Financial Accountability and Reporting

1. Explain the primary activities of your company and discuss its financial and social performance in FY 2016-17 in comparison to the previous FY 2015-16.

Carsales.com Ltd takes part in online automotive, and marine classifieds business basically in Australia. The organization works in five fragments: Online Advertising Services; Data, Research, and Services; Asia; Latin America; and Finance and Related Services. The Online Advertising Services section gives ordered publicizing that enables merchants and buyers to promote automotive and non-automotive products and ventures available to be purchased over the Carsales system; and administrations, including memberships, lead expenses, and need arrangement benefits in automotive and non-automotive Websites. It likewise offers display advertising services, for example, putting ads on Carsales arrange Websites for corporate clients involving automotive makers/shippers, back and insurance agencies, and so on.

From the financial year 2015/2016 and FY 2016/2017, we can draw the following financial analysis of the company. Current performance of the organization and its future techniques can be recognized by investigating the financial statement of the organization. Along these lines, income statement, balance sheet, and income statement of Carsales.com Ltd is being utilized to investigate the financial performance of the organization and to break down its relationship with mission and vision statement. The balance sheet of an organization separates into its shareholders’ equity, liabilities, and assets. On account of Carsales.com Ltd, as of the end of the 2015/2016 FY, the company’s assets comprised of $545,774,000 on the total assets, total liabilities of $285,404,000 and aggregate shareholders’ equity of $260,370,000(ANNUAL REPORT 2016; carsales.com.au. (n.d.)., 2018). At the end of the 2016/2017 FY, the company’s balance sheet recorded total assets worth $539,192,000 which is a positive increase from the last financial year, total liabilities of $ 262,032,000 and total shareholder’s equity of $277,160,000 (ANNUAL REPORT 2017; carsales.com.au. (n.d.)., 2018). The total liabilities of the company reduced in the FY 2016/2017 as compared to FY 2015/2016 whereas the shareholder’s equity increased to of $277,160,000 in the FY 2016/2017 from $260,370,000 in the FY 2015/2016. 

2. Focus your attention on the Statement of Profit and Loss and Other Comprehensive Income. Compare the Profit or Loss of the Year with the Total Comprehensive Income in FY 2016-17 and the Profit or Loss of the Year with the Total Comprehensive Income FY 2015-16. Discuss the nature of the difference (if any) between the two figures in the two financial years and identify whether the difference is related to extraordinary or non-recurring events.

In the FY year 2015-2016, the operating Income or Loss was $114,076,000 whereas the Total Comprehensive Income was 112,369,000. In the FY 2016-2017, the Profit or Loss of the Year was $166,531,000 whereas the Total Comprehensive Income for the year was 104,616,000 (ANNUAL REPORT 2017; carsales.com.au. (n.d.)., 2018).  Comparing the two financial years, the Profit of the company increased to $113,014,000 from $162,783,000 in the FY 2015-2016 (ANNUAL REPORT 2016; carsales.com.au. (n.d.)., 2018). There was an increase in the Total Comprehensive Income in the FY 2016-2017 as compared to FY 2015-2016. Therefore, the company had a forward and a progressive positive trend. This difference is not due to Extraordinary Items or Non-recurring Events as there were no costs or expenses recorded during these events. This positive trend can be attributed to the high revenues the company recorded in the FY 2016-2017 as compared to FY 2015-2016. Additionally, the increase in the Cost of Revenue in the FY 2016-2017 in respect to the FY 2015-2016 played a role in the resulting increase in the profits of the company and the Total Comprehensive Income of the Company.  

The difference in the Profits of the company was $114,076,000 in the FY 2015-2015 (ANNUAL REPORT 2016; carsales.com.au, 2018). In the FY 2016-2017, the Profits realized decreased to $113,014,000 (ANNUAL REPORT 2017; carsales.com.au. (n.d.)., 2018). This can be explained by the increased Total Operating expense in the FY 2016-2017, which was $195,617,000 as compared to that of the FY 2015-2016 recorded at $173,700,000 (ANNUAL REPORT 2016; carsales.com.au. (n.d.)., 2018). Overall comparison of the financial records for Carsales shows that the company has good performance and relatively steady in the year 2017. Here we can obviously see that Carsales.com Ltd sales were relatively high in the FY 2016-2017 as compared to the FY 2015-2016, which will, in turn, make everything else fall into place such as better equity, along with the return of assets. Here we also see that compared to the previous Financial Year, Carsale.com Ltd has done far better with overall revenue but there is a more negative comprehensive income in FY 2015-16.

3. Focus on the leases agreements the company has entered, as a lessee. As the new lease accounting standard (AASB16) will be enforced from 2019, the company is probably still applying the previous accounting standard (AASB117). Discuss how the new accounting standard will impact the assets, liabilities, and profit of your company.

The previous lease accounting standard AASB 117 does not truly reflect economic reality. Qantas has lots of leases but only a limited amount of these leases shown up on the balance sheet. All the rest of leases which so-called operating leases are recorded as expenses during the term of the lease which is off the balance sheet.

However, the new lease accounting standard AASB 16 which will replace AASB 117, eliminates distinguish between operating and financial leases and requires the recognition of the right-of-use asset along with the associated lease liability where the entity is a lessee. AASB 16 does not recognize those one-year leases and small ticket leases.

Therefore, as long as AASB 16 comes into force, all of those operating leases will be removed to the balance sheet and recognized as right-of-use assets along with lease liabilities in the balance sheet. It will lead to both assets and liabilities increase. Those rental expenses, which are a single-expense charge to operating expenses under the current accounting standard, will be replaced with a depreciation expense on lease assets combined with interest expenses. Because of the higher interest expenses in the earlier lease term, the profits may decrease especially in the beginning of the lease terms.

4. Focus on intangible assets and goodwill in particular. After carefully examining how the company carries impairment testing, explain what the cash generating unit is and identify the criterion for their choice in your company.

Goodwill speaks to the abundance of the cost of an acquisition over the reasonable value of the share of the group of the net identifiable assets of the procured backup at the date of securing. Goodwill on acquisitions of auxiliaries is incorporated into intangible assets. Goodwill isn’t amortized. Rather, goodwill is tried for impairment annually or all the more oftentimes if occasions or changes in conditions demonstrate that it may be impeded, and is conveyed at cost less accumulated impairment losses. Increases and losses on the transfer of a substance incorporate the conveying measure of goodwill identifying with the element sold. Goodwill is assigned to cash-producing units with the end goal of impairment testing. Goodwill is assigned to the Group’s cash-creating units (CGUs) and tried annually to decide if they have endured any impairment. For the reasons for evaluating impairment, assets are gathered at the most minimal levels for which there are independently identifiable cash inflows which are to a great extent free of the cash inflows from different assets or gatherings of assets (cash-creating units). 

In FY 2016-2017 annual report income statement, there is ‘Net impairment of property, plant, gear, intangible assets, and investment’ in Note to the Financial Statement. Which implies there is impairment loss on intangible assets. To dissect this inquiry, we right off the bat need to comprehend what is the cash producing units. “Cash creating units” implies the littlest or essential gatherings of assets that freely produce cash flow and whose cash flow is to a great extent autonomous of the cash flows created by different assets. 

For Carsales.com Ltd, according to the annual reports in FY2015-2016 and FY2016-2017, these services are Online Advertising Services, Data, Research and Services, and Finance and Related Services which in the FY 2015-2016 was $145,032,000) whereas in the FY 2016-2017 it was $ 143,315,000). The criterion for choosing these CGUS is determined by monitoring the Carsales.com Ltd Operations and decisions made to acquire and deal with the Carsales’ assets and operations. Goodwill and intangible assets that have an uncertain helpful life are not subject to amortization and are tried annually for impairment or all the more as often as possible if occasions or changes in conditions demonstrate that they may be impeded. Different assets are tried for impairment at whatever point occasions or changes in conditions demonstrate that the conveying sum may not be recoverable, which incorporates Carsales’ equity held partner investments. An impairment loss is perceived for the sum by which the benefit’s conveying sum surpasses its recoverable sum. The recoverable sum is the higher of a benefit’s reasonable value fewer expenses to offer and value being used.

References

ANNUAL REPORT 2016 – carsales.com.au. (n.d.). Retrieved September 12, 2018, from http://shareholder.carsales.com.au/FormBuilder/_Resource/_module/NwbnH0pKFk-uPGxM7cmTrw/docs/reports/annual/Annual_Report_2016.pdf

ANNUAL REPORT 2017 – carsales.com.au. (n.d.). Retrieved September 12, 2018, from http://shareholder.carsales.com.au/FormBuilder/_Resource/_module/NwbnH0pKFk-uPGxM7cmTrw/docs/reports/annual/Annual_Report_2017.pdf

CAR.AX Balance Sheet | CARSALES FPO Stock. (2018, September 12). Retrieved from https://finance.yahoo.com/quote/CAR.AX/balance-sheet?p=CAR.AX