The Wesfarmer’s 2017 financial year report
- The Wesfarmer’s 2017 financial year report indicates that the company utilizes AASB117 accounting lease standards to recognize risks and rewards attributed to ownership of a leased asset. AASB117 accounting lease standards include the concept of separating finance and operating leases for the lessees (Joubert, Garvie & Parle, 2017). In this regard, Westfarmers group focuses on categorization of leases considering the extent in which rewards and risks associated with ownership of a leased asset are distributed between the lessee and the lessor. A lease transferring all the rewards and risks attributed to ownership from the lessor to the lessee is considered a finance lease. On the other hand, if a lease partially transfers all the rewards and risks associated with ownership from the lessor to lessee is classified as an operating lessee. Both categories of leases are differently accounted for in the balance sheet (McGaughey, 2018). The company accounting for operating leases is conducted on a straight line basis. For instance, the company does not recognize unforeseeable rents on the balance sheet, as well as liability and interests from the right of use at a cost, because their impacts are deemed inconsequential. Therefore, the firm utilizes the present value of assets to make purchases at the end of a lease.
Wesfarmers Group lease commitment for the 2015 can be calculated using an operation lease based model as shown below.
|Group as a Lessee|
|Within one year||2,410||2,410*12||28920|
|Less than or equal to five years||7,986||7,986*60||479160|
|25 years and below||9,158||9,158*300||2747400|
|Group as a Lessor|
|Within one year||18||18*12||216|
|Less than or equal to five years||37||37*60||2220|
|25 years and below||7||7*300||2100|
|Therefore, the company’s Straight-line operating lease responsibility for years 1 to 25 is||($3260016/ 25 years)||$130400.64|
- AASB lease accounting standards largely affect the lessee, but maintain most of the previous requirements for the lessor. In this regard, Wesfarmers, by fully adopting the AASB standards, will have to cease the use of lease categorization in accounting. In addition, the company will have to adopt the present discounted value model of recognizing risks and rewards associated with ownership of a leased property (Wesfarmers Group, 2018). Thus, the company will accommodate all the risks and rewards associated with ownership of an asset in the balance sheet. In this regard, Wesfarmers will have to consider unforeseeable rent in the balance. Moreover, the company will have to measure the liabilities and their interests, as well as right of use at cost for all the leases. However, the company will stop recognizing low value asset leases, such as computers and accessories. Furthermore, the Wesfarmers group will start to only recognize leases that have duration of one year and above. Therefore, as lessee, the company will accommodate all the risks and rewards of ownership, while its responsibilities as a lessor will diminish.
Joubert, M., Garvie, L., & Parle, G. (2017). Implications of the New Accounting Standard for Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance Sheet. Journal of New Business Ideas & Trends, 15(2).
McGaughey, F. (2018). Australia’s proposed Modern Slavery Act for business reporting-part of an international trend in business and human rights. Australian Resources and Energy Law Journal, 36(3), 29.
Wesfarmers Group. (2018). 2017 Annual Report. Retrieved from https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-annual-report.pdf?sfvrsn=0