ACC 610 9-1

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1 ACC 610- Final Project Target Corporation Oaikhena Callistus Southern New Hampshire University ACC-610-Q1008 Financial Reporting . Instructor Charles Cullinan November 19 th , 2023

2 Conceptual Framework A. Explain how the conceptual framework and accounting standards apply to your company. This framework of financial reports gives details or information about the concepts, objectivity, defining, and financial reporting principles. The authentication of financial information and reporting is strengthened if objectivity and concepts provide direction and structure to financial accounting and reporting (Pro, 2017). Furthermore, the framework also aids the internally consistent standards development within and assists both the easy preparation and understatedly by end users of the financial statements, which makes every information in the statements beneficial and its utmost peak due to the compliance of the accounting body requirements again, Target Corporation with its reasoning in considering the merits applying alternative solutions to financial accounting complexity and also the reporting problems. B. Analyze the information within the disclosure statements for information that would interest your company's creditors. Creditors of any company benefit from the organization's financial information, including debt- equity ratio, sales turnover ratio, cashflow statement, net profit ratio, and more, which is disclosed in the information statement disclosure. Assets quality, sales ratio, and turnover ratio determine the time limit of the inventory sales by the company, bad debts provision on receivable accounts, and debt-equity ratio explains the amount of debt on equity. This means that when a company has a low debt-equity ratio, the opportunity for loan application is high and can put the business at risk if the company proceeds to take more loans. The interest ratio enveloped profits before interest and tax, the Profitability ratio is similar to the gross profit ratio, and the net profit

3 ratio respectfully declares the company's profit capability in loan repayment. With all this critical information, the creditors can reliably decide to give or decline the loan offer to the company. Why would this information be important to them? It clarifies to creditors by telling them the company's assets and liabilities. It also gives banks awareness of the business qualification and the amount of credit requirement. This information is essential to the creditors since it provides adequate information, allowing them to utilize the proper standard of accounting method. It also benefits the creditors because the information is traceable and understandable. Analyze the information within the disclosure statements for information that would interest your company's investors . Information concerning the company's profits, sales, dividend payout, inventory turnover, and debt-equity ratios are critical to the company's investors. Hence, the profits ratio explains the organizational growth, while the sales ratio explains the liquidity of the company to give practical knowledge of its growth and patronage, which shows what captures investors' interest in the company; the debt-equity ratio states the amount of debt over its equity, which means how much does the company own and understanding the payment history, which can aid the investors to determine how the company's financial position is. Why would this information be important to them? Every piece of information derived by the investors gives awareness about the Company's current liabilities status, including the Company's marketing rate and challenges. Analysis of Financial Statements

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4 Based on the information you have gathered, explain the financial changes. Ratios. Has anything changed in the few years of financial statements that you have obtained? Ratio 2021 2022 Change Gross profit margin 28.2% 27.9% -0.3% Operating profit margin 8.5% 8.1% -0.4% Net profit margin 2.5% 3.2% +0.7% Return on assets (ROA) 7.1% 9.4% +2.3% Return on equity (ROE) 17.9% 23.3% +5.4% In this, it is understandably clear that the gross margin dropped by 0.3% in the year 2022 from 28.2% to 27.9%, and the Operating profit margin also slightly dropped by 0.4% from the year 2021 to 2022; however, there is an incline in the net profit margin which outstandingly increased by.7%, and this also includes Return on assets (ROA) increment by 2.3% and Return on equity (ROE) increment by 5.4 % What are the reasons for these changes?  The sales growth is strong.  The cost management is improved, and the affordability rate is encouraging.  The tax environment is favorable to the organization. Based on the information you have gathered, analyze the changes in the financial reports regarding cash. Be sure to examine the statement of cash flows.

5 The table below shows the changes in the cash flow of Target Corporation from the year 2021 to 2022. Item 2021 2022 Change Net cash flow from operating activities $5.1 billion $6.5 billion +$1.4 billion Net cash flow from investing activities -$1.3 billion -$1.0 billion +$0.3 billion Net cash flow from financing activities $0.2 billion $0.4 billion +$0.2 billion Net increase in cash $4.0 billion $5.9 billion +$1.9 billion The net cash flow derived from the operating activities 2022 increased by $1.4 billion, from $5.1 billion in 2021 to $6.5 billion in 2022. also, the Net cash from investing activities dropped, which is a plus for the organization it reduced from $1.3 billion in 2021 to $1.0 billion in 2022, which is an increment of $.3billion in profit, the Net cash flow from financing activities in 2021 was $ 0.2 and increased to $ 0.4billion which is $ 0.2 billion increment, and the huge one is the Net increase in cash of about $ 1.9 billion increment from 2021 which was $ 4.0 billion to 2022 $ 5.9 billion It is categorically stated that Target Corporation's cash flow has climbed higher from the past year; this means the company can self-sustain by generating enough cash to invest in its growth. What are the reasons for these changes?  Financial Ratio improvement

6  Strong sales growth and improving cost management. Based on the information you have gathered, analyze the changes in the financial reports regarding the accounts receivable account balance. The table below shows some essential account balances of the Target Corporation from 2021 to 2022. Account balance 2021 2022 Change Cash and cash equivalents $10.4 billion $16.3 billion +$5.9 billion Accounts receivable $11.2 billion $13.1 billion +$1.9 billion Inventory $16.5 billion $18.9 billion +$2.4 billion Property, plant, and equipment $25.6 billion $27.7 billion +$2.1 billion Long-term debt $10.3 billion $11.1 billion +$0.8 billion The Cash and cash equivalents of Targets is an increase of $ 5.9 billion, which means that $ 10.4 billion in 2021 was increased by $ 16.3 billion in 2022 and the Accounts Receivable was $11.2 billion in 2021 and $ 13.1 billion in 2022 that is, $ 1.9 billion increment The Inventory also increased by $2.4 billion in 2020 ($18.9 billion which was previously $ 16.5 billion in 2021, The property, plant, and equipment appreciated from $ 25.6 billion in 2021 to $ 27.7 billion in 2022 ($ 2.1billion increase) Long term debt was $ 10.3 billion in 2021 and increased to $11.1 billion in 2022 and increment of $ 0.8 billion

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7 What are the reasons for these changes? Target is at a fast-growing pace, opening new shops and branches while accommodating new products; the online business has also contributed immensely to the growth, encouraging customers to patronize them from the comfort of their homes, so the option of the transaction is boosting . Describe the type of inventory valuation method that your company uses and explain why it uses this method. Valuation method Target Corporation utilizes a fair value method for inventory, and this work is an estimated selling price less the sum of (the cost of discarding and profit allowance for the selling. effort What are the benefits of this method? Some of the benefits of fair valuation are  Its accuracy is of a high standard and reflects the inventory's market value.  It is an accounting standard requirement.  It makes financial reporting and decision-making better. Based on industry trends, company plans, and the information you have gathered, predict how your company will perform in the following year compared to competitors. Future performance

8 Target Corporation is on a mission to consistently perform better annually than the previous year compared to its rivals, and this is achievable because of the strong brand recognition. This well- planned marketing strategy encourages the customers and a loyal customer base. Explain the steps your company needs to transition from GAAP to IFRS. For example, what would this transition entail? What would your chosen company need to do ? The steps needed for TARGET CORPORATION to Transition from GAAP to IFRS  The company needs to take an explicative gap assessment, which may take one to two months, depending on the business's complexity and size during the assessment process and time.  Adopting IFRS Target requires applying for IFRS 1 (FIRST TIME IFRS ADOPTION). However, some companies might have exemptions.  Every organization has a standard and guidelines/policies to follow, so TARGET must meet the new standard of the financial instrument and leases (the ASC 842 lease of the IFRS differs from the GAAP). TARGET needs to consider the complications of the conversion process as most of the assessments, including financial reporting, pro forma financial documents, and accounting reconciliation, would be affected and transformed. FINANCIAL STATEMENT DIFFRENCES GAAP IFRS  More elaborate and dictatorial.  Requires further disclosures.  More focused on the historical cost of  More excellent and stretchable  Requires a handful of disclosures.  Allows for more flexibility in the

9 assets valuation of assets. FINANCIAL STATEMENT SIMILARITY IFRS and GAAP include the objectives, elements, and accounting. Both standards use statements of cash flows, balance sheets, and income statements. TARGET FINANCIAL STATEMENT CONVERSION Target needs to set up a professional team to aid and manage the transition process. Making their document readable and understandable to the IFRS standard and ensuring all rule regulations are adhered to. Adjusting Entries Depreciation Target Corporation utilizes straight-line depreciation in recording asset value on financial statements and for tax purposes. Over the asset's active life, a valid amount is unarguable depreciated, or a helpful value is reduced, This straight-line depreciation method shows you the authentic, accurate picture of the profit margin of your business utilizing long-term assets, and this straight-line depreciation method is calculated on assets like heavy manufacturing machines/types of equipment, automobiles, furniture, electronics /computers, and office buildings. Target prefers to utilize the straight-line method because it is a retail company, and similar companies' assets are fixed with a long useful life span. Properties of Target include plant and equipment such as BUILDING AND IMPROVEMENT, FIXTURE AND equipment,

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10 ELECTRONICS/ COMPUTERS, HARDWARE /SOFTWARES, and more, and all these listed assets have the quality that signifies the necessity for the utilization of applying the straight-line depreciation. The reason for creating this method is to reflect the consumption pattern of the underlying asset, and it concerns the absence of a pattern in the utilization of assets over a while. also, this straight-line depreciation method calculation is straightforward with minimal errors; this calculation method is recommended." (FreshBooks. (n.d.) The straight-line method utilizes original costs, set-up costs, transportation costs, and useful life. However, the usefulness of this method relates to an easy understanding of the steady and consistent depreciation of the asset's useful life and its preparation in the financial statement, which spreads out cost evenly over the valuable and productive life of the asset and revenue generation for the organization. Identify an example of an adjusting entry (other than depreciation) such as prepaid expenses, supplies, or unearned revenue, and whether or not your company has this account listed on the balance sheet. You could consider why this might not be listed. Adjusting Entries These are changes made at the end of an accounting period to the entries already entered in the general ledger account. This set of journal entries will be updated to accurately match the accounts' balances. The adjusted entries are made during the utilization of the accrual basis of accounting, and the three main types of making adjustment entries are Accruals, deferral, and non-cash expenses, whereby Accruals deal with accrued revenues and expenses. (Revenues that have already been earned, yet no cash has been received) At the same time, deferrals are prepaid expenses or

11 deferred revenue (the income a customer has received for services and not yet invoiced for). Non-cash expenses adjust tangible or intangible fixed assets through depreciation (The amount of assets cost expensed annually due to depreciation. Financial Analysis: Prepare an Excel spreadsheet to compare financial ratios for your company to the industry averages. Excel Spreadsheet to Comparing Financial Ratios for the company to the Industry Averages Ratio Target Corporation Industry Average Gross Profit Margin 30.6% 25.6% Net Profit Margin 5.4% 4.1% Return on Equity (ROE) 19.2% 15.4% Return on Assets (ROA) 7.8% 6.2% Current Rat 1.2x 1.3x Debt-to-Equity Ratio 0.5x 0.6x In summary, Target Corporation stands uniquely favored compared to industry rivals. Its gross profits stand out awesomely, and its gross profit margin, net profit margin, Return on Equity, and

12 Return on Assets are more significant than the industry's average. Furthermore, the company keeps a debt-to-equity ratio over the regular industry's normal. Rigid Observation shows that. Gross Profit Margin: Target's gross margin of 30.6% is higher than the industry's average of 25.6%, so it only means that the company is efficiently converting the cost of goods sold into revenue. Net Profit Margin: Target Corporate's net profit margin of 5.4% compared to the industry's average of 4.1% is better and outstanding, meaning that revenue conversion into net income is efficiently managed. Return on Equity (ROE) : Target's ROE of 19.3% IS 3.9% higher than the industry's 15.4%. The shareholders have more confidence in the organization. Return on Assets (ROA): Target's ROA of 7.8% is above the regular average of the industries at 6.2% and means assets are adequately managed to generate profit. Current Ratio: Target's current ratio is 1.3x, although not higher than the industry's 1.2x, yet reflects more substantial liquidity and a high standard in meeting short-term obligations. . Debt-to-Equity Ratio: Target corporation's debt-to-equity ratio is 0.5x, unlike the industry average of 0.6x, meaning financial leverage is less compared to the industries Rival. As the controller of your chosen company, compose a memo to the CEO addressing the advantages and disadvantages of transitioning from GAAP to IFRS Business Memorandum

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13 TO: Brian Cornell, CEO FROM: Callistus Oaikhena, Controller DATE: November 18, 2023 Subject Pros and cons due to the transitioning from GAAP to IFRS RE: Advantages and Disadvantages of Transitioning from GAAP to IFRS ADVANTAGES  Financial Records are transparent, and the improvement is consistent.  IFRS directs more attention to investors.  Accounting and financial reports are up to standard.  Global competitors can view and checkmate opportunities.  Easy to detect the loss and recognize it ahead of time.  Gives the opportunity to confidently access foreign capital and markets. DISADVANTAGES  Cost of integration and inconveniences.  International Other countries might have strict policies restricting some laws from free states.  US small entities will have difficulty accessing and transacting with the organization.

14  Older investor might decide to withdraw their investment.  Employees might react to changes negatively causing them to quit. As the controller of your chosen company, compose a memo to the CEO addressing the following scenario: Your largest customer has just gone bankrupt, and you must inform the CEO how this will affect your accounts receivable. Assume that the accounts receivable balance is at least $100,000. Business Memorandum TO: Brian Cornell, CEO FROM: Callistus Oaikhena, Controller DATE: November 18, 2023 RE: The Effect on Accounts Receivable Due to Recent Bankruptcy of Our Biggest Customer Sir, regarding the declaration of bankruptcy of one of our biggest customers by the Apex court, our accounts receivable will suddenly down-slide since the customer's balance needs to be written off. The shareholders will also be affected because it will affect the business's profitability, and $100000 is a huge hit. Henceforth, we await further instructions to enable practical steps to be managed economically.

15 Analyze the effects of the global disaster on your chosen company's financial statements using your company's financial information. The effects on the financial statements are: Charges and claims, or maybe compensations to which parties are affected, will declared in the income statement as non-operating expenses. The Government's further changes to vandalize the ecosystem cannot be evaluated. Based on your analysis, recommend strategies to address the effects of the disaster on your chosen company. Selling of Assets to settle claims or compensation. Setting up a new escrow or other accounts for future payments to parties affected involved. Investing in the future projects of the parties involved. References: Jan, I. (2013). Retail Method of Inventory Estimation. Retrieved August 19, 2018, from https://accountingexplained.com/financial/inventories/retail-method. Target Brands Inc. (2016). 2017 Annual Report. Retrieved August 19, 2018, from https://corporate.target.com/annual-reports/2017. Bragg, S. (2017, August 7). Last in, first out method | LIFO inventory method. Retrieved August 19, 2018, from https://www.accountingtools.com/articles/2017/5/13/last-in-first-outmethod-li.

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16 Target Brands Inc. (2016). 2016 Annual Report. Retrieved August 19, 2018, from https://corporate.target.com/annual-reports/20 References: Jan, I. (2013). Retail Method of Inventory Estimation. Retrieved August 19, 2018, from https://accountingexplained.com/financial/inventories/retail-method. Target Brands Inc. (2016). 2017 Annual Report. Retrieved August 19, 2018, from https://corporate.target.com/annual-reports/2017. Bragg, S. (2017, August 7). Last in, first out method | LIFO inventory method. Retrieved August 19, 2018, from https://www.accountingtools.com/articles/2017/5/13/last-in-first-outmethod-li Target Brands Inc. (2016). 2016 Annual Report. Retrieved August 19, 2018, from https://corporate.target.com/annual-reports/2016.