Part A. BOARD COMPOSITION (400 words) (9 marks)

PART A – BOARD COMPOSITION

• The annual report of the company provides that there are six independent directors. As per the listing rules, the listed company is required to appoint the independent directors on the board. These are:
• Jillian Broadbent
• Holly Kramer
• Siobhan Mckenna
• Scott Perkins
• Kathryn Tesija
• Michael Ullmer (Woolworths Limited, 2017)
• The number of directors consisting male gender is two and the number of directors of female gender is four. Following is the qualification and the experience of these three directors:
• Jillian Broadbent – She has completed his bachelor’s in the subject of Mathematics and Economics. She has the great experience in the finance and banking areas.
• Holly Kramer – She has done bachelor of art honors and completed masters in business administration. She has the vast experience in the field of sales and marketing.
• Siobhan Mckenna – She has completed his bachelor’s in the subject of electronics and has completed M Phil. With this study, she has the vast experience in making the public policy in the area of digital and media. 

• Yes the above directors are on the other boards. These are:
• Jillian Broadbent – She has primarily associated with the Bankers trust of Australia. She has been the chancellor of the University of Wollongong and director of Coca Cola Amatil, Qantas Airways and has also been the member of Reserve Bank of Australia. 

• Holly Kramer – She has been chief executive officer of Best and Less and director of Nine Entertainment Corporation.

• Siobhan Mckenna – She has been the director of Amcil and Ten Network Holdings and also has been the Commissioner of Productivity Commission of Australia.

• In annual report of the company, two disclosures have been made regarding the subsidiaries. Wholly owned subsidiaries that have entered into deed of cross guarantee are seventy subsidiaries and the subsidiaries which are not wholly owned and have the material non controlling interest are three. There are two associates of company.
• As per note number 4.6 of the annual report of the company, the borrowing cost is equal to the net carrying amount of borrowing which is net of the unamortized borrowings and amounts to 2261.70 million dollars. Effective interest as per the annual report is 6.26% (Woolworths Limited, 2017).
• It is one of the largest companies in retail sector and has been into existence since 1924 and has been regular in the compliance.  

Woolworths Limited, (2017), “Annual Report 2017” 

PART B – REPORT

Contents 

EXECUTIVE SUMMARY

The annual report of every company describes the financial position and the financial performance of the company. It details not only the financial information but also provides as to what strategies the company has adopted and will adopt in the future so as to meet out the challenges of the market. The report has four basic aims. The first main aim is to understand the functioning of the company with regard to its profitability and the stability that the company has been able to achieve since its formation. The second major aim of the report is to understand whether the company has been discussing as to how the company will prosper and continue in the future in this challenging environment. The third aim is to ascertain the impact on the society and the environment of the working of the company. The last major aim of the report is to ascertain the financial statements to provide the detail about the quality of the net income and the position of the cash flows in the company. With these aims and the considerations, the report has been prepared with the appropriate headings and the data has been majorly collected from the official website of the company and other reliable sources.

INTRODUCTION

The financial statements of the company shall be prepared in the correct and accurate manner. It is because on the premise of the financial health and financial performance of concern, the investors and other stakeholders put their money in the company in order to have the higher returns and the benefits in future. The financial statements are embedded in the annual report of the company and that also contains the director’s report, remuneration report and independent auditors report. In this report, the annual report of the company – Woolworths Limited will be analysed in detail. At first the financial profitability and the stability of the company will be discussed with regard to the statement of income and expenditure and balance sheet of company. After that the dividend policy has been analysed with respect to the frequency and whether the same has led to any growth in the equity of the company.

Thirdly, the major change will be discussed if any made by the company in order to have the future growth. Fourthly, the challenges of the company have been discussed with regard to the current activities of the company. Fifthly and majorly the company contribution towards the environment and society has been discussed through the sustainability report. Then the estimations if any made by the company for the future activities has been discussed along with any form of uncertainty. Along with the financial profitability, the method of classification of expenses has been detailed. Lastly the quality of sales and net income along with the financial distress of any being faced by the company has been discussed. The report has then ended with the proper conclusion and recommendation.

Part B. REPORT: (600 words) (26 marks)

PROFITABILITY AND STABILITY

For the current year ending 2017, the profitability of the company is 1593.40 million dollar against the revenue income of 55668 million dollar (Woolworths Limited, 2017). For the year ending 2016, the loss of the company is 2347.90 million dollar against the revenue income of 53664 million dollar and for the year ending 2015, the profitability of the company is 2137 million dollar against the revenue income of 59001 million dollar (Woolworths Limited, 2015; Woolworths Limited, 2016). It means that the profitability of the company is not stable rather it is fluctuating with the requirement of the external environment.   

DIVIDEND PAYMENTS AND GROWTH

The company has paid the dividend amounting to $859.60 million dollar from the retained earnings of the company for the year ending 2017 and for the year ending 2016 amount of $1471.20 million dollar has been paid out as dividend.  The dividend so paid includes the interim dividend and the dividend related to the prior year which 2016. The frequency is two times a year irrespective of the profit earned by the company and there has been change in the equity majorly from the payment of dividend in the year 2017 (Woolworths Limited, 2017).

OPPORTUNITIES FOR FUTURE GROWTH

The company in the year of 2017 has started the new online model known by the name of “The Bunch”. It is the online model which provides the customers with the facility to have the taste of the product of the Woolworths Limited online and provides the feedback thereon on the website of the company. The company has received the honest feedbacks of 7000 plus customers taste about the product of own manufactured (Woolworths Limited, 2017). Also, The Company’s segments have increased the number of the stores by opening the new ones. These include the endeavor drinks which have opened the new stores totaling to 1500 stores.  

CHALLENGES AND PLANS TO DEAL

Major competitor of the company is Wesfarmers Limited who operates on the same line of the company. The major challenge is that the competitor uses the strategy of Woolworths Limited and works in the same manner and for this the company is required to reframe its business strategy at the interval of the regular periods so as to keep informed about the status of the competitors.

CONTRIBUTION TO SOCIETY AND ENVIRONMENT

The company within its annual report of the company has disclosed the facts that the necessary compliance has been made with the laws relating to the society and environment. And accordingly the company has laid down the sustainability report along with the corporate social responsibility every year to exhibits as to how the company minimizes the negative impact on the society and environment. The big example is of the having the online community model – Bunch where the interest of all the customers have been discussed and kept for consideration.

Question 2 (Part A and B) (600 words) (15 marks in total)

FUTURE ESTIMATION

The major assumption that the company made for future is in case of estimating the future cash flows so as to measure the value in use of the asset. This future cash flows estimation is based on the past experiences of the company.

CLASSIFICATION OF EXPENSES

The major reason of the classification of expenses is to ensure the strict and effective adherence to the provisions of the accounting standard of the company. In the annual report it is mentioned that borrowing costs incurred and is linked directly to the asset shall be added to the value of the asset and else shall be written in the statement of the profit and loss.

QUALITY OF SALES AND NET INCOME

There is the doubt on either of the figure which is the sales or the net income. It is because of the reason that with the increase in sales, the net income has not increased with that proportion. Secondly, sales figure have been in the same dimension for the last three years. It shall be either increased or decreased by at least 20% as per the genera; phenomena of business functioning.

FINANCIAL DISTRESS

As per the cash flow statement of the company, the financial distress has been major in the year ending 2016 with decrease in cash and cash equivalents of 384.10 million dollar as compared to decrease of 38.70 million dollar in 2017.

 RECOMMENDATION

The company’s financial statements have helped in achieving all the aims mentioned in the report. The financial report of the concern has detailed all the matters which are required by the users and the stakeholders to have the meaningful information about the company. The major change in the business activity has been the exit of the home improvement business and the charging of impairment on the Big W segment of the company. These have been done by the company so as to face the challenges of the market in due course of time and is preparing for it. To conclude, the report has provided the required details.

It is recommended to have the robust business practices and best strategies to be installed in the company.

Woolworths Limited, (2015), “Annual Report 2015”

Woolworths Limited, (2015), “Annual Report 2016” 

Woolworths Limited, (2017), “Annual Report 2017”  

PART A – The answer is in the excel sheet.

PART B

• Consideration of the Prime Users 

The prime user of the consolidated financial statements is the parent entity. It is because of this prime user only the consolidated financial statements are prepared. The parent entity is required to consolidate the figures of the other entity only if it has the control over the other entity. The control has been defined in the Australian accounting standard on consolidated financial statements.

The financial statements are consolidated mainly on the consideration of the parent’s entity. In the given case the Neal Limited owns the 70 % shareholding in the Henry Limited and as per the provisions of the consolidated financial statements standards the company is required to consolidate the results as it holds more than the 50% ownership in the company. Without consolidating the results the company cannot present the financial statements of its own. Secondly, the necessary disclosure is required to be made in the notes to accounts (AASB, 2011). 

• Classification of Non Controlling Interests

In accordance with Appendix A of the accounting standard on the consolidated financial statements, non controlling interest is defined as the share of equity of the subsidiary company which is neither directly nor indirectly attributed to the parent entity. In the given case, Neal Limited owns the 70% share in equity of Henry Limited and accordingly the remaining 30% is regarded as the non controlling interest as the same 30% is not under the control of the parent company which is Neal Limited.  But the requirement of the standard is that along with the 70% ownership in Henry Limited the balance of 30% shall also be consolidated in the financial statements which will be prepared in the consolidated manner as per the requirement of the accounting standard.

Now the issue arises where the non controlling interest shall be disclosed in the consolidated financial statements of the Neal Limited. In accordance with the provisions of the accounting standard, the non controlling interest shall be disclosed in the equity of the parent and that too shall be presented in the separate column. In case it is shown as the liability then the whole procedure of the consolidation will become futile as the same can never be the liability of the parent company to pay off the non controlling interest to the shareholders of the Henry Limited rather it will be the part of the equity of the company (AASB, 2011).

Thus, the above is the reason as to why the non controlling interest has been classified under the equity rather than under the head liability.