Coles Group

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Coles Group

Abstract
This report is about an Australian retail company, Coles group, with a 2500 outlets
nationally. They basically deal with the products from the farms and the suppliers.
They have been operating in more than 800 supermarkets nationally. They are
also providing their services to their customers through online. They offer the
various choices of home delivery that includes same day and overnight drop and
go services or pick up from clicks and collect locations.

In this report the financial performance of the company for the year ended 2020
has been analyzed and highlighted. This report includes the discussion of various
IFRS and the reporting segment followed by the company in preparation of the
financial statement. Through the medium of this report we have analyzed the
profit & Loss Statement, Balance Sheet of the company and the Other
Comprehensive Income of the company for the year ended 2020. This report also
includes the basis of identifying and reporting segments of groups, segment
performance of group, concept of determining goodwill, basis applied by the
company in determining the goodwill, basic group structure reported in the
financial statement, foreign currency policies of the group, equity investment of
the group and parent entities, major subsidiaries, major transactions with
subsidiaries & the consolidated process of the transactions.
Case Study

1. Ans

According to the IFRS 10 “Consolidated financial Statement”, every company has


to prepare and present consolidated financial statement entities to consolidate
entities it controls (Silvia, 2021). In order to exercise control, one must be
exposed to or have rights to variable returns, as well as have the ability to
influence those returns through control over an investee. Consolidation basis
includes the consolidation of the asset, liability, income, expenditure, losses of
the entire subsidiary and the parent company.

Coles Group, in preparation of the consolidated financial statement has


consolidated its subsidiary company accounts and transaction from the date
when the group has gain the control over the subsidiaries till the date it ceases
control over its subsidiaries (Colesgroup, 2021). The group has shared the result
of the equity-accounted investment that has been included in the financial
statement from the date when the joint control has been established by the
group till that joint control is terminated. The Financial Statement (Balance sheet,
Profit & loss Statement, Cash flow account and Notes to account) has been
prepared for the same reporting period as of the parent company using the
consistent accounting policies.

Group has reported the profit of $978 (Million) in the year 2020. Earlier the
company has reported the profit of the group by $1,435 (Million). We can see the
decrease in the profit of the company by 31.85% in comparison to the previous
year. The reason seen in profit & loss statement of group for the decrease in the
profit is financial cost that has been increased by $401 (Million). Company has
also reported the decrease in the Earning per Share (EPS) that is 73.3 per share.

Other Comprehensive Income of the company includes the movement in the fair
value of the cash flow hedges by ($17) Million and the income tax effect by $5
million. Income tax effect has been increased by $4 million in comparison to the
previous year whereas fair value of cash flow hedge by ($15 Million).
For the year ended 28/06/2020, Coles Group has reported the total asset of
$18,349(Million), total liabilities of $ 15,734 (Million) and Net Asset of $ 2,615
(Million). In comparison to the year 2019, group has reported the change in the
total asset by 87.7%, total liabilities by 145.1% and total asset by (22.1 %). Group
has increased its right to use asset by $7,660(million) due to which the changes in
the year 2020 can be seen in comparison to the previous year. In case of the
Liabilities it has increased the liability of lease by $9,083(Million).

2. Ans

IFRS 8 Operating Segments requires that the particular entities (those with public
traded securities) for disclosing the information about the operating segments,
products and services, geographical area where they operate and the major
customer (IFRS, 2021b). Internal management reports are used to gather
information, which is then used in the identification of operating segments and
the measurement of disclosed segment information.

According to International Financial Reporting Standards (IFRS 8), an entity must


report financial and descriptive information about its reportable segments. Those
operating segments or aggregations of operating segments that meet specific
criteria are considered reportable segments. The reportable segments include:

 Its reported revenue, which includes revenue from external customers as


well as revenue from intersegment sales or transfers, accounts for 10% or
more of the total revenue of all operating segments, internal and external,
or
 When calculating its reported profit or loss, the company uses an absolute
measure that is equal to or greater than 10% of either I the combined
reported profit of all operating segments that did not report a loss (ii) the
combined reported loss of all operating segments that did report a loss. Or
 Its assets account for at least ten percent of the total assets of all operating
segments combined.
Coles group has identified its reporting segments which are based on internal
reporting to the Managing Director and the Chief Executive Officer (Chief
operating decision maker). Managing Director and the Chief Executive Officer of
the Coles group has been reviewing the group internal reporting for the purpose
of assessing performance and for allocating the resources across the operating
segments. The segment has identified the different products and the services and
has been managed separately by the Coles Group.

The Coles Group reportable segments are:

 Supermarkets that includes the fresh foods, groceries and general


merchandise retailer with a national network of 824 supermarkets,
including online and the financial services.
 Liquorland is a liquor retailer with 910 stores across the country under the
brands Liquorland, First Choice, First Choice Liquor Market, and Vintage
Cellars. The company also provides online liquor delivery services through
the Coles Online and Liquor Direct websites.
 Express is a convenience store operator and commission agent for retail
fuel sales with 713 locations.

Coles group sales from the supermarket has been reported by the $32 993
million and the EBIT is 1618; sales from the liquor is $3,308 million and the
EBIT is 138; and sales from express is $ 1,107 and the EBIT is 33. In
comparison to the previous year sales and the EBIT has been increased in this
year from the supermarkets and the Express. However the sales and the EBIT
liquor have been decreased in the year 2020 (Colesgroup, 2020). The sales
performance shown by the supermarkets and the express is good this year
then off previous year.
3. Ans

Generally speaking, goodwill is an intangible asset that is associated with the


acquisition of a business by another. A goodwill asset is the portion of a
company's purchase price that is greater than its total goodwill, which is
comprised of the net fair value of all of its assets acquired in the acquisition and
the liabilities assumed as a result of the acquisition (IFRS, 2021a). As per IFRS 3
“Business Combination” goodwill is measured as the difference between

 the sum of (i) the value of the consideration transferred (generally at fair
value), (ii) the amount of any non-controlling interest (NCI,) and (iii) the
acquisition-date fair value of the acquirer's previously-held equity interest
in the acquiree in a business combination achieved in stages.
 the difference between the amounts paid for the identified assets bought
and the amounts paid for the liabilities taken on the date of acquisition
(measured in accordance with IFRS 3)

Coles group has reported the goodwill of $ 1153 (Million). This goodwill has been
recognized by the group as a result of the business combinations. It also
represents the future economic benefit that could be arise from the assets which
are not capable for identifying individually and recognized separately. Goodwill
has been originally identified as the excess of the sum paid by the Group in the
acquisition of a business over and above the fair value of the individual assets and
liabilities acquired in the acquisition. Goodwill is regarded as having an endless
useful economic life in the business world (Li and Taylor, 2018). As a result, it has
not been amortized, but rather assessed for impairment on an annual basis, or
more frequently if events or changes in circumstances indicate that it may be
impaired. It has been assumed by the group that goodwill will be carried at cost
less any cumulative impairment losses, and it would be allocated to cash
generating units for the purposes of impairment testing.
4. Ans

The group structure of Coles Group has been divided and reported by the
company in the 5 sections that includes:

 Equity Accounted Investments: The group has accounted its investment in


the Joint ventures and the associates using the equity method of
accounting in the consolidated financial statement.
 Assets Held for Sale
According to financial statements as of the 28th of June 2020, four
properties with a total carrying value of $47 million, as well as $28 million
in plant and equipment, were classified as held for sale (as of the end of
June 2019: $94 million).

 Discontinued Operation
Any component of the Group that has been disposed of or that is classed
as held for sale is classified as discontinued operations by the Group. It has
been reported in the Group's FY19 financial report that during the prior
financial year, the following entities were material wholly-owned
subsidiaries until 19 November 2018,
1) Kmart Australia Limited and controlled entities
2) Target Australia Pty Ltd and controlled Entities
3) Officeworks Ltd and controlled entities

 Subsidiaries
Coles Group Limited, a corporation formed in Australia, is the ultimate
parent firm of the Coles Group (Van Der Laan and Dean, 2010). Companies
acquired by Coles Group Limited are fully consolidated from the date of
acquisition, which is the date on which Coles Group Limited gains control,
and remain fully consolidated until the date on which control is
terminated. Control exists when the Group has the authority to manage
the financial and operating policies of an entity in order to reap the
benefits of its actions.  The subsidiaries of the group include:
1) Andearp Pty Ltd
2) Australian Liquor Group ltd
3) Charlie Carter (Norwest) Pty Ltd
4) Chef Fresh Pty Ltd…, etc.

Deed of Cross Guarantee between the Company and the subsidiaries


above has been entered into by the parties (the Deed). It has the effect of
requiring the Company to pay any deficiency if any controlled entity is
wound up or if they fail to meet their commitments under the terms of any
overdrafts, loans, leases, or other liabilities that are subject to the
guarantee, among other things. In the event that the Company is wound
up or fails to meet its obligations under the terms of any overdrafts, loans,
leases, or other liabilities subject to the guarantee, the controlled entities
have also provided a comparable guarantee.

 Parents entity Information


In the year 2020company has reported no guarantee in relation to the
debts of its subsidiary. There are no contingent liabilities for the Company
(2019: $nil). The Company has bank guarantees totaling $324 million
(2019: $310 million) as of June 28, 2020. The Company has contractual
commitments of $512 million (2019: $590 million) for the acquisition of
property, plant, and equipment as of June 28, 2020.
5. Ans

The financial statement of the group has been prepared in the Australian Dollar
which is the functional currency of the Group (Haque, Topal and Lilford, 2015).
Foreign currency transactions are converted by the group into the functional
currency at the time of the transaction using the exchange rates in effect at the
time of the transaction. It is customary to record foreign exchange gains and
losses resulting from the settlement of such transactions, as well as from the
translation of monetary assets and liabilities denominated in foreign currencies at
the reporting date exchange rates, in profit or loss by the company. If the foreign
currencies are related to qualifying cash flow hedges, they are postponed in
equity until later by the group.

For purposes of preparing the consolidated financial statements, the Group


accounts for its investments in joint ventures and associates using the equity
method of accounting. The investment in the joint Venture has been recognized
in cost by group (Jones and Danbolt, 2004). The carrying amount of the
investment is adjusted to account for the Group's part of the joint venture or
associate's profit after tax, which is recorded in profit or loss for the joint venture
or associate. Currently group has the ownership interest of 50% in the Loyalty
Pacific Pty Ltd (Joint venture) and Queensland Venue Co. Pty Ltd (Associates). The
amount reported by the company in the Loyalty Pacific Pty Ltd (Joint venture) is $
16 Million and Queensland Venue Co. Pty Ltd (Associates) is $ 201 million.

Following the use of the equity method, the Group evaluates whether or not it is
necessary to record an impairment loss for its investment in a joint venture or an
associate entity. During each reporting period, the Group assesses whether there
is objective evidence that the investment in the joint venture or associate has
been compromised. If such proof exists, the Group estimates the amount of
impairment as the difference between the recoverable amount of the joint
venture or associate and the carrying value of the joint venture or associate. Any
impairment loss will be recorded in the Statement of Profit or Loss under the
heading "share of net profit of equity accounted investments."
References

Colesgroup (2020) Coles Group Limited 2020 Annual Report.


Colesgroup (2021) Welcome to Coles Group, colesgroup. Available at:
https://www.colesgroup.com.au/home/.
Haque, M. A., Topal, E. and Lilford, E. (2015) ‘Relationship between the gold price
and the Australian dollar - US dollar exchange rate’, Mineral Economics, 28(1–2),
pp. 65–78. doi: 10.1007/s13563-015-0067-y.
IFRS (2021a) IFRS 3 Business Combinations, IFRS. Available at:
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-3-business-
combinations/.
IFRS (2021b) IFRS 8 Operating Segments, IFRS. Available at:
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-8-operating-
segments/.
Jones, E. and Danbolt, J. (2004) ‘Joint venture investments and the market value
of the firm’, Applied Financial Economics, 14(18), pp. 1325–1331. doi:
10.1080/09603100412331313569.
Van Der Laan, S. and Dean, G. (2010) ‘Corporate Groups in Australia: State of
Play’, Australian Accounting Review, 20(2), pp. 121–133. doi: 10.1111/j.1835-
2561.2010.00085.x.
Li, N. S. and Taylor, D. W. (2018) ‘The Value Relevance of Goodwill: IFRSs and
Global Financial Crisis (GFC)’, International Journal of Accounting and Financial
Reporting, 8(2), p. 26. doi: 10.5296/ijafr.v8i2.12830.
Silvia (2021) IFRS 10 Consolidated Financial Statements, cpdbox.com. Available at:
https://www.cpdbox.com/ifrs-10-consolidated-financial-statements/.

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