6675 words 27 pagesSection E: Accounting Analysis
Key accounting policies
The key success factors for a company which operates in consumer discretionary sectors, such as OrotonGroup, are product differentiation through brand, product quality, and product innovation. Therefore, the important accounting policies for achieving those factors are:
Accounting Policies | OrotonGroup Policies | Revenue recognition | OrotonGroup recognises revenue when a group entity sells a product to the customers. Revenue from license fees, franchise fees, and commissions are recognised and accrued in the period in which the fees are earned. | Inventories | Finished goods are stated at the lower of cost and net realisable value determined on the basis of moving …show more content…
* Estimated life of the asset is 10 years. * Lease payments are made at the end of each year and are spread evenly over each year of the period. * Asset-to-liability ratio is 81% (Bennett and Bradbury, 2003). * Depreciation method used is straight-line. * New leases entered into evenly throughout 2011.
By undoing the distortion caused by non-cancellable operating leases, total asset and liability increases by approximate 46,000. The implication of these changes will be assessed in certain ratios in Section F.
2. ‘Changes in Accounting Policies
There have been some changes in the accounting policies adopted by the consolidated entity. They have adopted the AASB 2009-5 Amendments to Australian Accounting Standards arising from Annual Improvements Project from 1 August 2010. This amendments result in several changes. The main changes were: * AASB 101 ‘Presentation of Financial Statements’ - classification is not affected by the terms of a liability that could be settled by the issuance of equity instruments at the option of the counterparty; * AASB 107 ‘Statement of Cash Flows’ - only expenditure that results in a recognised asset can be classified as a cash flow from investing activities; * AASB 117 ‘Leases’ - removal of specific guidance on classifying land as a lease; * AASB 118 ‘Revenue’ - provides additional guidance to determine whether an entity is acting as a principal or