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ASSIGNMENT: steps seven to Eleven
ACCT11081 – INTRODUCTORY FINANCIAL ACCOUNTING
Unit Coordinator: Maria Tyler
Jacquiline StewartStudent Number: s0278881
TERM 3, 2018
STEP 7:When I looked at my allocated firm’s (Intertek) Consolidated Statement of Financial Position
(otherwise known as Balance Sheet), I was pleased to see that Inventories are shown as a
line item in the Current Assets area.
I was keen to find out more about what Inventory management practices Intertek engaged in
as part of Intertek’s TQA (Total Quality Assurance) Customer promise is:
Assurance – Enabling customers to identify and mitigate the intrinsic risk in their operations,
their supply and distributions chains, and quality management systems
I would have thought that Intertek’s inventory management system would be world class,
however, when I looked further into the Annual Reports, there was no corresponding note for
Inventories, so there was no information on Intertek’s inventory management practices. I
searched “invent”, so that both inventories and inventory would show and found details in the
Consolidated Statement of Cash Flows and Notes to the Financial Statements about
Acquisitions (which will be discussed further), I search on “stock”, I searched “weight” to see
if there were any comments around weighted average. There was a lot of information
around Weighted Average for shares, but nothing regarding inventory. I also searched
several other words, Raw (as in Raw Materials), Perpetual, First (as in First In, First Out), but
again no relevant details displayed.
I did find an interesting item in the 2017 Annual Report about Zero Waste to Landfill
Certification, where by Intertek provides companies with the Zero Waste to Landfill
certification, when the company pledges to minimise the amount of waste that enters landfill
from their operations. The Zero Waste to Landfill programme will improve the efficiency in
the manufacturing process and save physical and financial resources through energy
conservation and the reuse of raw materials. I am not sure how the reuse of raw materials in
the manufacturing process would affect the inventory on the Consolidated Statement of
Financial Position (or Balance Sheet), or inventory management practices, but thought that
this is something that will become more common practice in the future due to companies
wanting to improve their sustainability initiatives and minimise the amount of waste that goes
to landfills.
So what inventory does Intertek use? Again, this information was very difficult to find as
detail in the annual reports was lacking, however I did find a job advert on LinkedIn (2018),
for a Material Control Clerk in San Antonio, Texas.
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The Material Control Clerk will support the Transportation Technologies business by
shipping, receiving and storage and inventory such as lubricants, engine parts, office
supplies and other material in support of company operations.
The advert made mention of lubricants, engine parts and office supplies, which is kind of
what I thought Intertek may have as Inventory, as they have laboratories and complete
testing for other firms. It does not go into a great detail; however, it does give me a little
insight into what inventories Intertek has.
The table below shows the inventories for Intertek from 2014 to 2017. I decided to calculate
the percentage inventories was of Total Assets, as well as Total Current Assets and as you
can see in the table below, Inventories are a very small percentage of Intertek’s assets and
this is maybe why there is not a lot of information provided in the Annual Reports as this is
not a core business of Intertek.
Year Inventories (£m)
Total Assets
(£m)
Inventories as a % of
Total Assets
Total Current Assets
(£m)
Inventories as a % of Total
Current Assets
2017 18.3 2052.4 0.89% 814.3 2.25%
2016 19.1 2146.3 0.89% 869.5 2.20%
2015 16.1 1771.0 0.91% 731.2 2.20%
2014 14.7 2018.9 0.73% 674.8 2.18%
Table 1: Intertek Inventories from 2014 to 2017
As mentioned earlier, the Change in inventories was shown in the Consolidated Statement
of Cash Flows as part of the Cash generated from operations area. The table below shows
the change in inventories, along with the end of year inventory values from the Consolidated
Statement of Financial Position (or Balance Sheet)
Year Inventories (£m)
Change in inventories
(£m)Profit for the
Year (£m)
2017 18.3 (0.5) 306.4
2016 19.1 - 271.6
2015 16.1 (1.0) (347.0)
2014 14.7 (2.1) 190.4
Table 2: Intertek’s Change in Inventories from the Consolidated Statement of Cash Flows
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The Cash generated from operations area in the Consolidated Statement of Cash Flows
constitutes the revenue-generating activities of a business. Therefore, as Intertek shows a
negative value over three of the four years, and one year had no change, it would be fair to
say, that Intertek made a loss on selling the inventories. Should Intertek be concerned about
this? Maybe, however as Intertek’s core business is providing services to other companies
and not sale of goods, as well as the fact that the Change in inventories is a very small
percentage compared to the Profit for the Year.
Another point to note, is that the Change in inventories from the Consolidated Statement of
Cash Flows was not the actual difference between the inventories over the last four years.
Below is a table that shows the calculated difference from year to year.
Year Inventories (£m)
Difference between End of Year Values (£m)
Change in Inventories from Annual Reports (£m)
2017 18.3 (0.8) (0.5)
2016 19.1 3 -
2015 16.1 1.4 (1.0)
2014 14.7 2.5 (2.1)
Table 3: Actual Difference in the year end inventories for Intertek
I did some investigation as to what the calculation for Change in Inventories was to see why
there is a difference and my research shows that the inventory change is the difference
between the last periods ending inventory and the current periods inventory. So, my
question is why is there a difference between the Changes in inventories on the
Consolidated Statement of Financial Position and the actual difference that I calculated
above? Are there adjustments that are required to be completed at the end of the reporting
period that I am unaware of or is there something that I am missing on the Annual Reports
that will advise me of the difference?
The word Inventories appeared in the Notes to the Financial Statements under the
Accounting Policy regarding Impairment in all three Annual Reports. The statement is as
follows
Impairment - Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than inventories and
deferred tax assets, are reviewed at each reporting date to determine whether there
is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated to determine the level of any impairment. (Page
121, 2017 Intertek Financial Report)
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There are two points to note regarding the above statement. The first is I would have
assumed that inventories are classed as financial assets and the second is that inventories
are not reviewed to determine if there is any impairment. So, what does impairment mean?
The first point about inventories not being a financial asset, was a little confusing as I
thought that inventories would have been classed as Financial asset as these can be turned
into cash, however on further investigation is seems that I was wrong, and inventories are
classed as a Non-Financial Asset. According to AASB 132 Financial Instruments:
Presentation; a financial asset is any asset that is:
a) cash;
b) an equity instrument of another entity;
c) a contractual right:
(i) to receive cash or another financial asset from another entity; or
(ii) to exchange financial assets or financial liabilities with another entity under
conditions that are potentially favourable to the entity; or
d) a contract that will or may be settled in the entity’s own equity instruments and is:
(i) a non-derivative for which the entity is or may be obliged to receive a
variable number of the entity’s own equity instruments; or
(ii) a derivative that will or may be settled other than by the exchange of a fixed
amount of cash or another financial asset for a fixed number of the entity’s
own equity instruments. For this purpose the entity’s own equity instruments
do not include puttable financial instruments classified as equity instruments
in accordance with paragraphs 16A and 16B, instruments that impose on
the entity an obligation to deliver to AASB 132-compiled 16 STANDARD
another party a pro rata share of the net assets of the entity only on
liquidation and are classified as equity instruments in accordance with
paragraphs 16C and 16D, or instruments that are contracts for the future
receipt or delivery of the entity’s own equity instruments.
Investopedia (2018) provides the following explanation of a Nonfinancial Asset, which is
slightly easier to understand that the AASB definition:
A nonfinancial asset is an asset with a physical value. Examples include real estate,
equipment, machinery or a vehicle. A financial asset, on the other hand, has value
based on a contractual claim, rather than a physical net worth, and includes stocks,
bonds and bank deposits. Financial assets are generally easier to sell than
nonfinancial assets, because these assets trade on exchanges each business day.
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So, inventories have a physical value, however does not have a value based on a
contractual claim. Let me see if I can explain this – for example, Woolworths Mt Pleasant in
Mackay has 100 tins of Baked Beans sitting on the shelf. There is no contractual obligation
from anyone to purchase one or more of the tins of Baked Beans and is therefore a non-
financial asset. If a customer orders 20 tins of Baked Beans on credit, then the number of
tins sitting on the shelf will decrease, and the sale of the Baked Beans will now be classed
as Accounts Receivable (which is a financial asset) as there is now a contractual obligation
to purchase and pay for the Baked Beans and will eventually be turned in cash once the
invoice that was issued has been paid (assuming that the customer will pay the account and
not be written off as a bad debt).
The second point relating to inventories are not reviewed for impairment, so what does
impairment mean? According to Investopedia (2018);
Impaired assets are assets that has a market price less than the value listed on the
company’s balance sheet
The website also states that an impairment should only be recorded if the anticipated future
cash flows are unrecoverable, therefore accounts that are likely to be impaired are; Accounts
Receivable, Goodwill and Long-Term Assets. So, what happens to inventories that may be
damaged, and the cost of the inventories are not recoverable or only partially recoverable?
As per AASB 102: Inventories (2015), inventories will be written down to net realisable value,
as Inventories shall be measured at the lower of cost and net realisable value, and the lower
value will be included in the inventory balance on the Balance Sheet.
Again, let’s see if I can provide an example; Myer purchases Ladies Light Blue Shirts for $10
and re-sells the same shirts for $20. Two of the shirts have a large black mark on the sleeve
which cannot be removed, and customers will not pay the retail value of $20 or even the
wholesale value of $10. Myer decides to sell the shirts for $5. The shirts will now be valued
at $5 as this is the net realisable value, even though the cost of the shirts was $10.
Intertek will not review inventories to see if there is any indication of impairment, rather they
will use the measurement of the lower of cost and net realisable value of the inventory and
write down as appropriate.
As I could not find any information on Intertek’s inventory management practices, I decided
to contact Intertek, in late 2018, to see if they could provide me with some more information
on their Inventory Management practices. I advised that I was a student studying
Accounting and I had been allocated Intertek to review and if they could provide me any
details on which method of tracking inventories they used and which Cost Formula Intertek
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used. Below is screen shot showing that the inquiry was received. Alas, I never received a
response, so I am none the wiser as to which whether Intertek use the Perpetual or Periodic
method when recording inventories or which Cost Formula Intertek uses to value of the
Inventory.
Figure 1: Inquiry Submission from Intertek
If I tried to search “Intertek Inventory Management” on the internet, and some of the results
that displayed were:
Inventory Management Development Training – which introduces best practice in inventory management
Supply Chain Management Solutions – which provides information on Intertek’s risk-based management tools and audit solutions to access and benchmark suppliers and track performance in supply chains
Inventory Check and Nomination for Chemicals – which advise that Intertek can assist company’s in navigating and understanding the challenges in this area
There are a number of other web pages that provides information on how Intertek can assist
other companies to reduce costs through improved inventory management, but no
information on their own inventory management practices.
My own experience with Inventories:
I was struggling to think about what experiences I have had with Inventories, apart from one
weekend when I was about 12 years old, and I spent both Saturday and Sunday at Farmers,
a department store in New Zealand, participating in a stock take. The main thing that I
remember from this was counting the plastic cutlery, of which there was a lot.
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My other experience, while not directly involved, was when I worked at Chubb Fire. My
supervisor was in charge of the stock and while there were inventory management policies
in place, as you would think there would be with such a large company, the technicians
would just come and get parts etc from the shelf and not book the parts to a particular job, so
when it came to end of month invoicing, my supervisor would get very cranky with the
technicians as there was never as the inventory in the store never balanced with what was
shown in the computer system, and each month a fair amount of stock would need to be
written off, much to the disgust of my supervisor and especially the manager.
STEP 8:In setting up MYOB, I got a little lost, as there is a Student option that you can select.
However, I did not use this option, I selected the 30-day free trial for this purpose,
Figure 2: Screen Shot advising MYOB set up has been completed
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Figure 3: Screen Shot of last item shown in the Starting Out with AccountRight training
When I set up Intertek, I did not use the name Intertek, I used my name, so if you see any
screen shots that shows “Jacqui Stewart”, this is in fact all the figures from Intertek’s 2017
Annual Report.
I entered the balances from the Consolidated Statement of Financial Position and some of
the numbers are rather large. This came to be a slight issue for me when I came to set up
the Customers and Suppliers, as the Trade and other receivables and Trade and other
payables is a very sizeable number. As creating Customers and Suppliers took a up a bit of
time, you will notice that the outstanding balances in some cases are excessive, but this
shows that all the balances of both Trades and other receivables and Trade and other
payables were allocated to the customers or suppliers. Below are screen shots showing the
setting up on the Account Balances – Assets, Liabilities and Equity, as well as the Customer
and Supplier Card set up.
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Figure 4: Intertek Asset Account Balances as at 31.12.2017
Figure 5: Intertek Liabilities Account Balances as at 31.12.2017
Figure 6: Intertek Equity Account Balance as at 31.12.2017
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Figure 7: Intertek’s Customer Cards List with Outstanding Balances allocated
Figure 8; Intertek’s Supplier Cards List with Outstanding Balances allocated
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Figure 9: Setting up Preferences in MYOB for Intertek
I then completed the Using Account Right training sessions. Below are screen shots
showing the last screen of the training, along with some of transactions that I completed
using the Clearwater setup files.
Figure 10: Screen Shot of last item shown in the Using AccountRight training
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Figure 11: Completing a Quote in the Sales Command Centre using the Clearwater files
Figure 12: Completing an Invoice in the Sales Command Centre using the Clearwater files
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Figure 13: Completing a Bill in the Purchases Command Centre using the Clearwater files
Figure 14: Show the list of Open Supplier Invoices from the Purchase Command Centre using the Clearwater files
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MYOB Online Training Skills Test Results
Question 1:
Question 2:
Question 3:
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Question 4:
Question 5:
Question 6:
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Question 7:
Question 8:
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Question 9:
Question 10:
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Question 11:
Question 12:
Question 13:
Page 18 of 35
Final Results:
STEP 9:As Intertek is a worldwide company, for this step, I have focused on the business of Intertek
Australasia. Intertek Australasia provides Assurance, Inspection, Certification, Testing,
Evaluation, Auditing, Sustainability, Technical Inspection, Technical Staffing and Validation
services within the following sectors in Australasia:
Agriculture, Analytical, Asset Integrity Management, Business Assurance, Cargo, Consumer
Goods and Retail, Energy, Exploration and Production, LNG and Minerals.
Table 4 below shows the transactions for Intertek in January 2019. The reason that I have
chosen January, is that I attempted to enter transactions in September 2018, however due to
the Financial Year of Intertek being from 1 January to 31 December, I was unable to enter
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transactions from the prior Financial Year. This did limit me with dates, and some of the
transaction dates are unrealistic, i.e. 1st January, but the task has been completed.
Please also note, that even though the transactions for Intertek are using £ (Pounds), I have
used the $ (dollar) symbol here in my transactions as this is what is available in MYOB. My
analysis of the Financial Statements is shown in £ as this is Intertek’s currency.
Transaction Number Date Transaction
1 1 Jan 2019Rio Tinto Limited accepted a quote for completing testing on Minerals in the Pilbara region of Western Australia. The quote was for $500,000 ex GST. Rio Tinto Limited paid a 5% non -refundable deposit, via Electronic Funds Transfer.
2 1 Jan 2019
Intertek purchased flights for Contractor Jim to fly from Sydney to the Pilbara region to start the Minerals testing for Rio Tinto. The flights were purchased using cash on Virgin Australia at the cost of $1200, via Electronic Funds Transfer, as there was no current credit facility, as the outstanding balance to Virgin Australia has not yet been paid
3 2 Jan 2019BHP Billiton Mitsubishi Alliance provided a Remittance Advance stating that payment of $150,000 has been made on 2nd January 2019, via Electronic Funds Transfer
4 2 Jan 2019
Virgin Australia has sent Intertek correspondence advising that payment of $500,000 is required by COB 2nd January 2019, otherwise Intertek will no longer be able to purchase flights with Virgin Australia. Intertek paid this on the $500,000 on 2nd January 2019, via Electronic Funds Transfer
5 3 Jan 2019BP Australia provided a Remittance Advice stating that payment of $1.5million was paid on 3rd January 2019, via Electronic Funds Transfer.
6 4 Jan 2019Anglo Coal Australia Pty Ltd has accepted a quote for Coal Quality Analysis at the German Creek Mine in the Bowen Basin. The quote is for $350,000 and Anglo has paid a $35,000 refundable deposit on 4th January 2019, via Electronic Funds Transfer
7 4 Jan 2019Intertek purchased 10 computers from Dell on 4th January 2019 at a cost of $4,000 each. This was purchased on Credit, with terms of 30 days
8 7 Jan 2019BMW Australia requested that an audit of the BMW Financial Services is completed. A quote for $125,000 was accepted, the work was completed on 2nd January 2019 and BMW Australia paid the invoice in full on 7th January 2019
9 8 Jan 2019
In November 2018, BP Australia requested Intertek to review stations in Australia, including the number, location, profitability along with layouts of the stations. Work was completed on 31st December 2019 and part payment of $50,000 was received on 8th January 2019, via Electronic Funds Transfer. The total invoiced was $250,000
10 10 Jan 2019
BHP Billiton Mitsubishi Alliance owns Goonyella/Riverside mine in the Bowen Basin. Contractor Alice (on behalf of Intertek) completed the evaluation of the current stockpiles as per the contract. The work was completed by Contractor Alice on 5th January 2019. The terms of payment for Contractor Alice, is that payment for services provided is required within 7 days of works being completed. The invoice of $150,000 was paid to Alice on 10th January 2019
Table 4: Intertek Transactions – January 2019
After completing the transactions, I ran the following reports from MYOB. All were relatively
easy to find including that of the All Journals report, which I will provide further information
about this below.
Page 20 of 35
All Journal Report:
ID No. Account No. Account Name Debit Credit Job No.SJ 1/01/2019 Sale; BP Australia
00412558 1-1310 Trade and other receivables $250,000.0000412558 4-1000 Services Income $227,272.7300412558 2-1210 GST Collected $22,727.27
CR 1/01/2019 Payment; Rio Tinto LimitedCR000007 1-1110 Business Bank Account #1 $25,000.00CR000007 2-1530 Deposit Collected (Refundable) $25,000.00
CD 1/01/2019 Virgin Australia 56 Edmondstone Road Brisbane QLD 4006 AustraliaEFT 1-1220 Electronic Clearing Account $1,200.00EFT 6-3400 Contractor - Travel $1,090.91EFT 2-1220 GST Paid $109.09
SJ 2/01/2019 BMW Australia Springvale Road Mulgrave VIC 3170 Australia00412557 1-1310 Trade and other receivables $125,000.0000412557 4-1000 Services Income $113,636.3600412557 2-1210 GST Collected $11,363.64
CR 2/01/2019 Payment; BHP Group Mitubishi AllianceCR000003 1-1110 Business Bank Account #1 $150,000.00CR000003 1-1310 Trade and other receivables $150,000.00
CR 2/01/2019 Payment; BP AustraliaCR000004 1-1110 Business Bank Account #1 $1,500,000.00CR000004 1-1310 Trade and other receivables $1,500,000.00
CD 3/01/2019 Virgin Australia 56 Edmondstone Road Brisbane QLD 4006 Australia1 1-1220 Electronic Clearing Account $500,000.001 2-1600 Trade and other payables $500,000.00
PJ 4/01/2019 Purchase; Dell Queensland00000008 2-1600 Trade and other payables $40,000.0000000008 1-2110 Property, Plant & Eq At Cost $36,363.6400000008 2-1220 GST Paid $3,636.36
CR 4/01/2019 Payment; Anglo AmericanCR000006 1-1110 Business Bank Account #1 $35,000.00CR000006 2-1530 Deposit Collected (Refundable) $35,000.00
CR 7/01/2019 Payment; BMW AsutraliaCR000008 1-1110 Business Bank Account #1 $125,000.00CR000008 1-1310 Trade and other receivables $125,000.00
CR 8/01/2019 Payment; BP AustraliaCR000009 1-1110 Business Bank Account #1 $50,000.00CR000009 1-1310 Trade and other receivables $50,000.00
GJ 9/01/2019 A non refundable deposit has been classified as a refundable depositGJ000001 2-1530 Deposit Collected (Refundable) $22,727.27GJ000001 4-4000 Non Refundable Deposits $22,727.27
CD 10/01/2019 Contractor Alice2 1-1220 Electronic Clearing Account $150,000.002 2-1600 Trade and other payables $150,000.00
PJ 12/01/2019 Contractor Alice00000009 2-1600 Trade and other payables $150,000.0000000009 6-3500 Contractor Payments $136,363.6400000009 2-1220 GST Paid $13,636.36
Grand Total: $3,123,927.27 $3,123,927.27
1/01/2019 To 12/01/2019
Intertek
All Journals
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Figure 15: Intertek’s All Journal Report as of 12 January 2019
Profit & Loss Statement (Income Statement):
IncomeServices Income $340,909.09Non Refundable Deposits $22,727.27Total Income $363,636.36Gross Profit $363,636.36ExpensesContractor - Travel $1,090.91Contractor Payments $136,363.64Total Expenses $137,454.55Operating Profit $226,181.81Total Other Income $0.00Total Other Expenses $0.00Net Profit/(Loss) $226,181.81
1/01/2019 To 12/01/2019
Intertek
Profit & Loss Statement
Figure 16: Intertek’s Profit & Loss Statement as of 12 January 2019
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Balance Sheet:
AssetsCurrent Assets
Bank AccountsBusiness Bank Account #1 $138,885,000.00
Total Bank Accounts $138,885,000.00Clearing Accounts
Electronic Clearing Account ($651,200.00)Total Clearing Accounts ($651,200.00)Other Current Assets
Trade and other receivables $640,250,000.00Inventory $18,300,000.00Current tax receivable $17,300,000.00
Total Other Current Assets $675,850,000.00Total Current Assets $814,083,800.00
Non-Current AssetsProperty, Plant and Equipment
Property, Plant & Eq At Cost $420,636,363.64Total Property, Plant and Equipment $420,636,363.64Goodwill
Goodwill $579,600,000.00Total Goodwill $579,600,000.00Other Intangible Assets
Other Intangible Assets $178,200,000.00Total Other Intangible Assets $178,200,000.00Investments in associates
Investments in Associates $300,000.00Total Investments in associates $300,000.00Deferrred tax assets
Deferred tax asset $59,400,000.00Total Deferrred tax assets $59,400,000.00Total Non-Current Assets $1,238,136,363.64
Total Assets $2,052,220,163.64Liabilities
Current LiabilitiesGST Liabilities
GST Collected $34,090.91GST Paid ($17,381.81)
Total GST Liabilities $16,709.10Current Tax Payable
Current Tax Payable $46,800,000.00Total Current Tax Payable $46,800,000.00
Other Current LiabilitiesProvisions $32,200,000.00Interest bearing loans & borro $77,100,000.00Deposit Collected (Refundable) $37,272.73
Total Other Current Liabilities $109,337,272.73Trade and other payables $451,740,000.00
Total Current Liabilities $607,893,981.83Non-Current Liabilities
Interest Bearing Loans & Borro $604,000,000.00Deferred tax liabilities $47,400,000.00Net pension liabilities $17,800,000.00Other Payables $21,600,000.00Provisions $9,100,000.00
Total Non-Current Liabilities $699,900,000.00Total Liabilities $1,307,793,981.83Net Assets $744,426,181.81Equity
Share Capital $1,600,000.00Share Premium $257,800,000.00Other Reservices ($9,500,000.00)Non-controlling interest $34,500,000.00Retained Earnings $459,800,000.00Other Equity $226,181.81
Total Equity $744,426,181.81
As of 12/01/2019
Intertek
Balance Sheet
Figure 17: Intertek’s Balance Sheet as of 12 January 2019
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Statement of Cash Flow:
Account NameCash Flow from Operating ActivitiesNet Income $226,181.81
Trade and other receivables $1,450,000.00GST Collected $34,090.91GST Paid ($17,381.81)Deposit Collected (Refundable) $37,272.73Trade and other payables ($460,000.00)
Net Cash Flow from Operating Activities $1,270,163.64Cash Flow from Investing Activities
Property, Plant & Eq At Cost ($36,363.64)
Net Cash Flow from Investing Activities -$36,363.64Cash Flow from Financing Activities
Net Cash Flow from Financing Activities $0.00Net Increase/Decrease for the period $1,233,800.00Cash at the Beginning of the period $137,000,000.00Cash at the End of the period $138,233,800.00
1/01/2019 To 12/01/2019
Intertek
Statement of Cash Flow
Figure 18: Intertek’s Statement of Cash Flow as of 12 January 2019
Review of Financial StatementsThe All Journal Report, was easy to find, however there seems to be a number of ways that
this can be found. I found this by clicking on the Accounts Command Centre in MYOB, then
clicking on “Transaction Journal”. The Transaction Journal screen displayed which has a
number of tabs, General, Disbursements, Payroll, Receipts, Sales, Purchases, Inventory and
All. I selected the “All” tab to display all the Journal Transactions. By using the Print option,
I was able to select of the Journals that were created over the few days that I could enter
transactions.
Due to one of the transactions above being Rio Tinto paying a non-fundable deposit, I had to
complete a General Journal entry to move this from the Liabilities account (2-1530 Deposit
Collected (Refundable)) that MYOB allocated it to, to an Income account (4-4000 Non
Refundable Deposits) as the deposit is non-refundable, then this means that Intertek can
recognise the deposit as income.
I found that when I looked at the All Journals, that there were more than 10 transactions and
initially I was confused as to why this was, however when I spent a bit of time and actually
reviewed and allocated each journal to a transaction, the reason that there were a number of
journal entries for a particular transaction, was that I had to complete the back transaction,
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prior to the actual transaction being applied. For example, Transaction 8 was that BMW
accepted a Quote and paid the invoice in full. I needed to create the quote, have the quote
accepted, turn the quote into a bill, so that I could record the full payment, which was the
transaction. This was good practice in using MYOB to get to the end result.
The Profit & Loss Statement (or the Income Statement) shows that Intertek made a profit of
£226,181.81 over the period (albeit a very short period). This actually worked in favour of
the transactions I created, as I certainly was not thinking about making a profit when I
created the ten transactions. The Gross Profit was all the Income that was received, as
there were no transactions that involved the Cost of Goods Sold. Even though Intertek does
have Inventory on the Balance Sheet, is does not seem to be a large part of Intertek’s
business of buying and selling inventory, but more of providing a service to other firms.
The Net Profit Margin for Intertek over the period was 62.2%, with Net Profit being
£226,181.81 and Total Revenue being £363,636.36
Net Profit after Tax = £266,181.81 = 0.6220 x 100 = 62.2%
Sales £363.636.36
This is a relatively large amount of Net Profit, however the transactions that were recorded
did not involve many expenses, such as rent, electricity, water, insurances and employee
wages (which is a large expense for Intertek), so this has provided Intertek with a very
healthy Net Profit Margin.
The Balance Sheet has an extra item, which it did not have in the 2017 Intertek Annual
Report. This is the Electronic Clearing Account, which has values in this account as I used
the Electronic Payment options when I was either Spending Money or Paying a Bill. This
means that as I have not set up my bank account details (for obvious reasons) and not
having the Supplier Card files set up with the bank account details, I am not able to process
these electronic payments, which in hindsight is maybe not what I should have done. For
example, Transaction 4 being a $500,000 payment to Virgin Australia. This has decreased
the value of the Trade and other payables in the Liabilities area, however the Electronic
Clearing Account shows as an Asset. I would assume that this only stays as an Asset until
the account has been cleared or processed?
One interesting point to note is that both GST Paid and GST Collected accounts sit in the
Current Liabilities section of the Balance Sheet. Refreshing myself on the Study Guide –
Chapter 2 about GST, it states that the GST Paid account will always have a debit balance
(it is an asset from the firm’s perspective). From this statement, I would have thought that
the GST Paid would sit in the Current Asset accounts, however when researching further on
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the MYOB Community site, which explains about both GST accounts being under a header
of GST Liabilities, which then shows the net amount of GST on the Balance Sheet as it
enables a business owner to track the amount of GST that is payable to the Australian Tax
Office. This is how the Balance Sheet has been set up and it also shows that the GST Paid
column is a debit balance, which aligns with what was stated in the Study Guide.
Other than the Electronic Clearing Account and the GST Paid account, all other items on the
Balance Sheet look to be as expected and as per the Accounting Equation: Assets =
Liabilities + Equity.
The last report that was run, was the Statement of Cash Flows, which shows us the amount
of cash that Intertek has at the end of the reporting period. The statement is divided into two
areas, Cash Flow from Operating Activities and Cash Flow from Investing Activities. As this
statement has been produced from MYOB, one would assume that this is how most
Statement of Cash Flows are divided. Looking at Intertek’s statement, it shows that
£1,270,163.64 is the net operating cash flow for the period, and that (£36,363.64) is the net
cash flow from investing activities. I can state categorically that the £36,363.64 loss in
investing activities is from the purchase of ten Dell computers and I was rather impressed
with the large operating cash flow surplus. All in all, the difference between the cash at the
beginning of the period and the cash at the end of the period is the Net Cash Flow from the
Operating activities plus the Net Cash Flow from the Investing Activities, (£1,270,163.64 + (-
£36,363.64) = £1,233,800). Not a bad increase in cash over a ten-day period.
STEP 10:What is Property, Plant and Equipment? What is Depreciation? How are both items link and
why? Property, Plant and Equipment are assets that have a physical presence and will
provide future economic benefits to the firm over a number of years. Property, Plant and
Equipment will display as a non-current asset on the Balance Sheet.
Depreciation, is an expense that is allocated to an item of Property, Plant or Equipment, that
the item has essentially used up during the reporting period. For example, a business
purchases a Car worth $10,000 today. The business expects to sell the car in four years’
time, for a value of $2,000. Therefore, the car will have to be depreciated each year to the
value of $2,000 per year. As a business, it is a requirement to allocate a depreciable
amount each year over the life of the asset. Two key points to remember is that depreciation
is the process of turning an asset (item of Property, plant and equipment) into an expense
each year and that depreciation is a non-cash expense.
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How does one determine how much to allocate for Depreciation? Assumptions need to be
made in determining the depreciation value of an asset, the useful life of the asset and the
residual value of the asset. Not a one size fit all approach can be taken to determine the
above items when values. For example, I work at the Local Council in the Water Services
area and there is a lot of conversations regarding useful lives vs design lives, the financial
nature of the asset, depreciation and of course, the revaluation of assets. One conversation
that I have been involved in is regarding the mains network and laying on the new assets
(pipes) in the ground. The pipe that has been laid in Mackay may have a proven different
useful life to that of a pipe that is laid in say a local council in Victoria. This can be due to the
climate and the ground that the pipe has been laid. So, while the manufacturer may state
that the design life for Pipe A is 80 years, due to the factors mentioned above and other
factors, Mackay may only get 60 years out of the pipe before it needs to be replaced (which
is accepted from past performance), but the council in Victoria may get 90 years or vice
versa. This shows that a one size does not fit all in regard to determining the useful life of
Property, Plant and Equipment.
Amortisation and where does this fit into the whole scheme of things. A lot of Annual
Reports refer to Depreciation and Amortisation in the same sentence. Amortisation has
essentially the same effect as Depreciation does, i.e. allocation of the cost of an intangible
asset over its estimated economic life, however Amortisation is recorded against Intangible
Assets. An intangible asset is non-monetary, needs to be identifiable and does not have a
physical presence. For example, a purchase of a patent could be entered as an Intangible
asset.
Intertek shows Property, Plant and Equipment on the Balance Sheet as a non-current asset
in all three years. Table 5 below shows the value for four years from 2014 to 2017, along
with the depreciation charge and the amortisation charge for the respective years. The
depreciation charge and the amortisation charges are shown in the Consolidated Statement
of Cash Flows.
Property, Plant & Equipment
(£m)
Depreciation Charge
(£m)
Amortisation of software
(£m)
Amortisation of acquisition intangibles
(£m)2014 363.3 69.0 7.3 20.82015 365.3 75.1 10.1 21.42016 443.3 76.4 13.1 14.02017 420.6 81.2 12.2 16.0
Table 5: Property, Plant & Equipment, along with the respective years Depreciation Charge
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The Annual Reports for Intertek have a specific note related to Property, Plant and
Equipment, which advises the reader about depreciation and how it is applied.
All three annual reports state that the Property, Plant and Equipment assets, that Intertek
owns, are measured at cost less accumulated depreciation and accumulated impairment
losses. The reports also state that the Cost includes expenditure that is directly attributable
to the acquisition of the asset. This is a short way of articulating what Paragraph 16 in AASB
116 – Property Plant and Equipment states and IAS 16 Property, Plant and Equipment from
the International Financial Reporting Standards, which Intertek obviously refers to as the
company is based in the United Kingdom. The Annual Reports also state that Intangible
assets arising on acquisitions and computer software are stated at cost less accumulated
amortisation and accumulated impairment losses.
In referring just to Depreciation, what is accumulated depreciation and what is meant by
Property, Plant and Equipment are measured at cost less accumulated depreciation etc.
Accumulated depreciation is the total of all the years depreciation, i.e. a printing press was
purchased in 2015 for $20,000 at the beginning of the financial year being 1 January 2015.
The depreciation cost is $1,500 for each year from 2015 to 2018, which is a total of $6,000.
On the Balance Sheet as at 31 December 2018, the printing press would be shown with a
value of $14,000. This is the cost of $20,000 less the accumulated depreciation of $6,000.
However, in 2018, only a depreciation charge of $1,500 would show on the income
statement as the prior years would have been recorded in that reporting period.
The Annual reports state that Depreciation is charged to the income statement on a straight-
line basis over the estimated useful lives of items of property, plant and equipment. The
reports also mention that any asset that is lease are depreciated over the shorter of the
expected lease term and their useful lives. One last statement is that Land is not
depreciated.
A couple of questions here; 1. What is the straight-line basis of depreciation and 2. Why can
I not find a specific row called Depreciation (and/or Amortisation) when I look at the Income
Statement.
Paragraph 62, Australian Accounting Standard AASB116 Property, Plant and Equipment
states the following regarding the methods of depreciation
These methods include the straight-line method, the diminishing balance method and
the units of production method. Straight-line depreciation results in a constant charge
over the useful life if the asset’s residual value does not change. The diminishing
balance method results in a decreasing charge over the useful life. The units of
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production method results in a charge based on the expected use or output. The
entity selects the method that most closely reflects the expected pattern of
consumption of the future economic benefits (AASB116)
The fact that Intertek is using the straight-line method means that the assets will be
depreciated the same value for each year, which I think makes doing the calculations rather
easy, until, you look further at the Note on Property, Plant and Equipment.
Different assets have different estimated useful lives, for example, Freehold buildings and
long leasehold buildings have a 50 year estimate useful life, short leasehold buildings have
an estimated useful life of the term of the lease and Fixtures, fittings, plant and equipment
have an estimated useful life of 3 to 10 years. So, while the straight-line method has its
advantages, the value of Intertek’s Property, Plant and Equipment has a value of £420.6
million, so within this value, there would be a number of different asset classes that would
require a different calculation done depending on the useful life of the asset class.
The annual reports state that the Depreciation methods, residual values and the useful lives
of assets are re-assessed at each reporting date. This would mean that a lot of work is
required to re-assess the £420.6 million worth of Property, Plant and Equipment assets each
reporting period. To date, the depreciation method has not changed.
Regarding there being no specific row that shows Depreciation on the Income Statement,
why is the information shown in the Consolidated Statement of Cash Flows. The income
statement has one line called “Operating costs” and does not have an associated note to
find out how the Operating costs are split. Scrolling through the Notes to the Financial
Statements would be the only way to find the information. Note 4: Expenses and Auditors
Remuneration, is where I found out what the operating costs were divided into. Table 6
below shows the Depreciation and software amortisation and the percentage that
Depreciation and software amortisation is of the Total Operating Costs:
2014(£m)
2015(£m)
2016(£m)
2017(£m)
Employee Costs 921.5 956.2 1,140.6 1,220.8
Depreciation and software amortisation 76.3 85.2 89.5 93.4
Impairment of goodwill and other assets
589.4 - - 18.2
Other expenses 818.9 819.0 967.4 1,014.0
Total Operating Cost 1,816.7 2,449.8 2,197.5 2,346.4
Depreciation as a % of Total Costs
4.20% 3.48% 4.07% 3.98%
Table 6: Depreciation as a % of Total Operating Costs
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The Depreciation and software amortisation charge is not a very large expense to Intertek,
as it sits around the 4% mark each year of Total Operating Costs. By far the largest
expense for Intertek is their Employee Costs as Intertek has over 43,000 employees in over
100 countries. While Intertek has Laboratories and Offices throughout the world, which will
incur depreciation charges, the employees are where the major cost is held, as Intertek
states that they are a people business whose success depends on the knowledge, expertise
and commitment of the workforce.
Another point to note regarding Property, Plant and Equipment for Intertek, is that due to the
large size of the business, there are a number of business acquisitions and disposals over
any given year, so this also adds to the complexity of calculating the depreciation charge.
See Table 7 below for the details that was provided in the Annual Reports for the analysis of
how Property, Plant and Equipment is employed at Intertek.
Would Depreciation charges would need to be calculated on a pro-rata basis. What I mean
by this is that if Intertek acquired a business, six months into the Financial Year, then they
would only include a depreciation charge on the Property, plant and equipment assets of that
business for the last six months of the financial year? Likewise, if Intertek sold a subsidiary
business to another firm or even closed a subsidiary business, three months into the new
Financial Year, then the charge for depreciation would only encompass three months? This
sounds like a fair principle to me, as why would you have a depreciation charge on
something that you no longer have or not yet have acquired. An interesting point in the note
for Property, Plant and Equipment, in all three reports is that Intertek has Fixtures, fittings,
plant and equipment during construction and these assets will not be depreciated until they
are available for use. For Intertek, this are laboratories to the value of £34.9 as at 31
December 2015, £26.9 as at 31 December 2016 and £30.3 as at 31 December 2017, so my
theory above is kind of validated.
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2014 2015 2016 2017
Land & Buildings
(£m)
Fixtures, fittings, plant &
equipment (£m)
Total (£m)
Land & Buildings
(£m)
Fixtures, fittings, plant &
equipment (£m)
Total (£m)
Land & Buildings
(£m)
Fixtures, fittings, plant &
equipment (£m)
Total (£m)
Land & Buildings
(£m)
Fixtures, fittings, plant &
equipment (£m)
Total (£m)
Cost
At 1 January 67.7 680.1 747.8 70.7 766.8 837.5 82.4 852.2 934.6 98.3 1079.6 1177.9Exchange
Adjustments (0.7) 12.5 11.8 3.2 (7.2) (4.0) 15.6 158.8 174.4 (3.8) (62.7) (66.5)
Additions 3.9 86.1 90.0 2.1 93.3 95.4 0.1 85.9 86.0 0.1 91.6 91.7
Impairments - (0.7) (0.7)
Disposals (0.2) (13.4) (13.6) (0.4) (14.6) (15.0) (0.6) (20.6) (21.2) (0.2) (21.5) (21.7)Transfer to assets
held for resale - (1.2) (1.2)
Businesses Acquired - 3.4 3.4 6.8 13.9 20.7 0.8 3.3 4.1 - 0.6 0.6
At 31 December 70.7 766.8 837.5 82.4 852.2 934.6 98.3 1079.6 1177.9 94.4 1087.6 1182.0
Depreciation
At 1 January 13.9 396.8 410.7 16.3 457.9 474.2 20.8 548.5 569.3 29.5 705.1 734.6Exchange
Adjustments (0.3) 7.9 7.6 0.5 (2.6) (2.1) 5.4 101.8 107.2 (2.2) (43.1) (45.3)
Charge for the year 2.8 66.2 69.0 2.8 72.3 75.1 3.5 72.9 76.4 3.4 77.8 81.2
Impairments - (0.4) (0.4) 1.3 34.3 35.6 - 10.2 10.2
Disposals - (0.5) (0.5) (0.1) (13.4) (13.5) (0.2) (18.1) (18.3) 0.2 (19.5) (19.3)
At 31 December 16.3 457.9 474.2 20.8 548.5 569.3 29.5 705.1 734.6 30.9 730.5 761.4Net Book Value at 31 December 54.4 308.9 363.3 61.6 303.7 365.3 68.8 374.5 443.3 63.5 357.7 420.6
Table 7: Analysis of Property Plant and Equipment employed by Intertek
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The one change that I can see from the three annual reports is how depreciation and
software amortisation is applied to the different operating segments. In 2016, Intertek re-
organised the approach to reporting and performance management from five business
divisions to three business divisions as you can see from Table 8 below.
Business Division2014(£m)
2015(£m)
2016(£m)
2017(£m)
Consumer Goods (£m) 11.3 11.9
Commercial & Electrical (£m) 21.4 25.2
Chemicals & Pharmaceuticals (£m) 4.9 5.0
Commodities (£m) 21.7 20.5
Industry & Assurance (£m) 10.4 13.4
Products (£m) 56.6 60.3
Trade (£m) 18.6 19.9
Resources (£m) 13.8 13.2
Total (£m) 69.7 76.0 89.0 93.4
Table 8: Depreciation and software amortisation for each business division
The 2016 Annual Report states that “Consumer Goods, Commercial & Electrical and
Chemicals & Pharmaceuticals divisions have been mostly aggregated into the Products
division; the former Commodities division has primarily moved to the Trade division and the
former Industry & Assurance division has primarily moved to Resources. Certain business
lines within those former segments have also been reallocated to better align to the
structural growth drivers of each division.”
Would this change of business divisions, mean a relatively easy change to allocating the
depreciation charge to the appropriate business division or would to have been an arduous
task? With the technology and computer programs that are available today, you would think
that this would be a relatively easy conversion, but due to the share value of Property, Plant
and Equipment that Intertek has in over 100 countries, I am sure that it would not have been
all plain sailing.
Another note or question that I have and is not related to Intertek in any way, is regarding
revaluation. One of the Mount Pleasant Reservoirs, here in Mackay was taken offline as
there was a decision to refurbish the reservoir to extend the useful life. The reservoir was
refurbished with state of the art tensioning wires and now the reservoir has extended the
useful life for another 60 years. My question, is that the book value of the reservoir was $xx
prior to the refurbishment, obviously the value should have increased due to the
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refurbishment (maybe not), but revaluations cannot occur on just one asset, it must occur for
an entire asset class, so how does one account for the increase in value of an asset when all
other assets have not changed? As this was a Capital Project does this effect the value in a
different way as opposed to just normal operating maintenance? I think I will need to talk to
the Accountants at work to further understand this concept.
STEP 11:Assignment Step 7-10 - Feedback provided to???Feedback From: Jacqui Stewart
Feedback To: ???
Reflections on giving and receiving feedback:
Page 33 of 35
REFERENCESAustralian Accounting Standards. (2011). Financial Instruments: Presentation (AASB 132).
Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB132_07-
04_COMPsep11_07-12.pdf
Australian Accounting Standards. (2015). Inventories (AASB 102). Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-15.pdf
Australian Accounting Standards. (2014). Property, Plant and Equipment (AASB 116). Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun14_07-14.pdf
Investopedia (24 Jun 2018). Impaired Assets. Retrieved from https://www.investopedia.com/terms/i/impairedasset.asp
Investopedia (24 Jan 2018). Nonfinancial Assets. Retrieved from
https://www.investopedia.com/terms/n/nonfinancialasset.asp
LinkedIn (2018). Material Control Clerk – Intertek. Retrieved from https://www.linkedin.com/jobs/view/material-control-clerk-at-intertek-1005635055
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