Presentation of Financial Statements for Stakeholder information

Hotel grand central Limited is engaged in the hotel business. It was incorporated in 1968 however it got listed on the Singapore stock exchange in 1978. It owns and manages the hotels through its 5 segments located in 5 different countries. These countries are Singapore, Malaysia, New Zealand, Australia and China. The hotel is also holding equity interests in more than 10 hotels across Malaysia through its subsidiaries that are wholly owned by it. In the entire Malaysian country, more than six hotel grand continental as well as hotel grand crystal properties provides the range of facilities to the travellers. The hotel is also operating under the group brand of grand hotel international in the entire Australia. The Australian properties of the hotel are situated in many countries such as Melbourne, Adelaide, Hobart, Brisbane and Launceston. The hotels of grand central limited in New Zealand are situated in the business districts of Auckland as well as Wellington. The hotels offers additional facilities like arranging conferences and other events of the corporate bodies along with restaurant facilities. It has more than 5 venues catering for around 400 delegates (Reuters, 2017).

Financial statements are prepared and presented with the intention of meeting the information needs of intended users. Intended users are the stakeholders of the company who directly or indirectly maintains the business relationships with the company. As the company is indulged in the hotel operations business it may have a range of stakeholders such as the employees, managers, clients or customers, investors or shareholders, providers of finance such as banks and other financial institutions, government etc. Financial statements are prepared and presented as per the regulatory requirements applicable to the reporting entity.

In the present report financial statements i.e. the balance sheet and the trading, profit and loss account of Hotel Grand Central Limited are presented in the prescribed format that is applicable to the listed companies of Singapore. The financial statements for the year ending 31^st December, 2016 are presented with the intention of adhering to the financial reporting framework. The main objective of such financial statements is to provide necessary and reliable information to the stakeholders of the business. The presentation of financial statements of Hotel Grand Central Limited is intended to achieve the true and fair view of the financial position of the company. The financial information that is shared with the stakeholders through the means of financial reports is contained the financial statements such as trading, profit and loss account and balance sheet (Fraser,  Ormiston & Fraser, 2010).

Use of Financial Statements for Stakeholders

The presentation of financial statements is done in such a way that it can help the intended users in making sound economic decisions. These financial statements covers the summary of all the necessary transactions that the company has entered into and also the impact of other significant events that has occurred during the financial year ending on 31^st December, 2016 (Annual report, 2016).  The preparation and presentation of financial statement is aimed to influence the reader’s decision by providing complete and true picture of company’s state of affairs.

The preparation and presentation of financial statements is undertaken by keeping in mind the interest various stakeholders such as providers of finance in the company. As the company has borrowed significant amount of funds from various banks and other financial institutions, they seek to inquire about the solvency position of the company. These financial statements are intended to provide relevant information to those providers of finance so that they can assess company’s credit worthiness (Costello, 2011).

Moreover, the potential investors of the company seeks the financial information of the company to understand the financial position of the company so that they can invest their funds in the company. The presentation of financial statements is intended to deliver to them all the necessary and relevant information about the company such as its profitability, solvency and liquidity position (Healy & Palepu, 2012).

The employees and managers are also taken into consideration while presenting the financial statements of the company so that they can have the proper knowledge of company’s financial performance which will enable them to function accordingly in future. Such reports will help them in formulating the necessary strategies and policies to achieve the company’s goals and objectives (Freeman, 2010).

The presentation of financial statements of the company is also undertaken with the motive of satisfying the governmental rules and regulations so that any legal consequences of non-compliances can be prevented.

The financial statements are also intended to provide the information of company’s clients and customers so that they can review the situation and performance of the company’s business before getting associated with the company in any kind of business deals(Armstrong, Guay, Weber, 2010).

Depreciation is an accounting system that is used to allocate the historical cost of any fixed asset over the useful time span of that asset. Historical cost is the cost at which the asset is acquired. Such cost is systematically reduced till the time value of assets become negligible. Fixed assets like furniture, buildings, plant and machineries, motor vehicles etc. are depreciated over their useful lives using various methods of depreciation. The depreciation is charged to the asset because of the factors like efflux of time and their wear and tear nature. Moreover, these assets are subject to obsolescence. Depreciation is charged to the assets in order to determine the true and clear picture of business and to carry the depreciable assets at the appropriate values in the financial statements. The two most common methods used to calculate the depreciation on any tangible fixed asset are: Straight Line Method and Reducing Balance Method. These methods are discussed below:

Depreciation Methods

Under this method the cost of the tangible fixed asset is distributed uniformly over the entire useful life of the asset. The cost of asset covers all the expenses that are incurred to bring the asset in the workable position such as freight charges, carriage expenses and the cost of installation. While calculating the depreciation on these assets, if there is an estimate of residual value at the end of life of asset then such residual value is reduced from the cost of asset and then the remaining amount is distributed to the overall estimated life span of the asset. Straight line method of depreciation is suitable for those tangible fixed assets that can generate constant benefits. This method is more realistic in nature and is quite simple to be applied. It is mostly preferred due to the uniformity of depreciation charges throughout the life of asset. However, it is sometimes criticised because it does not take into account the actual usage factor of the asset. Also straight line method does not match the costs and revenues of different types of long term assets. This method is not appropriate for those fixed assets that involves rapidly developing technologies such as computers (Radu & Marius, 2011).

This method is also known as diminishing balance method. To calculate depreciation under this method the assets are depreciated at the historic cost in the 1^st year at a particular rate of depreciation and then from the 2^nd year onwards the depreciation in calculated by applying the rate of depreciation to the net book value of the asset. The rate at which depreciation is calculated remains same through-out the life of asset. However, if there is any change in the estimates regarding the rate or life of asset, then such changes are incorporated under this method. Net book value is the value on which asset is carried in the statement of financial position. The net book value or the carrying amount is calculated by reducing the depreciation of the previous years from the historic cost of the asset (Sachs, Russell, Rogers & Nadel, 2012). This method results in declining depreciation charges with each successive year. It is mostly preferred due to the higher tax benefits that are available in the initial years. Moreover, this method is mainly used for the assets that loses their values more quickly like computers and vehicles. These assets have more efficiency in the earlier years. For such assets diminishing balance method matches the depreciation charges in better ways with actual decline in the fair market value of asset (Lawrence & Okechukwu, 2013).

Straight line method

(all figures in $millions)
		2016	2015
Revenue
From Hotel Operations		1,41,839.00	1,26,184.00
Investment Income on Renting of Properties		9,535.00	9,613.00
Total Revenue		1,51,374.00	1,35,797.00
Other Income	1	28,954.00	76,175.00
(A)		1,80,328.00	2,11,972.00
Expenses
Employee’s Cost	2	-48,156.00	-47,740.00
Depreciation		-21,689.00	-15,232.00
Operating Expenses	3	-51,577.00	-49,151.00
Other Expenses			-12,794.00
(B)		-1,21,422.00	-1,24,917.00
Operating Profit Before Adjusting Fair Value (A-B)		58,906.00	87,055.00
Gain On Investment (Fair Value)		8,444.00	7,674.00
Net Operating Profit Before Interest And Taxes		67,350.00	94,729.00
Finance Charges	4	-4,140.00	-3,042.00
Fixed Deposits Interest		5,212.00	6,233.00
Foreign Exchange Gain		460.00	-4,227.00
Share From Associates		205.00	839.00
Profit Before Tax		69,087.00	94,532.00
Tax Expense	5	-16,211.00	-9,079.00
Profit After Tax		52,876.00	85,453.00
Earnings Per Share (Basic)	6	7.97	13.35

Other Income	2016	2015
Dividend	353.00	236.00
Gain On Sale Of Property	28,421.00	5,265.00
Gain On Sale Of Subsidiary		70,638.00
Others	180.00	36.00
Total Other Income	28,954.00	75,165.00

Employees Cost	2016	2015
Wages & Salaries	39,998.00	39,107.00
Pension Fund Contributions	3,307.00	3,340.00
Others	4,851.00	5,293.00
Total Employee Cost	48,156.00	47,740.00

Operating Expenses	2016	2015
Hotel Operating Cost
Laundry	4,566.00	4,142.00
Marketing And Commission	6,482.00	5,809.00
Repairs And Maintenance	7,318.00	6,784.00
Daily Supplies	1,861.00	2,285.00
Stock Consumables	10,048.00	9,897.00
Utilities	6,461.00	6,181.00
	36,736.00	35,098.00
Other Operating Cost
Audit Fees	486.00	514.00
Other Fees To Auditors	115.00	105.00
Land Amortisation	46.00	48.00
Body Corporate Fees	423.00	428.00
Director’s Fees	295.00	295.00
Insurance Charges	1,086.00	1,234.00
Loss On Derivatives	827.00
Printing And Stationary	459.00	486.00
Professional Fees	412.00	850.00
Property Taxes	4,270.00	5,505.00
Rent	853.00	609.00
Stamp Duty On Hotel	836.00
Telecommunication	307.00	307.00
Travelling	345.00	242.00
General Administration Charges	4,081.00	3,430.00
	14,841.00	14,053.00
Total Of Operating Expenses	51,577.00	49,151.00

Finance Cost	2016	2015
Bank Interest	5,585.00	5,097.00
Finance Lease Obligations	2.00
Interest Capitalisation		-1,255.00
Property, Plant And Equipment	1,447.00	-800.00
Total Finance Cost	4,140.00	3,042.00

Tax Expense	2016	2015
Current Tax
Provision For Tax	18,373.00	8,459.00
Over Provision In Respect Of Past Years	-14.00	-231.00
Total Current Tax (I)	18,359.00	8,228.00
Deferred Tax
Temporary Differences
Under Provision In Respect To Last Years	-2,188.00	-512.00
Deferred Tax On Assets Held For Sale Adjustment	40.00	1,369.00
		-6.00
Total Deferred Tax (Ii)	-2,148.00	851.00
Income Tax Expense  (i + ii)	16,211.00	9,079.00

Earnings Per Share	2016		2015
Profit Available To Shareholders	52,876.00		85,453.00
Weighted Average Number of Shares	663033.00		640169.00
EPS (cents per share)	7.97		13.35

For the year end 31.12.2016

			2016		2015
Shareholder’s Equity
Share Capital	4,21,997.00			4,21,997.00
Reserves	8,83,139.00			8,54,595.00
Total Equity  (I)			13,05,136.00		12,76,592.00
Non-Current Assets
Property Plant And Equipment	10,49,214.00	7		10,97,791.00
Investment Properties	2,08,852.00			1,57,748.00
Land Use Rights	1,153.00	8		1,254.00
Intangible Assets	90.00			87.00
Goodwill	1,454.00	10		2,009.00
Investment In Associates	10,413.00	11		12,079.00
Deferred Tax Assets	3,471.00			4,144.00
Investment In Securities	10,358.00			6,143.00
Total (Ii)			12,85,005.00		12,81,257.00
Current Assets
Land Use Rights	46.00			48.00
Prepaid Operating Expenses	2,453.00			2,396.00
Inventories	832.00	12		920.00
Trade Receivables	8,851.00	13		9,233.00
Short Term Deposits				37,335.00
Cash And Cash Equivalents	3,43,056.00	14		2,98,645.00
Total (Iii)	3,55,238.00			3,48,577.00
Current Liabilities
Trade Payables	26,769.00	15		21,177.00
Accrued Operating Expenses	10,581.00			13,954.00
Derivatives	509.00
Deferred Income	756.00			373.00
Loans And Borrowings	8,551.00			71,739.00
Income Tax Payable	12,845.00			2,519.00
Total (Iv)	60,011.00			1,09,762.00
Net Current Assets   (V= Iii-Iv)			2,95,227.00		2,38,815.00
Non-Current Liabilities
Derivatives	318.00
Deferred Tax Liabilities	1,38,119.00			1,41,453.00
Loans And Borrowings	1,36,659.00			1,02,027.00
Total (Vi)			2,75,096.00		2,43,480.00
Total ( ii + V + Vi)			13,05,136.00		12,76,592.00

Property Plant And Equipment	2016	2015
Cost	11,38,697.00
Accumulated Depreciation	(89,483.00)
Carrying Amount	10,49,214.00	10,97,791.00
Investment Properties
Opening balance	1,07,791.00	1,19,790.00
Additions	73.00	36,918.00
Transfer To Completed Properties	88,075.00
Net Gain (Fair Value Adjustment)	8,444.00	7,674.00
Exchange Difference	4,469.00	-6,634.00
Closing balance	2,08,852.00	1,57,748.00

Land Use Rights	2016	2015
Cost	1,612.00	1,578.00
Exchange Differences	-70.00	34.00
Net Cost	1,542.00	1,612.00
Accumulated Amortisation  (WN 9)	-343.00	-310.00
Closing Balance	1,199.00	1,302.00
Current Land Use Rights	-46.00	-48.00
Non-Current Land Use Rights	1,153.00	1,254.00

Accumulated Amortisation on land use rights	2016	2015
Opening Balance	310.00	257.00
Current Year Amortisation	46.00	48.00
Exchange Differences	-13.00	5.00
Accumulated Amortisation	343.00	310.00

Goodwill	2016	2015
Opening Balance	4,591.00	4,829.00
Derecognised Goodwill On Sale Of One Hotel	-3,927.00	–
Recognised Goodwill On Business Combination	718.00	–
Exchange Differences	72.00	-238.00
Net Goodwill	1,454.00	–
Accumulated Impairment	–	–
Closing Goodwill Balance ( A)	1,454.00	4,591.00

Goodwill Impairment	2016	2015
Opening	2,582.00	2,707.00
De-Recognition On Sale	-2,611.00
Exchange Differences	29.00	-125.00
Closing Goodwill Impairment  (B)	–	2,582.00

Net carrying amount of Goodwill (A-B)

1,454.00

2,009.00

Investment In Associates	2016	2015
Grand Central Enterprises	8,413.00	9,571.00
Grand Central Development	2,000.00	2,508.00
Total Investment	10,413.00	12,079.00

Inventories	2016	2015
Food And Beverages	648.00	730.00
Sundry Stores	184.00	190.00
Total Inventories	832.00	920.00

Trade Receivables And Others	2016	2015
Trade Receivables	807.00	340.00
Deposits	753.00	824.00
Due From Subsidiaries	73.00	16.00
Other Receivables	1,133.00	836.00
Total	2,766.00	2,016.00

cash and cash equivalents	2016	2015
cash in bank and hand	45,692.00	30,211.00
short term deposits	2,97,364.00	2,68,434.00
Total	3,43,056.00	2,98,645.00

Cash And Cash Equivalents
Cash In Bank And Hand	8,674.00	2,941.00
Short Term Deposits	1,93,604.00	2,03,230.00
Total	2,02,278.00	2,06,171.00

Trade And Other Payables
Trade Payables	9,834.00	5,497.00
Other Payables	15,352.00	14,314.00
Rental Deposits	1,520.00	1,293.00
Due To Associates	63.00	73.00
Due To Subsidiaries	–	–
Total Trade And Other Payables	26,769.00	21,177.00

The basic purpose of financial reporting is to provide the necessary information to the stakeholders of the company so as to help them in their decision making process in relation to the company. Therefore, the role of financial statements is very critical in today’s world (Beyer, Cohen, Lys & Walther, 2010). There statements, hence require proper reporting using the reasonable framework of financial reporting. Efforts must be made to improve the existing financial reporting system followed by the company. To improve it, the first thing that is necessary is to understand the whole purpose of financial reporting and the limitations faced in its current scenario. The reporting scope must be widened to incorporate the details of non-financial information in the files. The reporting must be done in accordance with the international financial reporting standards (Iatridis, 2010). The segment reporting must be emphasised more so as to deliver the accurate and necessary information to the investors in order to acknowledge them about the performance of each segment that the hotel is working in. Moreover, the financial statements must be prepared in such way that the impact of depreciation could be incorporated in the financial statements. The human resources plays important role in the management of Hotel operations and business and hence they must be recognised in the financial statements through a proper measurement criteria. The financial reporting lacks the information of company’s social responsibilities and its efforts to fulfil such responsibility. Additionally, there must be interim reporting for all the quarters to enables the stakeholders to assess the company’s performance quarter wise. The financial statements and reports must be prepared and presented in the simplified manner so as to provide an ease to understand and interpret the financial outcomes to the readers or intended users (Chen, Tang, Jiang & Lin, 2010). Lastly, it is recommended to the company to highlight the governmental policies that are being followed in the conduct of business. These limitations of financial reporting plays major role in the financial crisis of the company as adequate amount information is not taken into consideration while reporting which requires significant attention of management as well as the auditors of the company (Barth & Landsman, 2010)

References

Annual report, 2016. Hotel Grand Central Limited. Available at: https://infopub.sgx.com/FileOpen/Hotels%20Grand%20Central%20Annual%20Report%202016.ashx?App=Prospectus&FileID=31724 accessed on 13-Dec-2017.

Armstrong, C.S., Guay, W.R. and Weber, J.P., 2010. The role of information and financial reporting in corporate governance and debt contracting. Journal of Accounting and Economics, 50(2), pp.179-234.

Barth, M.E. and Landsman, W.R., 2010. How did financial reporting contribute to the financial crisis?. European accounting review, 19(3), pp.399-423.

Beyer, A., Cohen, D.A., Lys, T.Z. and Walther, B.R., 2010. The financial reporting environment: Review of the recent literature. Journal of accounting and economics, 50(2), pp.296-343.

Chen, H., Tang, Q., Jiang, Y. and Lin, Z., 2010. The role of international financial reporting standards in accounting quality: Evidence from the European Union. Journal of International Financial Management & Accounting, 21(3), pp.220-278.

Costello, A.M., 2011. The impact of financial reporting quality on debt contracting: Evidence from internal control weakness reports. Journal of Accounting Research, 49(1), pp.97-136.

Fraser, L.M., Ormiston, A. and Fraser, L.M., 2010. Understanding financial statements. Pearson.

Freeman, R.E., 2010. Strategic management: A stakeholder approach. Cambridge university press.

Healy, P.M. and Palepu, K.G., 2012. Business analysis valuation: Using financial statements. Cengage Learning.

Iatridis, G., 2010. International Financial Reporting Standards and the quality of financial statement information. International review of financial analysis, 19(3), pp.193-204.

Lawrence, O.A. and Okechukwu, U.A., 2013. Review of accounting gimmicks called depreciation. Open Journal of Accounting, 2(02), p.39.

Radu, D. and Marius, D., 2011. Issues related to the accounting treatment of the tangible and intangible assets depreciation. Annals of the University of Oradea: Economic Science, 1(2), pp.498-502.

Reuters, 2017, Hotel Grand Central Ltd (HGCS.SI), Full description, available at: https://www.reuters.com/finance/stocks/overview/HGCS.SI, accessed on 13-Dec-2017.

Sachs, H.M., Russell, C., Rogers, E.A. and Nadel, S., 2012. Depreciation: Impacts of Tax Policy. An ACEEE Working Paper, American Council for an Energy-?Efficient Economy, Washington.