Generally Accepted Accounting Principles and Relevant Financial Standard

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Table Of Contents

1. Company Background and Strategies1

2. EVALUATION OF KEY ACCOUNTING POLICIES1

2.1 REVENUE RECOGNITION1
2.2 RECEIVABLES2
2.3 PROPERTY, PLANT AND EQUIPMENT2
2.4 EMPLOYEE BENEFITS3
2.5 INTANGIBLE ASSETS4
2.6 FINANCIAL INSTRUMENT4

3. ANALYSIS OF KEY ACCOUNTING NUMBERS5

3.1 Questionable Accounting Numbers5
3.2 Distortions in Accounting Numbers:5

4. SUMMARY OF FINANCIAL PRESS DISCUSSION6

Appendix-17

Appendix -27

Appendix 38

Appendix 49

Bibliography10

1. Company Background and Strategies

Queensland and Northern Territory Aerial Services Ltd (QANTAS) was established in 1920. It is widely regarded today as the world's leading long distance airline and one of the strongest brands in Australia with a new name “Qantas Airways Limited”. As a market leader in the aviation industry, Qantas achieved good financial result in 2003 nevertheless all the airline industry are under the negative circumstances. Qantas has done a good job in controlling, managing and dealing with the risks and impacts of 9/11, constant security alerts, acts of terrorism, the war in Iraq and the SARS pandemic since last two years. In 2003, their profit before tax was $502.3 million, EPS of 20.0 cents per share. Although these figures are not as good as last year, Qantas performed very well in these negative circumstances (See Appendix-1).

Qantas put many efforts in cutting costs in reacting the SARS pandemic and the war in Iraq. They cancelled or reduced planned international flying up to 20 per cent from April 2003, reduced payroll cost by using accumulated leave, eliminated hundreds of permanent positions to improve the efficiency of management, stopped investing and froze capital by retiring older aircrafts early and deferring delivery of some new aircrafts. The company was reducing the costs during the declining situation in both financing and operating areas.

2. EVALUATION OF KEY ACCOUNTING POLICIES

Qantas prepared its reports on the basis of historical costs and except where stated did not take into account changing money values or current valuations of non current assets. In order to evaluate the key accounting policies adopted by Qantas, financial reports of other airlines are also reviewed. For the purpose of comparison, Virgin Blue and Air New Zealand are taken. The accounting policies outlined below have major impact on Qantas’s financial performance. Revenues, Receivables, Property Plant and Equipment, Intangible assets and Employee benefits, represent the greatest material value movement within the financial statement.

2.1 REVENUE RECOGNITION

The Qantas’s revenue comprises of passenger, freight, tours and travel, contract work and other sources. Revenue from “Other Sources” includes revenue from aircraft charters and leases, property income, Qantas Club and Frequent Flyer membership fees, freight terminal and service fees, commission revenue, and other miscellaneous income.

Relevant Financial Standards: AASB 1004 Revenue requires revenue to be measured at fair value of the contribution received and receivable.

Flexibility of Management in Accounting Policy: Total sales revenue is recognised at the fair value of the consideration received net of sales discounts, passenger and travel agency commissions, and GST. Contract revenue is recognised in proportion to the stage of completion of the contract when the stage of contract completion can be reliably measured.

Quality of Disclosure: As a part of the requirement in AASB 1004, Qantas disclosed the accounting policies adopted for the recognition of the revenue. Qantas has also disclosed the details of revenue recognized during the reporting period – separated those into its ordinary operating revenue and other revenue.

2.2 RECEIVABLES

Qantas’s receivables comprise of trade debtors, other debtors and loans owing from related parties. Relevant Financial Standards: There is no specific standard for...
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