As per the notes to the annual report 2015 of a2 Milk company (ATM) the revenue is recognised at fair value. The criteria used by ATM to recognise the revenue and expenses are as follows:
• ATM is following accrual accounting, thus they are considering received and receivable revenues.
• Revenue from sales of good is recognised only after the transfer of ownership of risk and reward.
• Trade discounts and rebates are removed from the revenue.
• The future cash flows are discounted by the effective interest rate through the life of the asset.
• The cash flows for interest revenue is calculated at net carrying cost.
• Royalties on time basis are recognised on straight line and that on production, sales and other measures are recognised by reference.
• Management fee is recognised on cost basis and is due when services are rendered.
• Licence fee is spread over the term of the licence.
• Borrowing cost is recognised in the income statement.
• Income tax expenses include incurred tax and deferred tax.
• All revenue, expenses and assets are recognised net of GST. The net payable or receivable is only included in the statement.
(a2 Milk Company Annual Report 2014-15, 2015)
Question 2: Analysis of Financial Statements
Introduction to a2 Milk(ATM) Company Ltd.
A2 is a protein specific to a variety of milk produced by certain cows. a2 Milk (ATM) company is the producer and marketer of A2 milk products that owns the intellectual property of A2 milk. It has commercialised ATM products around the world in Australia, New Zealand, UK and China.
As per the half yearly report published by ATM during February 2016.
• The business in New Zealand and Australia continues to grow in reven...
... middle of paper ...
...ompared to the previous period. The amount sums up to $139.10 mil.
• The group’s operating profit is at $18.70 mil. It has increased by 4 times.
• The grey market for a2 Milk is the major cause for this increase.
• a2 Milk company announced its entry in the S&P/ASX 300 Index on March 18, 2016.
(Christopher Adams) (Dene Mackenzie) (RICHARD MEADOWS) ("S&P DJ Indices Announces March Quarterly Review,") ("A2 MILK LAPS UP RECORD RESULT,") (Business Spectator)
The above analysis strongly suggests a buy for the a2 Milk stocks. Earning 2.5% annually in a term deposit is much less than the return promised in investing in a2 Milk stocks. The annual movement in the stock prices show an increase of more than 200% in the last year. So, it is advisable to invest the $50,000 in the a2 Milk stock rather than investing in the term deposit and holding the share for longer term.
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