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RESEARCH ASSIGNMENT

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Task 1: Expenses Analysis

a. Determining if expenses are classified by Function or Nature

According to Clarke et al. (2017, p.25), the expenses of Seven West Media Ltd Company is classified by function. The statement of income by method of function is identified as matrix. It is identified as matrix as it reports or represents the company's expenses by the functions of expenses and by the expenses type. The expenses in the statement of income are reallocated in the form that makes it functional. The list of expenses shown in the figure above is functional as it represents expenses based on activities carried out by the company. The statement of income, which includes expenses that are functional, represents how the costs are incurred for every area of function. In functional expenses statement, the statement of income appears in company's report top row. On the other hand, the type of expenses is listed down separately in the provided notes as shown in the company's annual report. The expenses of the Seven West Media Ltd Company includes functional expenses such as marketing and advertising expenses, distribution, selling and printing expenses etc. Other functional expenses included are maintenance and repair, cost of transactions, expense of employees benefit, expenses of media content, amortisation and depreciation.

The Seven West Media Ltd Company reported their expenses as functional as it shows that the company reports their expenses as per the activity related to incurring of the expenses. The statement of income that includes expenses by function is disclosed as per the various activities or function the company spent on (for example: selling, administrative, expenses of employees benefit and many other expenses). 

According to Poslavska et al. (2017, p.65), the functional method of allocating the expenses is used by the Seven West Media Ltd Company for calculating the operating profit and gross profit within the statement of income that is comprehensive. Hence, companies use this method, which includes the format of multi-step statement of income. Most medium-sized and large businesses like Seven West Media Ltd Company use the function method. Reporting the expenses of company as function tends the company to produce a relatively small expenses items list. Seven West Media Ltd Company uses this method, as it is helpful from department manager's perspective that could see the expenses for which they are responsible in a particular place.

b. Providing possible reasons for various classification methods for representing expenses

Reasons for using various classifications of methods of expenses by company are discussed below:

       By element or nature: According to Morales-Caparrós et al. (2016, p.344), this method used by the companies to categorise the labor, expenses and material costs. The reason behind using this method is that helps in finding the net cost, how net cost is constituted, and the work valuation in process.

       By Function: This method is used by the companies for dividing the cost as per the activities for which the costs were incurred. The reason for using this method is based on dividing the activity and cost grouping, i.e., administration, production and many other activities.

       By Controllability: This method used by the companies for classifying the expenses as per uncontrollable and controllable cost. The reason behind using this method is based on undertaking division of expenses within the management’s control.

       By Normality: This method used by the companies for classifying the expenses into abnormal and normal expenses. The reason for using this method is determining the expenses incurred at the given level of output. It is considered as part of production cost. 

According to Marcucci et al. (2017, p.69), there are various other methods for classifying the cost or expenses which is based on time and variability.

Task 2: Policy of Accounting

Finding 3 issues in company’s annual report and summarising the findings

The issues related to accounting changes in estimation and errors and policy of accounting of the company are discussed below:

Issue Related to business risk: The risk of business of Seven West Media Ltd Company exists independently in the statement of finance. According to Cheng et al. (2016, p.18), this risk associated with the business depends on the procedure of auditing. This risk of business is an issue of the company, which includes wrong decisions made by the directors. It also includes events, which threatened the future of the business. The company’s risk associated with the business involves operational risk, strategic risk, financial risk, and regulatory risks.

Material misstatement risk: According to Küpper et al. (2016, p.102), this issue of Seven West Media Ltd Company refers to material misstatement risk seen in the statement of finance of the company. This misstatement of material at level of assertion arises if the important assertions of the company are wrong.

Risk of accounting estimate: According to Yaghoobi et al. (2015, p.170), this issue of Seven West Media Ltd Company refers wrong carrying amount adjustments of liabilities, assets or expenses of the company.

Task 3: Financial Statements Notes

Summarising findings related to depreciation

a. Cost of plant, equipment, and properties

The amount of properties, plant, and equipment as represented in the statement of financial position or balance sheet of Seven West Media Ltd Company is $209,097. The properties, plant, and equipment of the company are stated at the cost that is historical and is deducted by accumulated depreciation (sevenwestmedia.com, 2016, p.105). This cost of plant, equipment, and properties is measured by including the carrying amount of the asset.

b. Depreciable Amount

The depreciable amount is represented in the annual report of the company. The charges of depreciation for freehold building and land is analysed to be $3299. The charges of depreciation for improvements of leasehold is analysed to be $249. The charges of depreciation for equipment and plant is analysed to be $33491(sevenwestmedia.com, 2016, p.105).

c. Depreciation Period

The publishing and printing press equipment has useful life of 15 years as represented in the company's annual report (sevenwestmedia.com, 2016, p.105). The other equipment and plant of the company have useful life of 3 to 10 years.

d. Depreciation Method

The method of depreciation used for allocating cost of publishing and printing equipment of Seven West Media Ltd Company is on straight-line basis. The method of depreciation used for allocating cost of other equipment and plant is also done on straight-line basis (sevenwestmedia.com, 2016, p.105).

e. Revaluation

The revaluation is observed by analysing the increase in value of asset of the company. This increase is occurred for reflecting the current value of market of asset.

f. Impairment

The net amount of impairment was observed in the company's annual report is $2,065,223 (sevenwestmedia.com, 2016, p.122). According to Kim et al. (2015, p.49), the assets impairment includes residual value of assets and reviewing the assets useful life. It also includes adjusting the same at the end of every reporting period. The Carrying amount of the asset is written down instantly to the amount recoverable if carrying amount of asset more than amount recoverable is estimated. The losses and the gains of the company are determined by making comparison of carrying amount with the proceeds.

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