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Accounting And Financial Report

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Introduction

Accounting is regarded as one of the important elements which will enhance the role of financial categories as every business entity requires finance to strengthen their business. Domino's has been selected for this project report in order to define the accounting assumptions and concepts used by an enterprise. This report is all about explaining various concepts such as prudence and accrual cum matching concepts used by the business environment in assessing their internal business efficiency.

1. Usefulness of information provided on assets, liability and Equity

The balance sheet is also recognized as the statement of financial position which will define the position of an entity and determine the actual position of an entity based on their existing financial condition as compared to the external market competitors (Choi, 2013). The balance sheet has three major components such as assets, liabilities and equity. The usefulness of all three elements lies in the annual report of Domino for the year 2015 which is given as below:

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Assets

The investment in associates and joint ventures has increased this entity from 2014 to 2015 with an increment of £538000 which is done to increase their overall market share in order to fight against their competitors like Subway and Burger King. The current share of Domino's in the restaurant plc is 41% as it is mandatory to link up as this place is the only one in the UK that delivers pizza in the UK. The share of an entity in the joint ventures is lasso increases as an enterprise needs to incorporate external support of joint ventures to maintain the brand image of an entity to remain ahead in the race.
Loan to provided to all the individuals who are franchisees of this brand at a rate of 3.0% at the LIBOR which is available on a payment system of paying debt in monthly or quarterly installments.
The trade receivables are also incorporated in the current assets of an entity which gained receivables from the franchise of business operations from the Group's Irish operations. The payment system will be designed for 7 to 28 days.

It includes various components which are further segmented into divisions such as current and non-current assets. The current assets are held with an enterprise for a short period which can be used in meeting short-term obligations. The non-current asset on the other hand is held with an enterprise for a long period (Edwards, 2013). The fixed assets or non-current assets of Domino's are divided into two different parts such as tangible asset which includes property, plant and equipment, operating leases, investment in finance leases, joint venture investment and deferred tax assets. On the contrary, the intangible asset which cannot be touched but whose presence can be felt such as a brand image of the business in terms of goodwill and software. The major components of current assets include cash, inventories, prepaid charges, and assets held for sale. The assets held for sale are those which are divided by an entity in different categories to gain money by selling that asset which is of no use for an enterprise.

Liabilities

  • Bank loans will be taken by this entity and will form under the category of non-current liabilities as this Loan has been taken for 5 years. The interest rate charged on the amount taken as a loan is 1.10 interest which is above the LIBOR rate. The lower interest rate facility is available for an entity till 2017. This facility is provided to this entity due to an unlimited cross-guarantee agreement between Domino's pizza and DP Group Ltd.
  • The finance lease has also been taken up by this entity which is essential for an enterprise in order to operate its business undoubtedly. The rate of borrowing for this lease was 1.8% which has decreased from the previous rate of 3.2%.
  • Contingent liabilities are taken into consideration in the liabilities which is regarded as the higher amount which needs to be incorporated into account.

This is the burden for an enterprise which needs to be reduced by raising the level of all the assets of an entity. The liabilities of the business are similarly segmented into two major categories current liabilities and non-current liabilities (Colson, 2010). The primary factor of the current liabilities includes trade payable who all are the trade creditors which needs to be controlled in order to strengthen the business entity. The deferred income will be current liabilities for an entity which needs to be reduced over the years. It also includes financial liabilities, deferred and contingent consideration, current tax liabilities and provisions. The provisions are prepared by an organization in order to meet the future uncertainties imposed on an enterprise. These provisions will be reduced as this will decrease the sales and the revenue earned by an enterprise in a particular year. The current liabilities will assess the business efficiency of an entity. The business efficiency will be determined by comparing it with the current asset held by an enterprise as the current ratio will determine the success or failure of an entity.

Equity

The current group has acquired 100% ordinary shares of Dresdner Kleinwor as this company is a famous entity in England. The ownership will lend an enterprise in order to strengthen their current business performance.
The current group has acquired the trade assets which will help an entity in order to initiate their business. The firm has utilized capital allowances of £7,032,000 in order to reduce its deferred assets.
The shareholder's equity is regarded as one of the important aspects of an entity as it lends ownership to an individual. Equity is the basic source of finance which every organization uses in order to strengthen its business entity (Edwards, 2013). The equity shareholders are further classified into various divisions such as called-up share capital and paid which help an enterprise owner in order to decide whether to pay dividends to all the equity shareholders. The share premium is the profit which will be earned by an entity by charging an additional amount added to the existing share prices. The company also need to determine a specific share of capital redemption reserve which is determined by the external legal authority as this whole process is legalized by taking the consent of the external party. The capital reserve also forms part of this equity held within an entity as it is obtained while selling property with a high amount of profit. The property in the equity context is the shares held by an enterprise.

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2. Explain prudence and accrual concept

Prudence

Domino's has used prudent concepts in minimizing their future risks by using different variety of techniques which are given below:

Foreign currency risks

The group has invested in advance in increasing their business operations by investing in Germany and Switzerland which will increase the revenue of the Group's non-sterling by investing financial assets by investing in Euro currency to take advantage in case of an increase in currency values.

Credit risk

The credit terms are decided in advance which will help an entity in order to reduce the payment of operating and finance leases to boost the level of sales and revenue. The policies are framed in advance to give credit to all customers without affecting the revenue of an enterprise.

It is regarded as one of the accounting concepts which helps an entity in order to prepare financial statements by using professional judgment in adopting different variety of accounting policies and different estimates (Henderson, 2015). It is that concept which assists the accountant while exercising a degree of risk while estimating the assets and income of an entity in order to increase as compared to the liability and expenses incurred in an enterprise. It is that concept in which future risks that may arise in an entity will be assessed in advance by using different accounting statements. The reason behind selecting this particular primary focus is to recognize the value of the asset which is higher in value than the amount expected to be recovered in the near future by selling that asset.

On the other hand, the same principle applies to an entity while treating the liabilities incurred in the business enterprise. The future expenses are firstly recognized in order to avoid all kinds of expenses in the near future without causing an organization to get shocked by increased expenses which will result in higher losses (Gassen, 2014). It can be used in order to analyse inherited risks arising in the assets of an enterprise. The risks arise from facts and figures that Domino's can benefit from good profitability conditions of this enterprise. The prudence concept is currently used by Domino as the inventories are valued at the lower of the selling price or net realizable value.

The provisions are used for the leases taken by this enterprise of both the category of finance and operating leases. The 7-28 days of trade receivables period is currently used by an enterprise in order to carry forward the recovered amount generated from the trade receivables in the defined time frame. The capital reserve kept by an enterprise is based on the shares personally owned by Domino's Pizza Group Plc.

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Accrual concept

The double-entry accounting system used by an enterprise will enhance the role of the accrual accounting concept of the business (Li, 2010). The accrual concept is also regarded as the matching concept in which all the business transactions are taken into consideration without actually receiving their amount in a real business context. This principle refers to all the expenses incurred in an enterprise which is charged with the income statements in the particular accounting period which will involve all income and expenses incurred in an enterprise. The application of this concept is different in this particular organization which is given as follows:

  • The IAS 19 revenue recognition has been used which defines the sources of sales of goods such as revenue from pizza delivery and supply chain centres (Macve, 2015). It also includes revenue and income from royalties, rental income and finance income.
  • IAS 16 borrowing costs will capitalize all kidskin of costs incurred in an enterprise such as expenditures for assets, and expenses related to work-in-progress assets.
  • IAS16 guidelines used by an entity will help an enterprise in order to manage all its expenses and income earned from all kinds of leases.

Conclusion

It can be summarized from the above project report that accounting is an integral part of the financial aspects which enhance the existing role of an enterprise. This report also stresses complying with different rules and regulations in order to prepare their financial statements.

References

  • Choi, S., 2013. The Linkage Strategies Between Productivity Metrics and Financial Accounting Metrics in TPM and PAC Activities. Journal of the Korea Safety Management and Science. 15(3). pp. 151-161.
  • Colson, R.H. and et.al., 2010. Response to the Financial Accounting Standards Board's and the International Accounting Standards Board's Joint Discussion Paper Entitled Preliminary Views on Revenue Recognition in Contracts with Customers. Accounting horizons. 24(4). pp. 689-702.
  • Edwards, J.R., 2013. A History of Financial Accounting (RLE Accounting)(Vol. 29). Routledge.
  • Gassen, J., 2014. Causal inference in empirical archival financial accounting research. Accounting, Organizations and Society. 39(7). pp. 535-544.
  • Henderson, S. and et. al., 2015. Issues in financial accounting. Pearson Higher Education AU.
  • Kimmel, P.D., Weygandt, J.J. and Kieso, D.E., 2010. Financial accounting: tools for business decision making. John Wiley & Sons.
  • Li, S., 2010. Does mandatory adoption of International Financial Reporting Standards in the European Union reduce the cost of equity capital?. The accounting review. 85(2). pp. 607-636.
  • Lovell, H., 2014. Climate change, markets and standards: the case of financial accounting. Economy and Society. 43(2). pp. 260-284.
  • Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.

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