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INTRODUCTION TO FINANCIAL REPORTING
Companies operating in domestic of international market should ensure that their financial statements are present in adequate manner so that these economic documents can reflect the corporate position so that external observes can make feasible conclusions from the critical review of firm’s outcomes (Altman, 2012). However, external decision makers are not restricted to only financial statements therefore firm also produce interim financial reports and entities regularly published with the aim of providing information regarding operating data to several wide range of corporate stakeholders.
In the present research report, Kingfisher’s annual report and financial statement has been evaluated so that vital stakeholders of the firm can make appropriate decisions. However, Kingfisher operates in retail sector with more than 1170 stores within 11 countries. Furthermore, report consist of several concepts relates to conceptual framework of IASB in order to broadcast financial information adequately. At last, report highlights the income statement and balance sheet of the firm to fulfill the information gap. Thereafter, study assist in evaluates the variance between income statement and cash flow statement to identify and minor variations.
In references to the IASB’s conceptual framework, analyze the usefulness of kingfisher’s financial statement
In general, companies operating in any sector and at any level have to prepare financial statements and annual report in order to assist their stakeholders to in making appropriate decisions regarding future functioning. According to the conceptual framework of IASB financial statement of Kingfisher should provide adequate and accurate detailed information to its associated people. However, the main aim of preparing statements according to conceptual framework of IASB is that it assists in providing detailed information related to all the transaction and investment took place during the course of reporting period (LaBonte, 2003). Therefore, by the means this it can be stated that annual report of Kingfisher plc is beneficial for both type of investor’s e. i. Existing and potential. Along with that, it also provide valuable assistance to other stakeholders such as creditors, suppliers etc to make decision for future contingency.
In addition to that, the main reason behind preparing financial statement according to rules and regulations of IASB is that it assists in evaluating actual position of Kingfisher and on that basis helps them to make feasible conclusions. There are several advantages of analyzing and evaluating the financial statement of Kingfisher plc is that it provides information regarding investments, dividend paid to shareholders and earnings per share etc (Marciukaityte and Szewczyk, 2011). Apart from these, all the major information for every stakeholder is given in cash flow statement, income statement and balance sheet. Therefore, with the help of these statements stakeholder can evaluate liquidity, profitability and overall financial position of the firm.
The main aim of preparing financial statement for every firm is understand the actual positing in comparison to the desired one. However, these statements are based on two years which highlight the position of firm in comparison to previous years. However, the annual report of Kingfisher plc assists in evaluating financial performance firm of year 2012-13 and 2013-14. In general terms, every stakeholder associated with the firm has its own interest regarding analyzing the report. Creditors and suppliers evaluate balance sheet and income statement because it gives them information about the time required by company to pay the amount. Along with that, financial statements also provide creditors information regarding company’s solvency and liquidity so that they can make decisions regarding further trading.
However, the financial structure of Kingfisher plc depends upon the investment made by investors and other financial institutions. In context to that, it becomes more important for the top authorities of Kingfisher plc to provide accurate data and information regarding the economic structure of the firm so that stakeholders can evaluate actual position of the firm (Griffin, 2002). Moreover, with the help of these information lenders like investors and banks can make judgement on whether their amount will be paid back or not.
A) Brief Notes on Kingfisher’s to meet the objectives of Abdul to outline the income statement and balance sheet of the company
In general terms, for every entrepreneur or any individual before making any investment it is essential for them to identify and evaluate the financial status of the firm. According to the given case, Abdul wanted to invest funds the listed company of London stock exchange. Therefore, it is important for Abdul to undertake all the major statements of the firm such as balance sheet, income statement, cash flow statement and shareholders equity funds in order make appropriate decisions regarding future functioning. These statements are discussed below:
In general, income statement assists in showing all the income and expenditure that company made during the course of reporting period. However, this statement provides valuable information to top authorities and stakeholders regarding profitability and overall revenue generation of the company within two years.
Sales – Sales in income statement assist in showing the actual revenue earned by Kingfisher plc during the course of 2013-14 (Neely, Bourne and Adams, 2003). Apart from the information selling home appliances, it also illustrates the information regarding fund acquire by other sources such as sale of fixed assets etc.
Gross profit – It is important for every firm to have adequate gross profit and it is evaluated after deducting cost of sales. Looking at the present condition of Kingfisher plc it can be stated that, gross profit has shown some hike in comparison to previous year from £3955 million to £4120 million. From this one can depicts that, firm is making valiant efforts in terms of increasing its sales and decreasing the cost of sales.
Operating profits – At present, operating profit of Kingfisher has shown a very little increment. Furthermore, it computed after including all the operational expenses of the firm. There are several operational expenses such as selling and distribution, administrative etc.
Net profit – Net profit is considered to be the most significant profit which indicates the actual financial position of Kingfisher plc (Warnier, Weppe and Lecocq, 2013). However, the net profit of the firm in year 2013-14 was £710 million which is higher in comparison to previous year.
In general, balance sheet consists of three major elements such as equity capital, liability and assets of an organisation. However, the main purpose of an organisation to prepare balance sheet is that it assist in evaluating the overall liabilities and overall assets to overcome those liabilities. According to the accounting principles it is essential to have sum of equity capital and liabilities equal to the assets.
Current assets – Current assets of Kingfisher are the one who can be easily converted into cash in order to overcome short term liabilities or obligations. However, several experts that it is essential for every firm to have high current assets in order to maintain the liquidity of the company.
Non-current assets – In general terms, non-current assets consist of both tangible and non-tangible assets. However, they are one of the major assets of the firm which need to be maintained in order to attain successful run in existing market.
Current liabilities – These are borrowing taken by firm in order to accomplish the functioning or operations of the business in better and appropriate manner. According to the case, current liabilities of Kingfisher would be regarding creditors, taxation and other significant provisions etc.
Non-current liabilities – These are also major liabilities that need to be fulfilled in appropriate manner. However, these are different from current liabilities as these can be related to derivates, deferred liabilities and other payables. Furthermore, it can have major impact on the overall financial structure of Kingfisher plc.
Equity – The main aim of equity is show the amount invested by company’s owner in order to initiate business operations. However, it can also be in the form of retained earnings which company generated from the previous year functioning.
B) Discussing the extent to which management commentary fills the information gap based on annual report of Kingfisher
In general, the information presented in financial statements of the firm are sometime not feasible in terms of making decisions for any stakeholders. It does not provide all the major information or data related to business finance aspects. On the other hand, information presented in annual report are considered to be the most valuable as it ensures in fulfilling all the gapes present in financial statements in appropriate manner. In addition to that, after analyzing the annual report of Kingfisher Plc it has been evaluated that the major gap top level management authority has been trying to overcome by showing information associated with returning of surplus capital to its shareholders of the company to increase loyalty (Kieso, 2010). Apart from that, the crucial information that was presented by the management contingent was related to the declaration of amount of dividend to its shareholders. The main reason behind showing this information in annual report was to assist those stakeholders which make their judgement after evaluating annual report.
During the course of analyzing annual report it has been identified that management of Kingfisher plc has announced the expansion of world. By the means of this statement, top authorities have specified company’s future goals and objectives in regards to satisfy the needs and wants of stakeholders. However, it is essential to analyze annual report because it provides each and every aspect of financial position of the firm. The data and information presented in annual report was depicting the financial performance of Kingfisher of specific year. Therefore, after analyzing it can be stated that, information presented in annual report is beneficial for the stakeholders in order to make decision regarding future trades or functioning.
Explaining the extent to which Kingfisher’s information on revenue (note 2d)
Kingfisher plc is one of the retail giants in home appliances around the world. For analyzing the financial position of the firm it is essential to assess balance sheet of the firm in appropriate manner. Therefore, in order to evaluate company’s revenue note 2d would be an appropriate source by the means of which manager can easily evaluate and identify. Furthermore, with the help of 2d it has been evaluated that financial performance of Kingfisher plc in present is much better than as compared to previous year in terms of revenue generation from sale of products in home country (Bonham, 2008). Along with that, undertaking qualitative data analysis will assist evaluating performance of investors in for understanding various source of revenue generation for the firm. In addition to that, note 2d represent the sales in income statement which excludes various financial factors such as taxes, net return and discounts given to the employees of kingfisher plc. Cash receipts of the company in regards to sales can be analyzed by the means of note 2d. However, detailed information is presented in note 2d regarding the services provided to the customers in order to enhance their standard of living.
Therefore, from the above points it can be stated that, there are mammoth information available in the annual report by the means of which company’s top level management and other essential stakeholders can make several conclusions regarding the major sources of revenue generation for Kingfisher plc.
In note 2d, revenue recognition head clearly indicates that, the main source for Kingfisher regarding generating revenue is the demand of company’s products and services in the existing market. Apart from that, top level management has indulged better and appropriate strategies for selling and marking of the products which helped company a lot to gain competitive edge in the market and generate high revenues as compared to previous year’s performance. Furthermore, it is mostly helpful to investors in order to generate information about revenue and profit margin of the company (Bhimani and Bromwich, 2009). Apart from this, note 2d report also enhance the knowledge of an stakeholder regarding other sources of revenue generation for the firm which consist of sale of fixed assets and rental income acquire by the company. Therefore, it can be stated that the revenue recognition in note 2d available within annual report play crucial role for every decision maker.
Note 4 segmental analysis aims at providing appropriate financial information for the stakeholders of Kingfisher plc in order to make decisions for future contingency. Furthermore, by analyzing the financial statements of Kingfisher plc 2014 it can be stated that, there are several sources by the means of which company generated its sales. Furthermore, the financial information presented in the annual report assists in evaluating actual position of the firm. Along with that, the net value of company’s assets can be evaluated from note 4 (Linzer and Linzer, 2008).
The main aim of segmental analysis for the top level management is that it assists in indicating the countries from which company is generating the highest means of revenue. Apart from that, note 4 include information regarding balance sheet in which both assets and liabilities segment are undertaken. Furthermore, the information acquired by the means of segmental analysis help in evaluating the goodwill as well as cashes balance of the kingfisher plc. Therefore, it can be stated that, note 4 analysis can play important role in evaluating the variance in goodwill and cash balance of a particular period. Segmental analysis also provides data regarding capital expenses that company incurred during the course of period.
Critically evaluating the accounting policies stated by Kingfisher with regard to goodwill and other intangible
There are various types of users of annual report which clinically evaluate and then make appropriate and accurate judgment for the future functioning of the company. On the other hand, it is crucial for financial reports user to undertake all the accounting policies and principles which incorporated by top level management of kingfisher plc related to goodwill and other intangible assets in the economic documentation. In context to that, it is essential for all the companies operating in public or private sector have to prepare all the major financial statements as per the set policies and principles of International Financial Reporting Standards (Lucey, 2002). Therefore, after analysing financial statements of Kingfisher plc it can be stated that company has prepared its statements according to the rules and regulations of IFRS as well as accounting policies are followed properly. Furthermore, company indulge IFRS 13 policies and standards for valuation of its goodwill and other intangible assets. Whereas on the other hand, the other major policy which was considered at the time of goodwill and other intangible assets was IAS 38 which assist in specifying that intangible assets of the firm are measure in effective and efficient manner.
Apart from that, Kingfisher plc indulged new disclosure policy of IFRS 13 for the year 2013 as well as in measuring the accurate valuate of Kingfisher’s goodwill and other intangible assets. Therefore, it can be stated that, in order to fulfil the needs of users by providing appropriate and fair value measurement and information of assets it is essential for the management of kingfisher plc to undertake both IFRS 13 and IAS 38 (Williams, 2001). Apart from it, by using those at the time of preparing the accounts related to goodwill and other intangible assets assist firm to create loyal image towards users as well as make positive impact on them.
Illustrating the difference between the income statement and cash flow statement
According to companies act and accounting standards it can be clearly observe that, it is the responsibility of top level management of the firm regarding preparing all three major financial statements which are termed as income statement, cash flow statement and balance sheet (Kingfisher Plc: Annual Report and Accounts, 2014). In general, the main aim of developing income statement is to evaluate information regarding all the income and expenditure that company has during the course of reporting period. Furthermore, the this statement in Kingfisher plc annual report also assist in analyzing whether company is in loss or profit. In addition to that it also depicts the inflow and outflow of cash of the firm as well as transaction regarding cash and bank are recorded in this statement. Income statement of the firm also assists in evaluating information regarding the profits at different levels such as gross profit earned after deducting cost of sales. Whereas, operating profit after deducting all the operating expenses and net profit is termed as final profit of the firm that company generated after considering all the expenses related to tax and other liabilities of the firm.
Cash flow statement is different from income statement as it consists of three major activities which are cash flow from operating activity, cash flow from investing activity and cash flow from investing activity. Other than this, balance sheet play significant role in understanding the actual position of firm (Kingfisher plc, 2012).
Companies operating in any sector and at any level have to prepare financial statements and annual report in order to assist their stakeholders to in making appropriate decisions regarding future functioning. The main aim of preparing financial statement for every firm is understand the actual positing in comparison to the desired one. During the course of analyzing annual report it has been identified that management of Kingfisher plc has announced the expansion of world. According to companies act and accounting standards it can be clearly observe that, it is the responsibility of top level management of the firm regarding preparing all three major financial statements which are termed as income statement, cash flow statement and balance sheet.