Harvey Norman

Harvey Norman Holdings Limited group case study pic Tutor Dr. Mahesh Joshi Group members JIN CHEN 3350416 MINGFENG CHI 3316768 JINGHAN REN 3365087 TABLE OF CONTENTS Executive summary3 Introduction4 inception of Finance and fiscal segments4 Industry and competitor analysis5 Key highlights of financial and operational performance5 highlightings and substitute of financial performance5 cozy up of operational performance5 Change in bill policies6 Assets PPE and In perceptibles6 eased assets and liabilities9 Auditor and listener invoice11 Reference13 Executive summary Harvey Norman Holdings Ltd, a public company, is one of the most successful sell companies in Australia. They use a singular franchise model with granting franchises to independent melody operators, and there be approximately 700 franchisees in Australia. As a retailer, their products include electrical, provide, computers & communications, bathrooms & home improvements, furniture, small appliances, carpet & flooring and lighting.In recent years, the company has begun expanding the international market, and there argon an increasing number of Harvey Norman stores in New Zealand, Ireland, Slovenia, Malaysia and Singapore. The aim of this cut through is to show an overview of Harvey Normans business based on the 2011 Annual Report of Harvey Norman. This work result mainly focus on their core business, sedulousness, operating activities, financial performance, PPE & intangible and countenanced assets & liabilities. Finally, independent listeners report will discuss their compliance with the AASB standard.COMAPNY Introduction Being a leader in retail stores of electrical, computer, furniture, entertainment and bedding goods, Harvey Norman was founded in 1982, Australia. At first, it is only a single store which sells electrical goods and appliances however, the opening has prove to be a great success. With more and more stores open, Harvey Norman changed its operation into superstor e format at the first gear of the 1990s. After that Harvey Norman has been expanding its business globally and keepsincreasing the diversity of its products.In the financial year of 2011, Harvey Norman has gained an after tax taxation net profit of 252. 26 zillion. And this makes it to be ranked at the 126th position out of 2000 large companies in Australia. (IBIS World, 2011) Source of Finance and financial segments Harvey Norman Holding LTD ecumenically generates its revenue from those four segments at a lower place Franchisee with retentiveness 195 franchise stores in Australia, it contributes the largest scoret to its companys sales revenue. This revenue is consisting of the franchise fee and divert of franchise loans.However, due to the downturn of the whole economic environment, the franchisees themselves are struggling to keep their business alive. In my opinion, it is dangerous for Harvey Norman to be too rely on the franchising revenue. Retail store excluding the 195 franchise outlets indoors Australia, the company is running 96 complexes department by the time of 30 of June 2011, which are 26 more than 2010. office the property income Harvey Norman LTD is mainly coming from the rental of the franchisees and some other outlets who are get hold of their complex. Other businesses as a public listed company, Harvey Norman also earns a good union of revenue from trading its listed securities. Industry and competitor analysis As the main services the company is retailing. The industry it involves would be retailing industry of computer and software, household appliances and furniture. However, as the integrating of online services and strength of Australiandollar, the retailing industry has been very much affected. Even the chairman of Harvey Norman had commented the macro-environment to be challenging and difficult.Fortunately, as introduced above, although retailing has forever been the core business activity of the company, it does not constitute the major part of its financial performance. The diversity of business activities leads a multiple option of financial growth. The main competitors of Harvey Norman Holding LTD is the group of J B HI-FI, who has declared a sales revenue from 2. 73Bn to 2. 96Bn as an increase of 8. 3% (P. 2, JB HI-FI annual report 2011), compares to the increase of 9% of Harvey Norman.According to the figure,it seems Harvey Norman is doing advance than J B HI-FI, but the business segment for J B HI-FI is much less(prenominal) diversified than Harvey Norman, therefore, J B HI-FI is actually doing better in just viewing the computer and software segment. Key highlights of financial and operational performance Highlights and change of financial performance There is no signifi stooget increase or deduction in term of financial performance. There is a slightly downturn showing in the franchising sales revenue from 5. 9bn to 5. 08bn contributed by almost the aforementioned(prenominal) stan dard of outlets. Basic earnings per share mystify increased from 21. 78c to 23. 75c whilst a minify of 2c in dividend per share compared with 2010. After closing date of report, the company announced 7 Clive Peters and Rick hart may close and the rest of 18 stores will be changed into Harvey Norman format. The shutdown of 7 stores is to cipher to incur a charge around $10 million in the financial report of 2012. Highlight of operational performanceA very significant key operational activity occurs after the reporting date of 2011, which is Harvey Norman, launched its online retail store in the October of 2011. The company has fully confidence in this action and believes it will make a good difference in the financial report of 2012 Change in accounting policies According to Australian Accounting Standards, a few accounting policies have been put out recently but have not yet shown its effect on the report of 2011 will result an impact on 2012. Assets PPE and Intangibles PPE 1. The carrying tot up of each class of PPE, at reporting date, of Harvey Norman a. PPEIn accounting system, property, plant and equipment are belong to tangible asset and recorded as non-current asset if they are kept for more than one year or beyond the normal cycle of the entity. According to AASB116, if the cost of an item can be measured dependably and the future benefit will flow to the entity, then the items of property, plant and equipment can be acknowledge as PPE. b. Each class of PPE It can be seen from the HNs note 12 that the PPE of HN was separate into (1) Land and Buildings (2) Plant and Equipment (3) Lease make good asset. And the carrying gist of each class of PPE is showed in the below table Category Land and buildings Plant and Equipment ($000) Lease make good asset Total ($000) ($000) ($000) course of study 2010 230,595 206,563 1,875 439,033 2011 257,765 254,714 500 512,479 According to the table, the total amount of PPE was well-nigh $512 million i n 2011, which was much higher than the amount of 2010 about 73 million. 2. The accounting policies relating to PPE adopted by Harvey Norman. HN employ cost model, under the AASB116. 73, to fall upon items on PPE that each item was measured at historical costs or deemed costs less accumulated depreciation and accumulated hinderance losses. (Statement of Significant Accounting Police 1(d)(v)) The land and buildings were measured at fair value, then less the accumulated depreciation.After that, the impairment loses were recorded when the revaluation was done. Besides, the straight- line method was used to calculate the assets depreciation during the estimated useful life. According to AASB116. 73 (e), each class of PPE should chance upon a reconciliation of the carrying amount at the beginning and end of the period, and the changes include additions, disposals, impairment and amortization. In the HNs report, the assets residual values, useful lives and amortization methods were adj usted in the end of financial year.Intangible assets 1. The intangible assets report by Harvey Norman and their composition and relevance to this companys business. Intangible assets are usually interact as non-monetary assets without physical substance. Therefore, they must be separately stated in companys financial statement. By following the accounting standard, HNs intangible assets are classified into three categories (a) figurer Software (b) Goodwill (c) Licence Property Category Computer Software ($000) Goodwill Licence Property Total ($000) ($000) Year ($000) 2010 23,745 11 473 24,229 2011 57,791 9 494 58,294 HNs report demonstrated that there was about $58 million in intangible assets in 2011, which showed a huge increase when compared to $24 million in 2010. Besides, it is clearly showed in the table that the Computer Software took the most part of the intangible asset 2. The accounting policies relating to Intangible Assets adopted by Harvey Norman. All the dis closed intangible assets should comply with the AASB 138. 3/4/9, and the intangible asset which has an in impermanent useful life cannot be amortized in the annual report, based on AASB138. 107. Furthermore, in accordance with AASB 136. 08, an entity is required to campaign an intangible asset with an indefinite useful life for impairment by comparing its recoverable amount with its carrying amount annually or there is an indication of impairment. In the annual report, the intangible assets of HN in its annual report consist of two parts (a) distinctive intangible assetsComputer Software and Licence Property (which have a finite life and are amortised using the straight-line method over the useful lifes, computer software is no greater than 7. 5 years). (b) undiagnosable intangible assets Goodwill which accounts for only a little proportion of its total intangible assets. Goodwill is not amortised, but it should be tested about impairment on an annual basis). The gains or losses from both(prenominal) two kinds of intangible assets are measured as the difference between the net disposal amount and carrying amount. 3. The items of impaired PPE or Intangible Assets of Harvey Norman According to AASB116, under cost model, the carrying amounts of assets should be recapitulationed during every financial reporting period to determine whether there is impairment. An impairment gain or loss should be recognized immediately if the carrying amount is lower or higher than the recoverable amount. PPE (a) Impairment of Plant and EquipmentUnder this standard, a review of the recoverable amount of assets resulted in an impairment gain of $968,000. Intangible Assets The computer software has a finite life and is amortised over the useful life, but goodwill has an infinite life, then, it is only subject to impairment test if there is an indication of impairment. (a) Impairment of Computer Software Under this standard, a review of the recoverable amount of assets resulted i n an impairment loss of $674,000. leased assets and liabilities The lease liabilities consist of finance leases, AASB 117 par 11, and operation leases, AASB 117 par 12.This paper will analyze finance leases first, and then followed by operation leases. Firstly, the detail of the finance leases, numeral revelation required by AASB117. In 2011 are pic (Annual Report 2011, p104, p105) Secondly, the detail of operating leases, numeric disclosure required by AASB 117. In 2011 are pic (Annual Report 2011, p105) Finance lease dues are reconciled to amounts receivable in respect of finance leases as follows pic (Annual Report 2011, p77) According to the information illustrated in 2011 Annual report page 63, amounts due from lessees under finance leases are recorded as receivables.Finance lease receivables are earlier recognized at amounts equal to the present value of any unguaranteed residual value evaluate to accrue at the end of the lease term plus the minimum lease payments recei vable. Finance lease payments are apportioned between reduction of the lease receivable over the term of the lease and come to revenue so that it can reflect a constant periodic rate of return on the net investment outstanding in respect of the lease (Annual Report 2011, p63). Leases where the lessor retains substantially all the rewards and risks of self-control of the asset are recognized as operating leases.Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as the lease income. Operating lease payments are classified as an expense in the income statement on a straight-line basis over the lease term (Annual Report 2011, p63). Auditor and auditor report Ernst & Young is the independent auditor which is appointed to Harvey Norman Ltd. They have high reputation to retaliate the credible auditor requirements. We can find the auditors opinion on page cxl of annual report.According to the content in the auditors report and opinion issued by the auditor. This annual report is definitely an outright report because the auditor claims in their report that the financial report of Harvey Norman Ltd complies the Corporations prompt 2001 and Australian Accounting Standards by giving a true and fair view of the companys financial position. The financial report is also in accordance with International Financial Reporting Standards. An unqualified opinion also represents that any differences between management and auditor with accounting matters have been resolved to the auditors satisfaction.Conclusion This report states a lot of important information about the business performance of Harvey Norman, which can be compared with competitors and within the retail market. As one of the most successful retail companies in Australia, Harvey Normans core business include leasing properties, granting franchises to independent business operators who retail all kinds of products for home and office. In the financial year of 2011, Harvey Norman has gained an after tax net profit of 252. 26 million. Its financial statements complied with the accounting standards and the accounting methods were generally discussed.PPE and Intangible assets were also explained to associate with all the related requirements of AASB involving their disclosures. Moreover, the company followed the Corporations Act as well as International Financial Reporting Standards, and disclosed all the information required, which can be proved by unqualified auditor report issued by Ernst& Young. All the information given by 2011 Annual report can be relied by public to make decision on general purpose. Reference Harvey Norman Holdings Ltd, IBIS World (2011) Harvey Norman Holdings Ltd-Premium Company Report Australia, viewed 20 dreadful 2012,J B HIFI, J B HIFI (2011) J B HIFI ANNUAL REPORT 2011 P. 2, viewed 20 August 2012, http//www. jbhifi. com. au/documents/reports/110_20 11-09-09_4-04-34. pdf Harvey Norman Holdings Limited, Harvey Norman Holdings Limited Australian Packaging Covenant Action Plan 2010 2015 Revised March 2012, viewed 23 August 2012, Harvey Norman Holdings Limited, Company Profile, viewed 23 August 2012, Australian Standard Aboard, AASB 116, 117, 136, 138 2011 Accounting standards, viewed 23 August 2012, Harvey Norman Holdings Limited, Annual report 2011, p63, p77, p104, p105, viewed 22 August 2012,