amac2019home.files.wordpress.com · Web view2020. 5. 19. · 2019 was due to the acquisition of a US based packaging company, Bemis which occurred on 11 June 2019. From this acquisition,

ACCT11081 INTRODUCTORY FINANCIAL ACCOUNTINGALDREX MAE CONDINO

Assessment 1: Written Assignment

Company: Amcor LimitedBlog: https://amac2019.home.blog/Annual Report: 2017, 2018, 2019

Step 7Step 7 involves you exploring the inventories practices of your firm.

According to study guide four, inventories are a significant part of understanding a firm’s accounts and financial statements. If this is true for firms that are product driven, what about those who are not, such as service-providing business such as Ryman Healthcare? Are they not able to fully understand their firm’s accounts because they do not have inventory? Or do they look at their financial statements differently than product-driven entities. As for my company, AMCOR Limited, inventory plays a significant factor in their financial statements because it contributes roughly between 37.5% and 40% of its total current asset as you can see on the figure above. This is not a surprise for product-driven companies such as AMCOR because their company’s main objective is to sell goods to its consumers, therefore the business requires a huge proportion of inventory, which is reflected in their balance statements. Furthermore, multinational businesses such as AMCOR, would need to have appropriate inventory management in place in order to monitor such great volumes of inventory for their firm.

Base on the figure above, it can be seen that the inventory figures for the year are steadily increasing from $1.2 billion in 2016 to approximately $1.35 billion in 2018 despite the decrease in packaging orders and loss of customers due to changing consumer demands. It makes me question

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why you would increase your inventory when you have less consumers to buy the product? Would it be more cost effective if AMCOR also reduce the amount of inventory it holds? Additionally, there is a huge spike in inventory levels between 2018 to 2019, from $1.35 billion to $1.95 billion respectively. I was a bit surprised about the sudden increase in inventory when AMCOR have continuously mentioned in their annual reports that they are experiencing decrease order volumes and losing customers. After some investigation, the reason for the sudden increase in inventory in 2019 was due to the acquisition of a US based packaging company, Bemis which occurred on 11 June 2019. From this acquisition, AMCOR was able to gain an extra $665.1 million in inventory.

As I try to understand why my inventory levels have continually increasing over the years, I found out that my inventory is divided into 3 broad categories which are raw materials & stores/supplies, work in progress and finished goods as can be seen in the figure above. I was a bit dumbfounded when I found out that there are different categories for inventory. I always thought inventory only consists of finished products. Having worked in the retail industry for almost nine years of my life may have influenced my perception of inventory of only consisting of “finished goods” rather than raw materials and supplies. From analysing my annual report, I found out almost half of my inventory levels between 2016 – 2019 consists of raw materials and supplies, which can be seen in the figure above. This totally makes sense because AMCOR’s business model focuses on selling packaging varieties to a wide array of industries such as beverage, personal care, pet care, pharmaceuticals and many others therefore they need to store huge amounts of raw materials to ensure they have materials available to create their products. As a result, this justifies why my inventory levels are quite high and is continually increasing.

According to their annual reports, it was disclosed that their business value their inventories at lower of cost of bringing the items in their present location and net realisable value. To my understanding, lower of cost is the cost of purchasing inventory whilst on the other hand, net realisable value is the selling price minus the cost of selling the inventory. In practice, a business uses lower of cost when valuing its inventory when it is less than net realisable value. On the other hand, net realisable value is used to value inventories when this figure is less than the lower of cost. In essence, depending on which value is smaller or lower between the two methods, that valuing method is used. For example, if the you are a retailer that sells a dress for $55 and it cost you $25 to purchase a dress from a manufacturer, its net realisable value of this particular inventory is $30 ($55 - $25). As a result, you would use the lower of cost method because the cost of acquiring the inventory is less than the net realisable value ($25<$30). In reality, both methods are used by firms depending on the cost of acquiring a particular inventory, which is reflected in my company, AMCOR. There are four different methods in valuing inventories which are specific identification, FIFO


(First in, First out), Weighted average, and LIFO (Last in, first out). To my understanding specific identification is specifically identifying which period of inventory was sold, FIFO as the name suggests sells the first/earliest inventory purchased first, however in LIFO case, the last inventory purchased are the first to be sold. And finally, weighted average is the average cost of the inventory for a certain period. This can be calculated by summing the cost of all the inventories and dividing by the number of units for a certain period.

Between 2016 – 2018 financial year, my company has used either the FIFO or Weighted average method to calculate its inventory. However, in 2019, it only used the FIFO method. It was not explicitly disclosed why my company only used FIFO method in the 2019 year. My first instinct was maybe my company wanted to record more profits in the 2019 financial year in comparison to other years. So, I calculated the percentage of gross profit over its net sales as shown below. As you can see below, there is not much difference between the gross profit percentage between 2016 - 2019, which is roughly around 20%. Will there be a difference in the percentage for 2019 if my company continued to use both the weighted average method and FIFO? I also believe the business uses a perpetual inventory system because it is what majority of business are using today due to the help of technology. Furthermore, there was no calculation indication in their income statement that suggests the business are using a periodic method. As a result, I believe AMCOR is utilising a perpetual inventory system where they record inventory as it occurs. An advantage of this method is firms are able to keep track of their inventory in real time and not wait until the end of a period to know the status of their inventory, which is the case with periodic inventory management system.

Other factors that caught my attention in my company’s annual reports are inventory reserves which is only present in 2018 and 2019, which is approximately $56 million and $92 million respectively. I questioned why it was only present in those year and not the others? Initially, I thought AMCOR’s “reserved inventory” is additional inventory. However, instead of adding it onto the total inventory it was doing the opposite, therefore my hypothesis about “inventory reserves” is wrong. In trying to understand this concept, I searched the internet for some educated advise and found out that inventory reserve is inventory wastage that cannot be sold due to spoilage or even theft. After understanding this, it now makes sense why AMCOR has deducted this amount to the total inventory, as can be seen in the figure above. I am beyond shocked when I found out inventory reserves are wastage of inventory due to theft or spoilage. Imagine $56 million and $92 million are just waste. I am horrified. However, if you look at the wastage in perspective of the


amount of inventory the business holds, it only amounts to roughly around 4-5% of the inventory. Therefore, it is important for businesses to have appropriate inventory management measures in place to mitigate and reduce wastage or theft. Other issues related to inventory management are stolen inventory due to unrecoverable accounts receivable from consumers. As can be seen in the figure below, the impairment losses attributable to bad accounts have fluctuated between 2016 – 2019, from $15.5 million to $34.4 million. The significant increase between 2018 – 2019 is due to the acquisition of Bemis Company in the US. The amount of bad debt seems to be significant, however if converted in percentages, it only amounts to around 1-2% of trade receivables.

Improvements in AMCOR’s inventory management can include looking into trying to recycle their inventory reserves. For example, if part of their inventory reserves includes unsold finished goods such as plastic bottles, try remelting these plastics down into pellets thus converting it into raw materials. This is only possible if the cost of recycling products is less than the cost of purchasing new raw materials. A personal experience of mine in managing inventory is when I used to worked at a supermarket, where partially damage goods such as dinted can goods are marked down to a lower price to be sold or re-used in the deli section to make takeaway hot foods to be resold, thus preventing wastage.

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Step 8Step 8 involves exposing you to a commonly used accounting software. In this step, you will learn how to use MYOB AccountRight (Windows), or MYOB Essentials (MAC).

When I was reading the requirements to complete step 8 of the assessment, I thought it was very easy and straightforward. However, starting the assessment did not go to plan as I have intended. This section of the assessment left me frustrated because I could not seem to get the tutorials working – no matter which browsers I choose. Despite the frustration, I investigated around the MYOB Academy to find a ‘similar’ tutorial to starting out MYOB and to my luck I found one which was titled “Setting up MYOB AccountRight” and completed this tutorial. However, I did not find a similar online training for using MYOB, so I tried to use a different computer and web browser (internet explorer) to try and access the online tutorial which was outlined in the assessment guideline and it magically worked. After attempting both tutorials, I did notice that the AccountRight tutorial was somehow a little different to the MYOB Essential Software for Mac, but I still managed to follow through with the tutorial and applied my AccountRight knowledge to the MYOB Essential software. To be honest, I prefer the Essential Software versus the AccountRight Version because it is simple and more user friendly. I am also relieved that I am able to relate to students who had difficulty accessing the online tutorials as well, which was evident in the Facebook page.

MYOB Set up Adjusting Invoice LayoutThe figure below shows me setting up my invoice layout for my company AMCOR Limited.

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Entering Sales Items The figure below shows me entering sales items for my hypothetical company.

MYOB Training Creating Invoices The figure below shows the invoice I have generated for one of my customers which is Island Way Motel.


Adjusting Invoices The figure below shows me adjusting one of the invoices for a hypothetical customer, James Cameron because he has returned one of the medium coolers, he has recently purchased due to damage.

MYOB Quiz The figure below shows my completion of the MYOB quiz.


Step 9Step 9 involves you creating a set of business transactions for your company, recording these in MYOB, and producing a set of financial statements from MYOB.

This is the section of the assessment that I feared the most. I feel like I would mess up this section of the report by putting unnecessary transactions which are not related to my firm. To be frank, I had to research about my firm for a while before I started. After I have mustered up the courage to start, I did come across some interesting things when I was entering my transactions. For example, when I was making an invoice for a hypothetical customer, I had to create a completely new customer, continually adjust my chart of accounts to seem more realistic to my firm, and even investigate and estimate prices for products and services of my company. In the beginning, there was a lot of groundwork needed to set up before actually entering my transactions such as adjusting my chart of accounts into different assets such as different accounts (Main accounts, savings account, cheque account, petty cash/cash on hand account) and separating my liabilities into different credit cards (Company credit card and daily credit card) and trade creditors. Other work includes creating a list of products my company hypothetically sell and include a realistic price for my products and services. Overall, there seems to be a substantial foundation work needed to make entering transactions in MYOB software easier as you progress along.

Outlined below are my list of transactions in MYOB

1. Created an invoice for Kingston and Co for $235 worth of stationary, which they subsequently paid for in full via direct bank transfer to our ANZ bank account.

2. Created a bill issued to me by CH Robinsons for their freight services worth $1425 and paid for this amount in full using the ANZ bank account.

3. Spend money by paying Telstra for internet bill in the main office using the Commonwealth credit card.

4. Created an invoice for M&L for $300 worth of specialised packaging, which they subsequently paid for in full via direct bank transfer to our ANZ bank account.

5. Spend money by reimbursing Sally Anne Zamora (managing director of AMCOR) for travel and accommodation expenses worth $235 using the company Commonwealth credit card.

6. Receive money from Peter Shaw (Owner of AMCOR) worth $50 000 as a capital injection for refurbishment of the IT technology in the main office in Sydney and was directly transferred to the our ANZ bank account.


7. Spend money by paying the company Commonwealth credit card $235 for the travel expenses of Sally Anne Zamora using the ANZ bank account.

8. Spend money by paying the ANZ visa credit card $1000 using the ANZ bank account.

9. Spend money $144 worth of Cafeteria supplies for employees using the Commonwealth credit card.

10. Created a bill issued by Office Equipment and Co Ltd worth $4507.75 for computers and IT services, which was subsequently paid for using the ANZ Visa credit card.

11. Partial Payment of Coca Cola Amatil Australia worth $7500 for invoice #5 via direct bank transfer to ANZ bank account. A balance of $3500 remains on invoice number 5.

12. Created an invoice for McCain Pizza Australia worth $2125 for food packaging which was subsequently paid for in full via the cheque account.

Journals ReportA simplified journal report for the following transaction are shown below.

For a more detailed version of the journal report, click here.


From what I have learned from the MYOB Essential software, the journal report shows the list of all the transactions I have made in MYOB and including any bills and invoices I have created. Moreover, it also shows where you have spent money on when there were no bills evident, specifically spending money on cafeteria supplies. Other important information provided by the journals report shows which assets where used by the customers to pay their invoices such as the ANZ bank account or the cheque account. On the other hand, the detailed report above also shows which liability accounts I have used to pay for the following transactions above such as the company credit cards (ANZ and Commonwealth) or using an asset account such as the ANZ bank account. Overall, the journals report shows the daily transaction recorded in the MYOB software. I did not really have any issues about generating my journals report or any other reports whilst using the MYOB Essential software because there was a Reports tab on the software which was very easy to identify and play around with. I did not really need any assistance in generating the required reports for the assessment. It was a walk in the park. However, this was not the case with other students in the unit where they have voiced out their struggles on the Facebook page and I have provided constructive comments to help those students. One comment I have made is visible by clicking here.

Other financial statements are shown below.

Balance Sheet

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As I have mentioned earlier, I did not have any issues with generating any of my reports. However, gauging above I did notice that my balance sheet looks different in comparison to AMCOR’s balance sheet, specifically in the items listed on the balance sheet. I did post a discussion question about this in the Facebook page, if anyone else have similar experiences. One student commented that it is maybe due to level details I have chosen for my balance statement, where level 4 is a more detailed in comparison to level 1 which is more like an umbrella terms with totals. However, I have chosen the ‘All level’ and still made no difference on the items listed on my balance statement.

In the AMCOR’s balance sheet, asset items like inventories, cash and cash equivalents, other current assets and etc. are listed. However, on the balance report above, the items listed within the assets section are completely different where it only shows the different banks accounts that I have used for this exercise. The only item similar in both the balance sheet in my company and the one above is the trade receivables or the trade debtors. The circumstance above is also apparent in the liability section apart from the GST collected and GST paid section where it is similar to one of the items in AMCOR’s balance sheet which is Deferred tax liabilities. Additionally, I believe preparing balance sheet

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reports are more than just clicking buttons in the MYOB software. It also requires regrouping certain items together to get a clearer and holistic picture of the business realities of a firm, instead of having them in a separate asset bank accounts which can be seen above. For example, payments made by customers via direct bank transfer or via cheque could be grouped together as Sales or in AMCOR’s balance sheet, this is known as cash and cash equivalents. Sales or cash and cash equivalents provides more valuable information to the business, as we are able to see how much sales have been generated for the year, hence more clarity on much profit we are able to gain from these sales in comparison to having them in separate bank accounts where we are unable to track the proportion of these assets are amounted to sales. Furthermore, by grouping items together similar to this, we are able to compare this year’s sales to last year’s figures to see if we have increased our sales or not. If we did not increase our sales, we can make reasonable adjustments to our operating activities to ensure we increase our sales in the following years to come. Ultimately, the way items are grouped together in the balance sheet shows us more or less information about the business realities of a firm. Overall, items in a balance sheet should be grouped in a way where a company can understand and utilise the financial information depicted on the statement.

Income StatementUpon generating my income statement report in MYOB, I was surprised to see that my income statement had zero values for all the items, which was odd because I had certainly entered transactions such as creating invoices and use the payment function to close the invoices. Upon scrolling through the Facebook page to gain some insights or answers to my problem, I have come across a student with similar experiences than me and I have later commented on this to help her resolved her issues, which is evident in this Facebook post. My initial thought when I have encountered zero balances on my income statement was maybe I have exported my income statement incorrectly. As a result, the following day I searched through YouTube for tutorial videos on how to correctly export income statements and applied this knowledge in MYOB. To my surprise, my income statement displayed non-zero amounts as can be seen below.

https://www.youtube.com/watch?v=yndj8G2S1KU

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In comparison to my balance statement, the items on my balance sheet is what I have imagined it to be - complete with all the income items that have non-zero values that I have entered through using a different variety of transactions. I can see the majority of my income for this quarter is based on my beverages income and the least is in my specialised packaging income. However, this is not the case with AMCOR’s income statement where it only depicts the net sales as a total value. This is because the company is grouping similar items together to not overcrowd the income statement with too much information for the reader. The same level of detail in the income statement above can be viewed in the note section of AMCOR’s financial statements. Other items I was shocked to see was why freight in was part of cost of sales whereas the freight out was part of the expenses. Is this because freight in consists of the raw materials to make the product, which is technically part of the cost of the sales whereas the freight out is the cost incurred for the finish product, hence it is an expense. Additionally, the expenses above is named after the transactions I have made such as food, travel and accommodation, internet, freight out, and general repairs and maintenance. In contrast, such expenses are displayed either as administrative or restructuring and related expenses in AMCOR’s statement. Overall, significant information available about a firm’s


income statement highly depends on the level of detail displayed on the income statement.

Statement of Cash Flow Simplified version

Detailed version


As mentioned previously, the level of detail depicted on a financial statement highly depends on how much information you are hoping to gain out of the financial statements. For example, in the simplified version of the cashflow statement, you can only see how much cashflow was from operating, financing and investing activities, however you are unable to gain other insightful information about the firm apart from this. On the contrary, in the detailed version of the cash flow statement you are able to gain more insightful information. For example, the $50 000 was cash flow from the financing activities of the firm, specifically form the owner’s/shareholder capital. This type of information would not be possible to gain from the simplified version thus, detailed information on financial statements is helpful in getting insightful realities about a company. Additionally, the majority of cash flow from operating activities was from net income. Overall, cash flow statement is useful in identifying where majority of a company’s cash is generated from.


Step 10 Step 10 involves you describing your firm’s Depreciation policies and creating Depreciation journal entries based on your firm’s financial statements.

Upon reading chapter five of the study guide, I was still a little bit confuse on what depreciation is and why firms record depreciation of non-current assets as an expense when exchange of money or other financial resources between external parties. It only clicked it my head after watching his depreciation videos. Watching the videos has significantly helped my understanding of depreciation. This is because I am more of a visual learner and likes to see how concepts fit together. According to Martin, depreciation is turning part of a firm’s asset, specifically non-current assets into expense each year. Examples of non-current assets includes machinery and factory equipment, office equipment, buildings and even vehicles. In essence, non-current assets are items that you can see, touch, use or experience. Firms depreciates such assets over time due to wear and tear, or other factors such as age and expected usage. Let’s face it, non-current assets such as machinery or even cars, do not last forever and needs to be replaced. Thus, they are depreciated until they break down or until it reaches a certain residual value, which is then sold by the business to gain some income back. Ultimately, depreciation in a company’s financial statements is only a dollar value estimate of the wear and tear on its current asset. However, such depreciation values do not necessarily reflect the actual wear and tear on the non-current assets. If that is the case, why do firms include dollar value estimates for non-current assets when this do not reflect the actual wear and tear of non-current asset? Is it because we want to be able understand and calculate the financial realities of our firm at a given point in time? As mentioned earlier, depreciation is only an estimate wear and tear value? Wouldn’t such estimates be opened to manipulation and incorrect judgements?

In trying to find answers to my questions above, I have investigated how my company calculates its depreciation and what are the effects on its financial statements. My first instinct was to look at my company’s statement of financial position to see whether they would explicitly include a ‘depreciation’ item and to my surprise they did not. I was taken aback and thought that it is not possible for a manufacturing business to not depreciate its non-current asset when they have billions dollars-worth of non-current asset. How can a multibillion-dollar company not have any depreciation expense? As I further investigate, I remember Maria saying that I might find my companies depreciation in the notes section titled ‘Property, plant and equipment (PPE)’. To my surprise, the depreciation item I was looking for in the balance statement is there. The PPE values listed on the balance statement is merely the ‘left-over’ asset amount after the depreciation expense has been deducted. In simpler terms, the opening balance for PPE minus the depreciation expense equals the PPE


value listed on the balance sheet. This is the reason why I could not find a depreciation item on AMCOR’s balance statement.

Listed below is the ‘left-over’ value of PPE for the financial year between 2016-2019. I have included this section to get an initial understanding of the proportion of PPE to the total non-current asset of my firm. As you can see on the table below, a huge proportion of my company’s non-current assets are attributable to PPE, which is around 50% of total non-current asset. Therefore, it is important to look at. I can now finally understand why firms fuss over the depreciation of their non-current assets because it takes up a huge percentage of a firm’s non-current assets. Having such large amounts for PPE means it more susceptible to manipulation of the depreciating values of PPE. For example, business can increase its depreciation values to record less profits, which can potentially mean they can pay less tax. Is this possible or even legal? Is that also the reason why our government have strict accounting guidelines for depreciating non-current assets?Proportion of property, plant and equipment in total non-current

assets

FY 2016 FY 2017 FY 2018 FY 2019($

million)($

million)($ million) ($ million)

Value of Property, Plant and Equipment

2 690.9 2 765.3 2 698.5 3 975.0

Total non-current assets

5 489.0 5 796.8 5 437.2 11 954.9

Percentage of Total non- current assets

49% 48% 50% 33%

As I further look at the values of my PPE, the values do not decline steadily but rather fluctuate over time. You would assume the equipment value would decrease over time, however between 2016 – 2017, it has increased from $2.69 billion to $2.75 billion, which is roughly around $74.4 million increase. I questioned why this was the case? Are AMCOR’s land or property increased in value? However, this is not possible because PPE are recorded at historical cost and not in market value. As I further investigate the reason for the value increase of PPE, I found out that AMCOR has made a business acquisition in 2017 where they bought a blow moulding company known as Sonoco. Therefore, increased the amount of PPE they have which consists of land, factories and plant equipment. Similarly, the value of PPE has rapidly increased between 2018 - 2019 due to the acquisition of another company known as Bemis in 2019. Which further increased the amount of PPE, AMCOR owns, which further increase the firm’s non-current asset.


Despite the increase in the value of PPE in the last four years, the amount of depreciation is constant as can be seen below. The amount of depreciation for PPE is around $350 million per annum. Therefore, my initial thought is that my firm uses a straight-line method of calculating their depreciation. In a straight-line method the depreciable amount of a particular non-current asset is divided by its useful life to get the depreciation value per year. An example of this in my life is when I have purchased a brand-new car for myself in 2017 which costs me $18 000. I intend to use the car until it breaks which I estimated around 10 years. Therefore, the depreciable amount of my car is the purchase price ($18 000) and its useful life is the 10 years I estimated. I can now divide $18 000 by 10 years to get my depreciation amount per year, which totals to $1800. This $1800 would then be recorded as a depreciation expense. Thus, reducing part of my asset into expense each year. In essence, in a straight-line method the value of depreciation per year is the same even if you use your PPE more or less in a given year.

Depreciation and amortisation of Property, Plant and Equipment

FY 2016 FY 2017 FY 2018 FY 2019($

million)($

million)($

million)($

million)351.0 351.8 352.7 349.7

As I further investigated my firm’s annual reports, I found out that it uses a straight-line method therefore my hypothesis about it is correct. Furthermore, I was able to find concrete evidence of them using such methods as they have strictly calculated useful life for specific type of non-current asset which can be seen below. AMCOR has used the same depreciation methods between 2016 to 2019, as a result have similar amount of depreciation over the years which is approximately $350 million.

Depreciation policy for 2017 & 2019

Depreciation policy for 2018


By just looking at my firm’s depreciation of $350 million, at face value it seems quite significant. However, I wanted to see it in relation to other expenses. So, in order for me to identify whether depreciation is a significant expense, I tried searching my income statement for answers. Upon looking at my income statement, depreciation was not explicitly stated as one of the expense items. I tried to hypothesise where my company has allocated my depreciation on my income statement. The three main expenses options I had were:

Selling, general or administrative expenses Research and development expenses Restructuring and related expenses.

My first instinct was to cancel out two unlikely options and use the left-over expense to gain an insight on the significance of my depreciation expenses. My initial thought is that depreciation expense is not related to research and development expenses. On the other hand, I did partially consider depreciation expense to be part of the restructuring and related expenses. However, I realised that depreciating relates to using up the value of non-current assets that the company has already purchased. As a result, restructuring and related expense seems like expenses that is related to purchasing ‘new items’ for the refurbishment of the firm. So, I was left with the selling, general or administrative expense which in my opinion is related to depreciation expense because you can sell PPE after the residual value or useful life of it has been reached.

Listed below is the proportion of depreciation expense to selling, general and administrative (SGA) expense. In 2016, depreciation only amounts to 28% of the firm’s SGA expense. However, in 2017 – 2018 this has dramatically increased to around 45% of the firm’s SGA and declined by around 11% in 2019. From the table below, it can be concluded that almost half of the firm’s SGA expense between 2017 - 2018 is attributable to depreciation. Which is an eye-opener for me. I cannot believe how significantly PPE’s depreciates over time.

Proportion of depreciation & amortisation expense


FY 2016

FY 2017

FY 2018 FY 2019

($ million

)

($ million)

($ million)

($ million

)Depreciation & Amortisation of PPE

351.0 351.8 352.7 349.7

Selling, General & Administrative Expenses

1251.1 781.9 793.2 999.0

Proportion of Depreciation & Amortisation of PPE

28% 45% 44% 35%

The following journal entries below are reflective of the depreciation amount reported in AMCOR’s 2019 annual report. As you can below, the flexible packaging section of the business has the most depreciation in 2019. Could this be because there are more of these products manufactured in 2019, hence the increase amount of wear and tear on PPE?

General Journal of AMCOR Limited(in millions)

Date Particulars Debit Credit30 June

2019Depreciation Expense

Accumulated depreciation – Flexible packaging machinery

$ 233.6

$ 233.6

Depreciation Expense

Accumulated depreciation – Rigid packaging machinery

$ 112.7

$ 112.7

Depreciation Expense

Accumulated depreciation –Other machinery

$ 3.4

$ 3.4

As can be seen below, majority of the products AMCOR has sold are within the flexible packaging section of the business in comparison to


rigid packaging section. Are the proportion (flexibles and rigid) of the following sales reflective of the depreciation expense depicted in the table below? Does this mean the flexible packaging PPE of AMCOR has a shorter useful life in comparison to the rigid packaging PPE? I am not quite sure how such journal entries would affect my financial statements except for increasing my expense amount, as a result reducing my profits for the year. Moreover, I do not think my company can manipulate its entries if they are using a straight-line method as this method records the same amount of depreciation per annum, as discussed earlier. However, they can manipulate the useful life of its PPE to a shorter life and hence increasing the depreciation amount for all the years that it is used for. As discussed earlier, AMCOR’s plant and equipment useful life is between 3 – 25 years, therefore, they can easily manipulate a particular equipment’s useful life to be only 10 years when in fact it can be used for 15 years. For example, if the equipment cost $ 100 000 and its useful life is 15 years, the depreciation rate per annum is roughly $6 700. However, this depreciation amount increases to $10 000 per annum when the useful life is decreased to 10 years. Overall, this a way a firm can manipulate its depreciation values and record a lower profits for the year.

Sales of products between 2017 - 2019

Documents

amac2019home.files.wordpress.com · Web view2020. 5. 19. · 2019 was due to the acquisition of a US based packaging company, Bemis which occurred on 11 June 2019. From this acquisition,