Marks and Spencer’s accounting choices Essay

Question 1 manifests 1 and 2 report the income give tongue toments and excerpts from the notes to Marks and Spencers financial statement for the fiscal age ending between contact 31, 2005 and March 31, 2009. Critically analyze M&Ss history choices. What choices whitethorn provoke helped the comp whatsoever to overstate its net lolly between 2005 and 2009?* M&S know many softwargon development cost as intangible assets. In fact they recognize all costs related to to packet costs. This includes channelize cost of worldly and services, remunerationsheet related costs for employees who be directly associated with the project. This may help M&S overstate its profits beca purpose commonly only the direct costs associated with the package are recognised as an asset. The payroll costs for employees should not be considered to be an asset but as direct costs and should immediately reduce profits of M&S. Because this isnt done, profits post be overstated. This is reflected by the large attach in computer software package infra development which was 5.6 one million million million in 2005/2004 and was 178.8 million in 2009/2008.This is a stunning affix of 3192%. Besides at that place isnt any amortization of the computer under software development and is only subjected to impairment. * Anformer(a) affair which should be considered when reading the report is that at that place is a large make out of seemliness which may lead to overstatement of assets. In those five years there isnt any impairment loss recognized or depreciation on that goodwill. free grace should be every year be subjected to impairment and its unlikely to bear on constant over five years. This may lead to overstatement of assets. Warning signs of hold up write-downs on non-current assets nookie be a declining non-asset turnover or a declining give way on assets below weighted average out cost of capital.* Another point of reciprocation about the accounting methods M&S us e, is the large depreciation rates they use on fixtures, fittings and equipment which can vary from deuce-ace years to 25 years depending on the estimates bearing of the asset. This should be done on basis of useful economic life instead of the estimated life of the asset. This way they can spread the costs over a larger amount of time which overstates profits.* In 2005-2009, every year there are a large amount of additions, other than encyclopaedisms. This is the case with land and buildings, fixtures, fittings & equipment, goodwill, computer software and computer software and development. Our opinion is that this comes from an make up in treasure of the asset. This is strange because there is an addition in goodwill which suggests that the value profitd with no particular acquisition in 2007/2006 and 2008/2007.Also land and buildings and fixtures fittings & equipment increase because of additions trance there is economic downswing in 2008/2007 and 2009/2008. * They in like manner requalify their gift obligation as law because they sold it to a voice venture with its subsidy fund. This obligation was then leased back from the joint venture so because they fully hold back this usable indebtedness, they can qualify this as equity. This seems to be an accounting trick to state liabilities as equity. M&S also receives exceptional pension credit from this dealings in 2009/2008 and 2008/2007.Question 2Exhibit 3 provides information about the obligation that Marks and Spencer reclassified as equity. Do you withstand with the decision to reclassify? What will be the effect of this decision on prox financial statements?The reclassification of the liability of Marks and Spencers as equity seems to be an accounting trick. Marks & Spencers group had a liability of 496.9 million to M&S UK pension scheme. Because they did not want that the liability influenced their financial reports in 2007, they sold it to a joint venture of M&S group with M&S UK pen sion scheme. The confederation then leased the properties of the partnership to the M&S plc.This reclassifies the liability because of the operational lease as equity while M&S group until now has to pay the money to the pension scheme. When the pension fund has not got the money to pay their employees, the group still has to bring up the money. The effect of this decision on rising financial statements is that a large amount of liabilities is classified as equity which distorts the equity/liability ratio and is not an existing reflection of the financial health of the organization. The future financial statements will give forth a wrong impression of the liabilities owed to the pension scheme.