Essay on Walmart Financial Statements Disclosures
Number of words: 925
According to Walmart Form 10-K 2020, the company utilizes the income method to account for intangible assets that are acquired in relation to business combinations (SEC, 2020). Under the income method, Walmart takes into account the timing and amount of future cash flows, discount rates, growth rates, as well as useful lives of the intangible assets. Furthermore, intangible assets are not amortized. Rather, they are evaluated annually for impairment.
Current Liabilities & Contingencies
Walmart uses the fair value method to account for current liabilities and contingencies, and hence, the current liabilities are usually recorded at fair value (SEC, 2020). Under the fair value approach, Walmart determines the amount current liabilities and contingencies can fetch in the market if they are transferred to a third party. The fair values determination of current liabilities and contingencies involves the utilization of valuation techniques, especially the moment the market value isn’t available.
Long Term Liabilities
Just like the current assets and current liabilities, long-term liabilities are also accounted for using the fair value method. In fact, the long-term liabilities are recorded at their fair value, i.e., the amount they can fetch in the market if they are transferred from Walmart to a third party (SEC, 2020).
Stockholders’ equity comprises of “common stock, retained earnings, capital in excess of par value, and accumulated other comprehensive income” (SEC, 2020). A summation of the four items in the “Consolidated Statements of Shareholders’ Equity” accounts for the total stockholders’ equity. Common stock consists of the consolidated net profit and repurchase of the entity’s stocks. Other items that are included in the computation of stockholders’ equity include non-controlling interest and income taxes.
Earnings per Share
Earnings per Share is determined by taking Walmart’s net income divided by the total outstanding common shares. EPS is then approved by the Board of Directors on an annual basis. In determining the Earnings per Share, various aspects of the financial performance are also taken into account (SEC, 2020). They include net sales, expense leverage, operating investments, capital investments, liabilities, and projected growth rates. Furthermore, the earnings per Share based on underlying stock repurchase policies and dividend programs.
Walmart uses the fair value measurement to measure equity investments’ fair value. This is done on a recurring basis, after which the value of investments is recorded under long-term assets in the consolidated balance sheet (SEC, 2020). The investments’ fair value is primarily determined via the use of quoted prices generated from active markets with similar assets. The company measures two investment portions. They include the investment purchased portion and investment portion that is received as a result of an exchange with other assets sold to third parties.
Accounting for Income Taxes
Walmart accounts for income taxes using the balance sheet method. In line with the balance sheet method, deferred tax assets, as well as liabilities, are usually recognized for purposes of projected future tax expenses attributed to the difference between assets and liabilities carrying amounts and their associated tax bases (SEC, 2020). Predetermined tax rates are used to measure differed tax liabilities & assets within the fiscal year under which the difference is projected to be settled or recovered. The actual deferred tax liabilities & assets’ effects are recognized in the income statement within the date of enactment.
Accounting for Leases
In line with ASU 2016-02 and Leases Topic 842), Walmart accounts for the leases. As required by ASU 2016-02, Walmart records lease liabilities and lease assets in the balance sheet (SEC, 2020). Additionally, the company retains respective historical lease categories and existing contracts in order to determine whether they have leases. In regard to leases that are subject to rate or index adjustments, Walmart uses the latest rate or index adjustments to measure the operating leases (SEC, 2020).
Walmart’s management, at specified time intervals, examines long-lived assets to determine whether they need to be impaired based or changes and events that indicate the assets’ carrying amount might not be recovered. The actual evaluation is conducted at the “lowest level of identifiable cash flows” (SEC, 2020). This is at club level or individual store level. The undiscounted cash flows that are expected to be produced by the assets are projected over the respective asset’s useful life on the basis of updated projections. In case the evaluation shows that it is impossible to recover the assets’ carrying amount, impairment is carried out based the related asset’s fair value as determined by the prevailing valuation technique or appropriate market value.
Walmart uses the recognition concept to account for revenue. The company recognizes net sales, sales returns, and sales taxes the moment goods or services are sold to customers (SEC, 2020). The net sales comprise purchase price and shipping revenue, all of which are recorded once goods are delivered to customers. The sales returns are estimated based on sales returns expected.
SEC. (2020). Walmart Form 10-K For the fiscal year ended January 31, 2020: Retrieved from https://www.sec.gov/Archives/edgar/data/104169/000010416920000011/wmtform10-kx1312020.htm#sB59A7864434C5579BB40C49FB62D7C60
Osadchy, E. A., et al. (2018). Financial Statements of a Company as an Information Base for Decision-Making in a Transforming Economy. European Research Studies Journal, 13(4), Issue 2. https://www.ersj.eu/dmdocuments/26.OSADCHY_ET_AL_XXI_2_18.pdf
Weygandt, J. J., Kieso, D. E., & Kell, W. G. (2008). Accounting Principles, 8th Edition. New York, Chichester, Brisbane, Toronto, Singapore: John Wiley & Sons, Inc. p. 800