Financial Accounting & Reporting

Question: Discuss about theFinancial Accounting Reporting. Answer: Introduction: There are two types of borrowings. They are short term current borrowings and long-term non-current borrowings. Non-current borrowings refer to the long terms loans of a company. Long terms borrowings are not taken for the purpose of the daily running of the business, they are used for the purpose of extension of the business and to fulfill the requirement of capital. Thats why they are taken for the long term basis. The examples of long-term borrowings are debentures, bank loans, mortgages, etc (Hussain et al. 2015). JB Hi-Fi Limited is a consumer goods maker in Australia and New Zealand. They have taken Bank Loans as non-current long-term borrowings. The details of the noncurrent borrowings of JB Hi-Fi are given below: As per the latest Financial Report of JB Hi-Fi Limited, the total amount of unsecured non-current borrowing of the company is $ 109,736,000, and the interest rate is 2.97%. The initial recognition method of loans adopted by JB Hi-Fi Limited is the Fair Value method. In fair vale method, the current market value of the loans is taken into consideration. The loans of the company are measured at amortized cost (Christensen and Nikolaev 2013). The company borrows the loans at floating interest rate. For this reason, the company is exposed to a significant amount of market risks. To avoid the market risk due to floating interest rate, the company has adopted the strategy of Interest Rate Swap Contract. By using the Swap method, the company mixes the fixed and floating interest rate and manages the market risk (Jermann and Yue 2013). JB Hi-Fi Limited has a unique strategy to repay the long-term non-current liabilities or long-term borrowings. The repay the loans on the basis of 1 to 2 years, 2 to 5 years and above 5 years. They have also divided the time span 1 to 2 years into three-time spans. They are less than 6 months, 6 months to 12 months and between 1 to 2 years. According to the financial statement of JB Hi-Fi Limited, they have repaid the total amount due on non-current borrowing i.e. $ 109,736,000 within 2 years. They have repaid the loan in three stages i.e. less than 6 months, 6 to 12 months and 1 to 2 years. They have paid $ 1,636,000 in less than 6 months. Then they have repaid the same amount of money i.e. $ 1,636,000 between 6 to 12 months. And they have repaid the final due amount i.e. $ 113,273,000 within 1 to 2 years (www.jbhifi.com.au. 2016). For their well-prepared strategy, the repaid their total amount of non-current borrowings within 2 years. They didnt have to pay any amount for between 2 to 5 years and above 5 years. From the above analysis, it can be said that JB Hi-Fi Limited has a very well prepared long term loan repayment strategy. References: Christensen, H.B. and Nikolaev, V.V., 2013. Does fair value accounting for non-financial assets pass the market test?.Review of Accounting Studies,18(3), pp.734-775. Hussain, H.I., Shamsudin, M.F., Ali, A., Salem, M.A., Sajilan, S., Rahman, N.A. and Ani, N.S., 2015. Agency Problems and its Impact and Relevance on Firms Borrowings.Review of Integrative Business and Economics Research,4(3), p.272. Jermann, U.J. and Yue, V.Z., 2013. Interest rate swaps and corporate default. www.jbhifi.com.au.(2016).Documents/Appendix%204E%20and%20Annual%20Report%20-%202016.pdf.[online] Available at: www.jbhifi.com.au/Documents/Appendix%204E%20and%20Annual%20Report%20-%202016.pdf [Accessed 3 Sep. 2016].