A report has been prepared on the financial analysis of one of the companies listed on Australian Stock exchange. A brief description has been given on the company and annual report of the same has been studied in different aspects. Some of the major areas of analysis included the current assets being reported, the intangible assets of the company, the disclosure of provision and contingencies of the company and the lease items shown in the financials of the company. Revenue being one of the critical areas for the company has also been analysed with respect to the revenue recognition criteria (Axelsen, et al., 2017). A conclusion and recommendation on the company has been given towards the end based on this study.
The company selected here is Zoono Group Limited and is one of the publicly listed companies on the AUX (ASX: ZNO) and it deals in the development and manufacturing and distribution of the number of proven and long lasting antimicrobial solutions and other medicines. All its products have competitive advantage in the industry as it develops a variety of skin care products and sanitizers which are known for longevity and efficiency and are
sold all over the world.
Property, Plant and Equipment
The balance of the property, plant equipment as on 30th June 2017 was NZ$ 49756 as compared to NZ$ 114355 in 2016. It comprises of four classes of the asset namely plant and equipment, motor vehicles, furniture and equipment and the computer equipment’s. The main reason behind the decrease in the balance of the assets is the disposal of major chunk of the motor vehicles amounting to NZ$ 53218 (Das, 2017). The depreciation for the year amounted to NZ$ 36635 (2016: NZ$ 28433). These assets are generally being valued at cost less the accumulated depreciation and the impairment on the assets as of date. The useful life of the asset and the impairment condition for the asset is being assessed every year.
Here all the categories of the assets, which have been listed above, could have been valued at market value. Market value can be defined as the amount at which the assets and liabilities are being exchanged between the buyers and the sellers at the arm’s length price and after proper marketing of the product has been done (Alexander, 2016). It is assumed that both the parties to the transaction have the knowledge of the asset and have non-compulsion to enter into the transaction. This is the best way to ensure that the asset is being shown at the correct and real value since the asset value never remains constant in the contemporary market conditions.
The company has intangible assets mainly in the form of the patents and the trademarks, which are generally valued at cost less accumulated depreciation until date. The value of the total intangible assets as on 30th June 2017 is NZ$ 63432 (2016: NZ$ 73787). The disclosure requirements for intangible assets as per IAS 138 has been fulfilled as the valuation rule and the life of the intangible assets has already been disclosed in the annual report of the company (Carlin, 2010).
The company Zonno Group measures all its intangible assets at cost less accumulated depreciation and the impairment until date. It has the finite useful life of 10 years over which the same is being amortized. These assets are also being subject to the impairment test every year in case the indicating factors do exist and accordingly the same is being charged to profit and loss in case of impairment (Clarke, 2013). Impairment testing is being done annually for assets which are having indefinite life. It has also been mentioned that if the company is unable to find the recoverable value for the individual asset, then the same is being subjected to cash generating unit and recoverable value is calculated. Thus, it can be said that the company has met all the disclosure criteria as demanded by AASB standards.
Provisions and Contingencies
The provision may be defined as one of the liabilities which is already known and which arises from the past events or occurrences. It is present obligations whose amount can be reliably and accurately measured. It involves the outflow of resources for the given entity. As per the annual report of the company, it can be in the form of product warranties, onerous contracts, legal disputes or other claims for which the company is certain to incur a liability, the amount and the timing of which may be still uncertain (Dichev, 2017). The company has mentioned provision under the head current liabilities. One of the provisions, which is mentioned, is the restructuring provision, which is taken in the books only if the detailed plan has been developed and implemented by the company on the restructuring, and the same has been explained in detail to those affected by it. There is no provision carried in the books for the estimated future operating losses. It has also been disclosed that in case time value of money is involved in the assets, the same is discounted to the present values.
Contingent liabilities may be defined as the liabilities, which have not yet materialised but the same may be incurred based on the happening of some future uncertain event. These are generally being disclosed as notes in the financial statements. In the given case, the directors of the company are not aware of any such potential claim or liabilities on the company as on the date of the financial statements (Goldmann, 2016).
Contingent assets on the other hand are the assets or gains, which the company might have on the happening of any future event, but based on the principle of prudence; the same is not being reported and recorded in the financial statements.
Lease is of two types: operating and the finance lease. The finance lease is considered one of the financial instruments of the company whereas the operating lease is considered the normal operating expenses of the company (Segal, 2017). The company has shown operating expenses of NZ$ 51245 in 2017 in the profit and loss account (2016: NZ$ 1000). The company has also disclosed the financial lease liability in the borrowings section of the liabilities. The same amounts to NZ$ 28269 in 2017 (NZ$ 116193 in 2016). The company had shown a breakup of the lease payments which are less than 12 months and which are more than 12 months. It has also mentioned that the company fully made the payment of finance lease on motor vehicles in July 2017. The company has shown the finance lease commitments of less than 12 months, 12 months to 5 years and greater than 5 years. The company is currently have the non-cancellable 6-year property lease, which was being entered in November 2016. The company has the option to renew the same for two more terms of 3 years each at the end of 6 years. The company has also disclosed that it follows AASB 117 and AASB 16 will replace the same from the forthcoming accounting year. Thus, it can be said that the company has met the disclosure requirements as per the AASB standards (Zhou, 2018).
Revenue forms the base of any company and the same is recognised when the future economic benefit is probable, the amount of which can be reliably measured. For the year 2017, the company has shown the revenue from the sale of goods to be NZ$ 793362 (2016: NZ$ 1151417). In terms of the interest received the company has mentioned NZ$ 40978 for 2017 and NZ$ 1552 for the year 2016 (Knechel & Salterio, 2016).
As per the notes on accounts in the financial statements, the revenue from operations is being recognised at the fair value of the consideration, which has been received, or does the company give receivable post the adjustments for trade discount and the volume rebates to the customers. The consideration, which is being deferred, is being treated as provision for finance and the same is being discounted at the prevailing market rate of interest. The revenue is being recognised in the books when there is a transfer of the significant risks and the ownership and the delivery of the goods has been effected. The entire amount under the revenue column are net of Goods and service tax (Linden & Freeman, 2017).
Likewise, about the other revenue, the dividend income is recognised in the books of accounts when the right to receive the same has been established. The income from interest is being recognised through effective interest method. The gain or loss on the sale of assets or investments is being recognised in the profit and loss account or the other comprehensive income statement depending on the circumstances of the case (Jefferson, 2017).
From the review and analysis of the annual report of the company, it can be mentioned that the company has adhered to the provisions of the relevant local laws and the Australian Accounting standards. It has disclosed all the material information in complete respect be it on the valuation front or the revenue recognition front. The company has provided maximum details to ensure transparency of the financials.
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