Leasing in the Pharmaceutical Industry Essay
Walgreen Co. and CVS Corporation accounting for leases in the Pharmaceutical Industry analyses purposes to evaluate the firm’s economic accomplishments assess the company cash flow processes and highlight the main reason behind the company’s accounting success. There are different types of accounting ratios used by Walgreen Co. and CVS Corporation in evaluating its accounting achievements. Walgreen Co. and CVS Corporation combines the use of cash flows, estimate, and receivables in determining its accounting progress. Walgreen Co. and CVS Corporation management and administration of its fiscal reporting involves a long process. Financial reporting at Walgreen Co. and CVS Corporation is essential in offering a justifiable assurance concerning the reliability and preparation of financial statements that are prerequisite documents for external organizational purposes (Wang, 2014). By preparing financial reports, Walgreen Co. and CVS Corporation acts in conformity to the GAPP accounting guidelines. GAPP guidelines on internal accounting control require including a company records prepare and appropriately protect the financial statements accurately and comprehensively that reflects all the internal dispositions and transactions at Walgreen Co. and CVS Corporation. Walgreen Co. and CVS Corporation is also required by the GAPP guidelines to guarantee that every of the company’s transaction has been included as part of the financial statement. Lastly, all receipts and authorizations must accompany Walgreen Co. and CVS Corporation’s financial report.
Comparison of Leasing versus Renting
Leasing accounting reporting encompasses critical accounting policies including cash and cash equivalents, inventories, estimate consolidation, and associated principles as well as receivables. In case Walgreen Co. and CVS Corporation detects unlawful and illegal approval of financial acquisition or payouts, the company should offer a timely assurance that the transactions are reported to the necessary authorities and if recovered before preparation of the final report, the transaction should be included in the financial statement.
On the other hand, renting integrates the principle of consolidation requires Walgreen Co. and CVS Corporation to include all bank details and accounts managed or aligned with the company. The principal also requires Walgreen Co. and CVS Corporation to provide details of the company transactions and intercompany banking details that the company may be operating (Wang, 2014). Investments that Walgreen Co. and CVS Corporation has not fully consolidated which comprises less than 50% ownership are measured under the equity method since these properties although owned by the company do not ascertain the consolidation demands.
Concerning the use of estimate policies, there are numerous estimate tools that Walgreen Co. and CVS Corporation integrates into financial reporting based on the GAPP provisions. The estimate policies require Walgreen Co. and CVS Corporation administration to make theoretical assumptions on the extent the reported liabilities and assets could potentially have been affected (Gal and Pinter 2016). The importance of using estimates is because they are easier to use for future organizational planning compared to the actual results, which may give varying figures making the budgetary planning process difficult.
Costs and Benefits of Leasing
Leasing has numerous benefits. The value of leasing is assessed based using two processes. Firstly, Walgreen Co. and CVS Corporation can evaluate the value of inventories by assigning them the lowest market costs. Secondly, inventory value at Walgreen Co. and CVS Corporation is calculated primarily through the retail inventory technique.
Leasing also provides an opportunity for members to renew their membership after every financial year. For a membership review process to be effected, one has to pay annual membership fees. This applies to all Walgreen Co. and CVS Corporation members in the US and globally. The table 1 below represents a summary of Walgreen Co. and CVS Corporation membership activities for the fiscal years of 2016 and 2017. The membership fee collected by Walgreen Co. and CVS Corporation is cumulatively combined with other consolidated company’s income, which is finally recorded in Walgreen Co. and CVS Corporation’s Consolidated Statement of Financial Income (Orlova and Afonin, 2015). For defaulter members who fail to pay for their membership renewal fees, their deferred incomes are recorded in Walgreen Co. and CVS Corporation’s Consolidated Balance Sheets.
Leasing is a source of revenue. Leasing cards have an expiry date, which is different from the other case. Regardless of whether the cards have expiry dates or not Walgreen Co. and CVS Corporation requires that for the shopping cards to gain value, it must be spent on purchasing products within the store. Walgreen Co. and CVS Corporation earns revenue in this method through shopping gift cards. Revenues from shopping gifts and cards are recorded in the firm’s Consolidated Statements of Financial Income.
Residual Value of Leased Asset
At Walgreen Co. and CVS Corporation, the company’s operating lease is considered more of a rental agreement. Walgreen Co. and CVS Corporation does not, therefore, report the asset that has been leased or the liability aligned to the leased property. The lessee statement on Walgreen Co. and CVS Corporation financial standing does not entail details of operating leases. The rights of leasing the property are determined by the assets owner (Annual Cash Flow Statement – Walgreen Co. and CVS Corporation Inc. Annual Financials, 2017). In Walgreen Co. and CVS Corporation’s income statement, the lessee is recorded as a rental income thus recorded in Walgreen Co. and CVS Corporation’s income statement. Often, Walgreen Co. and CVS Corporation is directly involved in remodeling or constructing stores that it had previously leased. In 2017. Walgreen Co. and CVS Corporation uses high level accounting reporting flexibility. The company’s management endeavors to record clear and present clear financial reports most accurately and concisely. For purposes of increasing reporting accuracy, Walgreen Co. and CVS Corporation strictly adheres to the above-discussed accounting policies and guidelines that the GAPP provides.
Leasing assessment is one of the financial measures considered non-GAPP because the analysis is not tied to GAPP policies or guidelines. Free cash flow is the ability of a firm to use its market operations to generate additional revenues. Free cash is one of the most important techniques used by companies in assessing the fiscal health and position of an organization. Free cash flow is calculated based on a specific period when the company intends to measure its financial strength. This period can be quarterly, six months or one financial year based on a company’s set financial goals.
Walgreen Co. and CVS Corporation’s has incorporated all the free cash transaction details as part of its financial statements. In reporting the company’s cash flow that resulted from general company’s operation, Walgreen Co. and CVS Corporation has included details of vendors, the merchandise sold, the costs of operating the stores and employee benefits. The company’s financial statements also report that cash flows accrued from investment operations were used in renovating and expanding Walgreen Co. and CVS Corporation’s stores.
To conclude, the choice between renting or leasing properties based on the case study is arguably challenging. Nonetheless, the best appropriate measure to integrate in assessing which of the two to integrate as an accounting procedure within the organization is evaluating the asset available. Since the asset at the company are not all required throughout the financial period, then Walgreen Co. and CVS can lease the assets.
References
Annual Cash Flow Statement – Walgreen Co. and CVS Corporation Inc. Annual Financials. (2017). Retrieved from https://www.marketwatch.com/investing/stock/wmt/financials/cash-flow
Gal, P. N., & Pinter, G. (2016). Capital over the business cycle: renting versus ownership.
Orlova, L. V., & Afonin, Y. A. (2015). Modern management tools: benchmarking and leasing. Oxford Journal of Scientific Research, 3(1), 292.
Wang, D. H. (2014). The woes of the container leasing industry. International Journal of Shipping and Transport Logistics, 6(1), 7-25.
