Financial Accounting Assignment 2020
A. Determine whether the expenses are classified by nature or function.
In the accounting, it can be seen that cost or expenses of the business can be categorized into four categories such as cost by nature or element, functional classification of the cost, classification of the cost on the basis of the behavior, classification of cost on the basis of the managerial decision and control.
In the annual report of Qantas, it can be seen that there is not any significant information on the different cost of the company in the operation (Khan, 2015).
So that it is difficult to determine the classification of the cost or expenses. Moreover, it can also be determined that the classification of the cost by nature includes direct cost and indirect cost.
In which, it can be seen that direct cost is associated directly with the operation. Beside of this, indirect cost happens to promote the sales. At the same time, classification of cost by function includes prime cost, factory cost, cost of production and total cost of sales.
But, it can be seen in the annual report of Qantas that there is no clear explanation of cost or expense. Hence, it can be said that Qantas expenses are not classified by nature or function (Sharma and Panigrahi, 2013).
B. Give some possible reasons for the different methods of classification of expenses used
There are some possible reasons for the different methods of classification of expenses used by the companies.
The first reason behind the classification of the expenses into nature or function is that there are different department and their expenses incurred in the business. So that to maintain control of each department and process, the classification of expense is done by the company.
In order to determine the performance of each department, the classification of the cost is presented. According to May (2013), the classification of the expenses is possibly carried out by using different methods.
The nature of the method used for classifying the expenses is also dependent on the basic expenditure like resources consumption, depreciation, financial expenses, personal expenses, and external service expenses.
At the same time, in the function method, all expenses are classified on the basis of specific accounting activities or areas such as operational, financial and exceptional activities (Bertoni and De Rosa, 2012).
The other reason stated that according to the place of origin, responsibility, and output, the inter-company department provides their expenses evidence as per economic interdependence respectively.
The main risk is associated with the financial risk for Qantas that is common in the operation of an airline.
As concerning of the ethical accounting practices in the business, it can be seen that the main concerning issue of the company to conduct the ethical accoutring without presenting the fraud activities in the accounting practices of the company (Weil et al., 2013).
An error is also a significant issue that can be seen in the context of the value of the fixed assets.
Moreover, it has also seen that it is possible that there is an error in the financial information presented in the annual report of the company.
Method of depreciation
It is found that the company is using the Sun of the year method that is not appropriate according to the nature of the business.
The calculation of this method is very complex and it is no guarantee that it determines the fair value of the assets (Horngren et al., 2013).
Depreciation refers to a reduction in the value of the assets due to a decrease in life and usefulness.
The main purpose of calculating the depreciation is to determine the exact value of the assets to determine the value of the company. In other words, depreciation is a permanent and gradual decline in the value of fixed assets.
Qantas is also maintaining the record of the fixed assets that are presented in the annual report of the company (Edwards, 2013).
- Cost of the plant, properties, and equipment – The annual report of the company is showing that the cost of the plant, properties, and equipment is calculated $27534 million in the financial year 2018. It includes the cost of the freehold land, building, leasehold improvements, plan and equipment, aircraft and engines, aircraft and spare parts and aircraft deposits (Qantas Airline, 2018).
- Depreciable Amount – The depreciable amount refers to an amount that is a loss in the value of the fixed assets in the financial period. In the annual report of Qantas, it can be seen that the depreciable amount is found $14683 million. (Qantas Airline, 2018 Page No 65)
- Depreciation Period – The annual report of Qantas, it also shows that the depreciation period is 1 July 2017 to 1 July 2018.
- Depreciation Method – Qantas uses the sum of years’ digits method to calculate the depreciation. Sun of the year method is accelerated depreciation method in which the amount of the depreciation is high during the initial years of assets and low at the end of the year.
- Revaluation – In the annual report of Qantas, it is found that there is no revaluation in the financial year 2017-2018 (Qantas Airline, 2018).
- Impairment – In financial accounting, it can be said that impairment is an accounting principle that determines the reduction in the value of the financial assets. In the annual report of the company, it can be seen on the page no 71 is that there is no impairment in the financial year ended 30 June 2018 (Qantas Airline, 2018).
Bertoni, M.P.G.V.A.G. and De Rosa, B., 2012. Green accounting: an alternative approach to reporting emission trading allowances in financial statements.
Edwards, J.R., 2013. A History of Financial Accounting (RLE Accounting). Routledge.
Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D. and Tan, R., 2012. Financial accounting. Pearson Higher Education AU.
Khan, M., 2015. Accounting: Financial. In Encyclopedia of Public Administration and Public Policy, Third Edition-5 Volume Set (pp. 1-6). Routledge.
May, G.O., 2013. Financial accounting. Read Books Ltd.
Qantas Airline. 2018. Annual Report. [Online] Available at: https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2018-Annual-Report-ASX.pdf (Assessed: 7th Feb 2019)
Sharma, A. and Panigrahi, P.K., 2013. A review of financial accounting fraud detection based on data mining techniques. arXiv preprint arXiv:1309.3944.
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.