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:

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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.

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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:

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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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