For the project two companies that are Myer holding ltd and Baby bunting group ltd are taken into consideration which are ASX listed companies. Under this their balance sheet of the years 2016,2017 and 2018 is taken for Myer holding Ltd and for Baby bunting group ltd it is for 2017, 2018 and 2019. In this project the research is basically based on what sources a company use for funding. In this the balance sheet of two companies will be analyzed and sources of fund for the companies will be identified. Also the movement of sources of fund which are being used by the company will be compared. A description of the items that are being recorded under owner’s equity section is to be done. The various things that come under stockholder’s equity are common stock, preferred stock, paid in capital in excess of par value, paid in capital from treasury stock, retained earnings, other comprehensive income. Also liabilities section will be analyzed.
What all obligations or debts are there for the company? And with that what are the changes that have taken place within the taken years and the reason for the changes will be analyzed. The funds which these two companies are using and what is the effect of that fund. Whether it is in favor of the company or is not serving the benefit will be discussed. With that the concepts of small proprietary company, large proprietary company and reporting entity is discussed. Also the implications that are there for each type of entity are described as per the compliance and reporting requirements. Companies belonging to different classifications have different legal requirements and also the compliance followed by each of them is different.
Sources of funds are different types of sources that are available for the business to invest in various projects so as to bring in more profit for the company. These funds are basically borrowed funds which help entities to grow further or to manage their working capital or to start a business. Every business surviving in the economy requires funding. This funding can be done from various sources available like bank loans, share capital, debentures etc. To read this two companies Myer holding ltd. which is a chain of stores in Australian upmarket trading in broad range of products across men’s, women’s, babies and children for clothing, accessories, footwear, fragrance, electrical, home wares etc. and Baby Bunting group ltd. which is nursery retailer and one stop shop for babies. They also assist new and expecting parents. Their main product range includes prams, clothing and Manchester, feeding bottles and highchairs etc (Cornwall, Vang & Hartman,2015)
a)- Myer holding ltd. has the following items:
Movement of items over the years
From 2016 to 2017: As per the table above ordinary shares value have not moved over the year shows that there are no changes in shareholding pattern of the owners. Owners have remained the same over the three years. In treasury stock, the movement was because there were shares which were acquired by Myer Equity Plan trust and there were shares which were issued under short term incentive plan and shares were issued for performance rights granted due to which the value reduced from 2016 to 2017. The reason for reduction in the value of retained earnings is that the dividends that were issued in 2016 were of lesser value than dividends distributed in 2017. For reserves the reasons of movements were share based payments and cash flow hedges and foreign currency transaction.
For 2016 to 2018: Ordinary shares showed no changes. For treasury stock price value decreased for acquiring by Myer Trust and the value for shares that were issued for performance rights were granted. This caused the changes. The reason for changes in retained earnings and reserves were same. There was a loss in 2018 due to which retained earning went negative (Duncan, 2019)
Liabilities or structure of debt
The debt structure which Myer holding ltd is having is revolving cash advance syndicated facility which is of $420 million. In this 2 or more financial entities merge which are providing the loan and with that borrower is allowed to withdraw funds up to a pre-approved credit limit. And under this credit may be used repeatedly. Company can repay back with time and then can withdraw upto a limit.
Movement of liabilities
Since Myer holding Ltd has a revolving credit facility the reason for movement is that it paid back certain amount and after a period takes up another loan for various activities. This is the basic reason of movement of debt in Myer holding Ltd. Other than that provisions are reduced and so s deferred tax liability as company might have created less provisions and paid off its liabilities
b)-Baby Bunting Group Ltd
Baby bunting group ltd has only two items under owners’ equity that are Ordinary shares and retained earning which are same as Myer holding Ltd.
Reason for movement
In 2018 new shares were issued as Employee gift offer by the company. That is the reason why ordinary shares increased from 2017 to 2018. And in 2019 it was same as before. Changes in retained earnings for 2018 were because profits were lesser than 2017 due to which earnings reduced and in 2019 company improved which led to increase in retained earnings.
Liabilities or structure of debt
The Baby Bunting group Ltd has ongoing fund requirement of consolidated entity as provided by Nab which is National Australia Bank which matures in 2020. This facility is provided on security over charge of assets. The limit was $36000000 consisting of $30000000 as Corporate Market loan and $6000000 as bank guarantee. In this type of funding a company can borrow under CML up to 2.00 times the EBITDA ( Bradley & Roberts, 2015)
Reason for movement:
The changes were that company borrowed more from $4800000 to 10,770000 which shows that company needed funds for growth and has borrowed more under this facility. Borrowings have reduced subsequently which shows company has paid of its debt over the years and provisions ve increased, which means company is saving for future liabilities.
a)- Revolving credit facility:
There is no fixed schedule of payment. A company can pay back whenever it has resources available and can withdraw as and when required. The burden of fixed payment reduces.
It helps in enhancing the liquidity of the company. Company in case of requirement can borrow immediately which will increase the liquidity.
b)- Corporate market loan
The disbursal process for loan is easier as there is a guarantee and as the scheme is under government it provides certain advantages also.
The interest rates are competitive. The processing fees is also very nominal in this type of loan facility.
Proprietary companies are privately held companies which are either limited or unlimited. They are defined under section 45A(1) of corporations act 2001. In this they are not permitted to have members more than 50. This section also define companies as “large proprietary” and ‘small proprietary”
A company is classified as small proprietary company only if it meets any two of the following criteria (Ladwig, schwieger & Clayton, 2017)
The value of assets is less than $12.5 million at financial year end.
Employees are less than 50 at end of the financial year.
Operating revenue gross is less than $25 million for the year.
For being classified as large proprietary company, the company should satisfy the two criteria followed:
Consolidated earnings or revenue for the year should be $50 million or more.
Value of assets be more than $25 million or more
Employees should be no less than 100 at the end of year.
Reporting entity is defined as the entity where it is reasonably expected that the users are dependent on GPFR which is General Purpose financial report to gain an understanding of financial condition of the organization. And the reports are also helpful in making the decisions. For reporting entity users can be anyone like shareholders, creditors etc.
Reporting requirements of
A)- Small proprietary company:
For large proprietary companies: They have to prepare the reports as per chapter 2M of Corporation Act.
For reporting entity: They are expected to prepare general purpose financial reports for the users as decision making of users depends on it ( Challen & Jeffery, 2005)
Thus in this manner there are various sources of funds that are available and reasons for the movement of various items on balance sheet. Other than that there are companies that have various requirements as per their classification into small, large and reporting entity.
Akinkoye, E. Y., & Seriki, A. I. (2018). Retained earnings and firms’ market value: Nigeria experience. International Journal of Business and Economic Development (IJBED), 6(2).
Bradley, M., & Roberts, M. R. (2015). The structure and pricing of corporate debt covenants. The Quarterly Journal of Finance, 5(02), 1550001.
Challen, D., & Jeffery, C. (2005). Definition of the reporting entity. Australian Accounting Review, 15(35), 71-78.
Cornwall, J. R., Vang, D. O., & Hartman, J. M. (2015). External Sources of Funds: Debt. In Entrepreneurial Financial Management (pp. 218-237). Routledge.
Duncan, E. (2019). A Comprehensive Review of Accounting through Case Studies (Doctoral dissertation, The University of Mississippi).
Ladwig, C., Schwieger, D., & Clayton, D. (2017). The Piranha Solution: Monitoring and Protection of Proprietary System Intangible Assets. Information Systems Education Journal, 15(2), 48.
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