Topics: Revenue, Depreciation, Balance sheet, Financial ratios, Profit margin / Pages: 27 (6664 words) / Published: May 20th, 2013
Section E: Accounting Analysis

Key accounting policies
The key success factors for a company which operates in consumer discretionary sectors, such as OrotonGroup, are product differentiation through brand, product quality, and product innovation. Therefore, the important accounting policies for achieving those factors are:

Accounting Policies | OrotonGroup Policies | Revenue recognition | OrotonGroup recognises revenue when a group entity sells a product to the customers. Revenue from license fees, franchise fees, and commissions are recognised and accrued in the period in which the fees are earned. | Inventories | Finished goods are stated at the lower of cost and net realisable value determined on the basis of moving average cost. | Impairment of intangible assets | Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment.Software is amortised on a straight line basis being their finite life of 4 years | Depreciation of property, plant, and equipment | OrotonGroup uses straight line depreciation method over their estimated useful life. The depreciation rate for plant and equipment ranging from 7.5% to 33.3% per annum and 15% per annum for motor vehicle. | Leases | OrotonGroup classified finance leases as the transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. |

Accounting flexibility and specific strategy Accounting Items | Flexibility | Specific Accounting Strategy | Revenue recognition | Medium to High * Management can alter the point of revenue recognition to manipulate the performance of the company especially with license fees, franchise fees, and commissions. | * No indication of specific accounting strategy for revenue recognition since the increase in revenue

References: Bennett, B. & Bradbury, M.E. (2003). Capitalizing non-cancellable operating leases. Journal of International Financial Management & Accounting. 14, 101-114. Bloomberg China’s posts. (2012, May 15). China’s posts another drop in foreign investment. Retrieved May 20, 2012, from http://www.theage.com.au/business/world-business/chinas-posts-another-drop-in-foreign-investment-20120515-1yoa1.html Dimson Greenblat,E. (2012, April 24). More pain in store for retail. Retrieved May 20, 2012 from http://www.theage.com.au/business/more-pain-in-store-for-retail-20120423-1xha4.html#ixzz1v0fYVYMZ Macnamara,L OrotonGroup Limited. (2011). Annual Report 2011. Sydney: Author. Slowing growth. (2012, May 15). Slowing rate rises tipped RBA 's hand. Retrieved May 20, 2012, from http://www.theage.com.au/business/slowing-growth-rate-rises-tipped-rbas-hand-20120515-1yo0b.html Wooding, T Yahoo! Finance. (2012). Quotes, April 2012 – May 2012 [Data file]. Retrieved from http://au.finance.yahoo.com/q?s=orl.ax&ql=1 --------------------------------------------

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