rose through issue of ordinary shares. In many companies, this makes the largest source of capital for medium-term and long-term operations or investments. It is the owner’s equity in the business that is usually important in the operation of a company. The issue capital is also part of the total ordinary shares capital structure of the company that is fully issued and paid at the balance sheet date. In partnership, issue capital does not form part of the capital structure of it but rather, the capital is just partner’s contribution or from other sources apart from issuing of shares. Therefore, issue capital in a company is obtained through issuing ordinary shares which is not the case for partnership. Issue capital is the main source of capital for companies while partners’ contribution is similarly the main source of capital for a partnership. A typical partnership is not necessarily required to prepare a statement of cash flow and include in their financial statement. However, it is important to prepare in order to track receipts and payments in the course of running their business (Weygandt, Kimmel & Kieso, 2015). This is because partnership is governed by Partnership Act which does not mandate partnership to prepare a statement of cash flow. In addition, the partnership is owned by partners as the capital contributors and therefore, it may jsut be necessary to prepare such a statement to track how cash enters and leave their business because they are expected to be accountable as it is their own business.The action of a partner affects the entire partnership. On the other hand, a company is required by Company’s Act to prepare such a statement because it is important in protecting shareholders’ interest. Every company is a subject to the provisions of Company’s Act and therefore, all statements of financial position should be prepared as laid out by the law. Therefore, where partners want to manage their resources well, they may opt to also prepare a statement of cash flow. This is because a cash flow statement would enable partners in understanding activities that lead to inflow and outflow of cash in order to provide a basis for analyzing business activities. References Borio, C., & Lowe, P. (2001). To provision or not to provision. BIS Quarterly Review, 9. Marshall, D. H., McManus, W. W., & Viele, D. F. (2011). Accounting. McGraw-Hill Irwin,. Pickering, M. A. (1968). The company as a separate legal entity. The Modern Law Review, 31(5), 481-511. Street, D. L. (2002). GAAP 2001—Benchmarking national accounting standards against IAS: summary of results. Journal of International Accounting, Auditing and Taxation, 11(1), 77-90. Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & Managerial Accounting. John Wiley & Sons.https://books.google.com/books?hl=en&lr=&id=pTExBgAAQBAJ&oi=fnd&pg=PA356&dq=financial+accounting+reporting+books&ots=x6JHG38y8a&sig=nUtMb60CPAR9mshvdtw1K-6JBrE Read More