Trade goods provided to the Group before
Trade credit is possibly the most vital and easiestsource of short-term finance available to commerce.
It is a deal to purchasegoods or services on account without making cheque payments or cashimmediately. (Global body for professional accountants, 2015) An amount billedto a corporation by its suppliers for goods delivered to or services consumedby the corporation in the general course of trade is called as trade payable. (JamesWilkinson, 2013) For Axiata Group Berhad, trade payables indicate thatliabilities for services and goods provided to the Group before the financialyear end which are unpaid. Unless the payment amount is not due within a yearafter the period of reporting, trade payables are categorized as currentliabilities. They are showed as non-current liabilities, if not.
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Hence, theamount owed by trade payables of the Group is RM 2,315,013,000 in 2016. By usingthe effective interest method, trade payables are generally recognizedinitially at fair value and subsequently measured at amortized cost. (AxiataGroup Berhad, 2016) Furthermore, this short term financing is a helpful toolfor developing commerce in managing the capital requirements of a business. The Group would retain cashin the short-term for other capital requirements since does not have to paycash up front.
The Group has ongoing investment decisions and expenses to make.The Group can more capably take care of its immediate cash requirements whilst havingtime to plan for payment due to delaying payment for a short period onpurchases. Moreover, this financing can fulfill the needs of the Group thatinclude supply and inventory replenishment. If the Group has low cash on hand and anurgent order of a large quantity of products, it requires to purchasing productsor raw materials from trade account.
Essentially, the trade account helps avoiddelays in business activity and performance. (Neil Kokemuller, 2017) i. The lessor transfers to the lessee in return for apayment, the right to use an asset for an agreed date whereby it is anagreement of lease. Axiata Group Berhad has substantively all the rewards andrisks of ownership of leases of plant, property and equipment (PPE) iscategorized as finance leases. Finance lease is exploited at the lease’scommencement at the present value of the minimum lease payments and the lowerof the leased property’s fair value. In order to achieve an unchanging rate ofinterest on the liability’s remaining balance, every lease payment is distributedbetween finance charges and liability. In addition, for each period, to producea constant fixed rate of interest on the liability’s remaining balance due to thefinance cost is charged to profit or loss over the lease period.
The PPE isdepreciated over a short useful life of the asset and acquired under financeleases. At the end of the lease term, the Group will obtain ownership if thereis no rational certainty. Besides, deferred gain from sale and finance leaseback transaction is amortized over the lease term by using straight line method.At the end of financial period 2016, deferred gain from sale and finance leaseback of Axiata Group Berhad is RM 1,053,855,000. Initial direct costs of negotiatingand arranging finance leases which incurred by the Group are added to thecarrying amount of the leased assets and known as lease expense in profit orloss over the lease period. (Annual Report, 2016) Other than that, the Group isable to enjoy a lot of tax concession on this type of financing as lease orrental payments are deductible from taxable income. Finance leases are a cheapersource of financing than almost all other sources of financing because leasing allowsthe Group to get equipment without going through rigid official procedure.
Therefore,lease financing is faster and cheaper.