FAVOUR BARUWA

MBA

ACC 6050: Accounting and Financial Reporting

BUS6050 MODULE 3 ASSIGNMENTS

Milestone 1 - Reviewing, Comparing, and Analyzing

Financial Statements

24th February 2024

 PART 1

In this Milestone assignment, I will be Reviewing the Financial statement of Unilever US which is

located at the Energy-efficient hub in Englewood Cliffs, New Jersey. United States (Unilever, 2023) and

Unilever Nigeria Plc whose head office is at 1, Billingsway, Oregun, P.O. Box 1063, Ikeja, Lagos,

Nigeria (Bloomberg, 2024). this company is both publicly traded and listed on the New York Exchange

NYSE and the Nigerian Exchange Group (NGX) respectively. The company manufactures and markets

a range of consumer goods, including foods, beverages, home, and personal care products, and has

released its 2021 and 2022 financial statements.

Unilever Nigeria's financial statement and Unilever USA's Financial statement are prepared using

different accounting standards for their financial statements. although both are subsidiaries of the same

parent company, Unilever Nigeria follows IFRS, while Unilever USA follows US GAAP. Therefore,

there would be variations in how the results of certain items are presented and identified as seen below:

1. Goodwill: - IFRS and GAAP treat goodwill in different ways. In IFRS, goodwill is reduced or paid

off within Ten years, But the US GAAP can Permit Goodwill for an uncertain or indefinite length

of time for its payoff. Therefore, this affects the book values and incurred cost of goodwill on the

balance sheets of both subsidiaries.

2. Lease liabilities and ROU: IFRS mandates identifying lease liabilities and ROU assets for all asset

leases, while GAAP allows different classifications as capital or operating leases, which

significantly impacts the recognition and measurement of Assets and Lease-related expenses in

financial statements.

3. Income and Revenue: - Income and Revenue also Varies between the two standards when analyses

and measured. Income and Revenue are typically identified in IFRS when the customer gains

control over the goods or services. However, GAAP permits earlier revenue recognition under some
 conditions. These variations may have an impact on when and how much money is reported by

these two companies - Unilever Nigeria and Unilever USA.

PART 2

Unilever USA and Nigeria follow strict reporting processes for financial statements. This includes

complying with local standards, eliminating intercompany transactions, consolidating data, translating

currency, and conducting audits, all to ensure accurate financial performance and health of the Unilever

group.

1. Local Reporting Standard: - While the USA subsidiary of Unilever records transactions

recognizes Income and Cost/expenses, and values assets and liabilities based on the United

States local accounting standards which is GAAP to maintain consistency, Unilever Nigeria

prepares its financial statements by the IFRS standards.

2. Eliminating Intercompany Transactions: - Records of transactions between Unilever USA and

its Nigeria Subsidiary such as purchases, sales, loans, and dividends are all logged and

eliminated during the consolidation process in order to prevent double counting.

3. Currency Conversion: - During consolidation using the Prevailing currency exchange rates,

Unilever Nigeria financial statements are converted into USD. Since Unilever USA reports in

USD, while its Nigerian subsidiary reports in NGN.

4. Consolidating Data: - The consolidated financial statements of Unilever Nigeria and Unilever

USA are created after eliminating intercompany transactions and currency conversion, providing

a comprehensive understanding of the Unilever group's financial performance.

5. Compliance: - Unilever adheres to International Financial Reporting Standards (IFRS) for its

consolidated financial statements, ensuring consistent and comparable financial data across its

group of companies and nations.

 6. External Audit: - To guarantee accuracy, dependability, and compliance with relevant

accounting standards and regulations, independent auditors conduct an external audit of the

consolidated financial statements.

REPORTING REQUIREMENT

The financial report uses US GAAP in Unilever USA, allowing management to make estimates and

assumptions affecting report amounts and disclosures. These projections are based on real-world issues,

including the COVID-19 pandemic's consequences. They consider provisions for credit loss allowances,

property recoverability, fair value evaluations, incremental borrowing rates, long-term assets, goodwill,

unclaimed tax benefits, and other relevant factors.

Nonetheless, Unilever Nigeria's financial statements were produced in compliance with the Companies

and Allied Matters Act of Nigeria (CAMA) 2020 requirements as well as IFRS as published by the

IASB. Without affecting its business operations, Unilever Nigeria has incorporated all accounting

pronouncements for the current reporting period, except for derivatives and debt instruments,

determined at fair value through profit or loss, and comprehensive income, the audited financial

statements were prepared using the historical cost basis.

FINANCIAL TRANSACTION

S/
N Financial Transaction
Debit (N) Credit (N)
1 Asset
Inventory 8000
Account Receivable 7000
Cash 25000
Total Asset 40000

2 Liability
Account Payable 2500
Sales Tax collected 1500
 Total Liability 4000

3 Owner's Equity
Share Capital 32500
Earning Reinvestment 3500
Total Owner's Equity 36000

FINANCIAL ACCOUNTING ANALYSIS AND TOOLS

Financial accounting tools are used to gain insights into the company's position, profitability, and cash

flow. Below are some examples:

1. Ratio Analysis: is an essential part of fundamental equity analysis and a quantitative method of

evaluating financial statements such as the balance sheet and income statement to reveal information

about a company's profitability, operational efficiency, and liquidity.

2. Horizontal Analysis: This is a method used by analysts to compare financial data from one

accounting period with data from other periods to examine past trends (CFI, 2023).

3. Proforma Analysis is a technique for estimating or making assumptions when calculating financial

results by the comparison of a company’s computed ratio with the ratios computed using statistics or

budgetary information.

4. Vertical Analysis: uses percentages to represent each line item in a financial statement, revealing

the composition and importance of accounts and identifying patterns and irregularities in raw data.

5. Common Sense: this involves the application of the rule of thumb or expert judgment when

evaluating one's financial status.

6. Trend Analysis: Trend Analysis is a technical method that predicts future stock price movements
using recent trends and financial statement data, using graphical line charts or bars.

HORIZONTAL ANALYSIS OF THE 2021/2022 INCOME STATEMENT OF UNILEVER

NIGERIA
 Unilever Nigeria Plc - Annual Report Year ended 31 December 2022
Statement of financial position – Horizontal Analysis
As at 31 December
Note 2022 2021 2022 2021
Assets ₦'000 ₦'000
Non-current assets
Property, plant and equipment 14(i) 21,490,568 22,376,287 96% 100
Intangible assets 15 3,081 3,467 89% 100
21,493,649 22,379,754 96% 100
Current assets
Inventories 16 16,331,854 14,956,331 109% 100
Trade and other receivables 17(i) 21,246,606 14,992,655 142% 100
Cash and cash equivalents 18 66,317,783 55,697,537 119% 100
Assets held for sale 19 - 262,258
Total current Asset 103,896,243 85,908,781 121% 100
Total assets 125,389,892 108,288,535 116% 100

Liabilities
Current liabilities
Trade and other payables 20 52,404,796 39,739,074 132% 100
Income tax 12(iii) 2,972,361 478,615 621% 100
55,377,157 40,217,689 138% 100
Non-current liabilities
Deferred tax liabilities 21 1,473,440 1,063,404 139% 100
Unfunded retirement benefit obligations 22(iv) 363,826 454,713 80% 100
Retirement benefit deficit 22(v) 291,205 421,291 69% 100
Long service award obligations 22(iv) 319,548 369,770 86% 100
2,448,019 2,309,178 106% 100
Total liabilities 57,825,176 42,526,867 136% 100
Equity
Ordinary share capital 30 2,872,503 2,872,503 100% 100
Share premium 30 56,812,810 56,812,810 100% 100
Retained earnings 30 7,879,403 6,076,355 130% 100

Total equity 67,564,716 65,761,668 103% 100

Total equity and liabilities 125,389,892 108,288,535 116% 100

(Unilever Nigeria's financial statement, 2023 pg45)

HORIZONTAL ANALYSIS OF THE 2021/2022 INCOME STATEMENT OF UNILEVER USA

Unilever United States, Inc

 Nonconsolidated Statements of Financial Position - Horizontal Analysis
December 31 2022 and 2021
Assets 2022 - S000 2021 - S000 2022 - % 2021 - %
Currentt assets:
Investments in subsidiaries (note 3) 28,814,899 28,669,501 99% 100%
Funds in escrow (note.9,15) 551 792 144% 100%
Deferred taxes (note 7) 6,180 6,801 110% 100%
Total non-current assets 28,821,630 28,677,094 99% 100%
Current assets:
Cash and cash equivalents (note 9)
Investment inequity shares (note 9,10) 16,441 44,474 271% 100%
Prepaid expenses (note 12) 6,095 5,293 87% 100%
Due from Unilever Group affiliates (note 8) 1,422 2,645 186% 100%
Total current assets 23,958 52,412 219% 100%
Total assets 28,845,588 28,729,506 100% 100%

Liabilities and Equity

Equity: (note 13)
CaUed up share capital 1 1 100% 100%
Share premitun 1,350,172 1,350,172 100% 100%
Accumulated other comprehensive loss (12,953) (12,328) 95% 100%
Retained earnings 17,627,132 17,413,937.0 99% 100%
0
Total equity 18,964,352 18,751,782 99% 100%
non-current liabilities:
Liabilities to employee beuefit plans (note 5) 12,568 14,401 115% 100%
Liabilities for share-based compensation (note 6) 29,337 10,086 34% 100%
Provisions (note 15) 465 465 100% 100%
Total uon-cu1Tent liabilities 42,370 24,952 59% 100%
Current liabilities:
Trade and other payables (note 14) 23,376 19,646 84% 100%
Provisions (note 15) 10,237 2,490 24% 100%
Liabilities to employee benefits plans (note 5) 2,476 2,952 119% 100%
Liabilities for share-based compensation (note 6) 5,573 4,383 79% 100%
Due to Unilever Group affiliates (note 8) 3,453 7,148 207% 100%
Dividend Payable to Parent Company (note 8) 1,500,000 0% 100%
Net amounts due to UNUS Group affiliates (note 8) 8,293,751 9,916,153 120% 100%
Total current liabilities 9,838,866 9,952,772 101% 100%
Total liabilities and equity 28,845,588 28,729,506 100% 100%
(Unilever USA's Financial statement, 2023 pg 5)
FINANCIAL RATIOS

Financial Ratio Unilever Nigeria (#000) Unilever USA ($000)

2022 2021 2022 2021
Current Asset 103,896,243 85,908,781 23,958 52,412
Current Liabilities 55,377,157 40,217,689 9,838,866 9,952,772
Net Profit/loss 4,467,084 688,266 1,713,195 269,349
Gross Profit 31,176,527 20,361,911 11,900,00 12,300,00
0 0
Sales 88,570,826 70,523,695 62,660,00 56,510,00
0 0
Total asset 125,389,89 85,908,78 28,845,58 28,729,50
2 1 8 6
Average Inventory 16,630,000 31,400,000 5,435,500 5,840,500

Current Ratio = Current Asset/Current Liability 2:1 2.14 :1 0.002:1 0.005:1

Net Profit Ratio = Net Profit/Net Sales 0.0 0.0 2.7 0.48
Return on Assets = Net Profit x 100/Total Assets 3.56 0.64 5.9 0.94
Inventory Turnover = Net Sales/Average Inventory 532.6 224.6 1152.7 967.6
Gross Profit Ratio = Gross Profit x 100/Sales 35.2 28.9 19 21.8

Unilever Nigeria's current ratio of 2.1 shows how well-equipped the company is to use current assets to

pay short-term obligations. However, for its USA subsidiary, its current assets are seriously declining.

indicating that if all of its short-term obligations were due at once, it would not have the cash on hand to

pay them (Investopedia, 2020). We can therefore say that Unilever USA failed to effectively utilize its

resources to generate income.

Additionally, Unilever USA's net profit decreased. While Unilever Nigeria demonstrated a signaificant

improvement between 2021 and 2022 when all costs—including tax—were taken into account, both

companies' expenses decreased between 2020 and 2021. Unilever Nigeria's gross profit margin rose by

21.8% in 2021, but Unilever USA's profit fell by 12.8% in 2022 (Nexford Learning Solutions, 2023)

REFERENCE
1. Investopedia, https://www.investopedia.com/terms/c/currentratio.asp#:~:text=In%20many
%20cases%2C%20a%20company,solvent%20in%20the%20short%20term.

2. Bloomberg, 2024, https://www.bloomberg.com/profile/company/UNIL:NL

3. Unilever, (2023), https://www.unilever.com/news/news-search/2023/inside-our-markets-

unilever-in-the-usa/#:~:text=Since%202018%2C%20Unilever%27s%20headquarters%20in,in
%20Englewood%20Cliffs%2C%20New%20Jersey.

4. Unilever Nigeria's financial statement, (2023)

https://doclib.ngxgroup.com/Financial_NewsDocs/38106_UNILEVER_NIGERIA_PLC.-
_QUARTER_1_-
_FINANCIAL_STATEMENT_FOR_2023_FINANCIAL_STATEMENTS_APRIL_2023.pdf

5. Unilever USA's Financial statement, (2022) https://www.unilever.com/files/607829f1-fdb5-

46ea-8e83-152a29e8f0e3/unus-financial-statements-2022.pdf

6. Corporate Finance Institute (2023), What is Horizontal Analysis?

https://corporatefinanceinstitute.com/resources/accounting/horizontal-analysis/#:~:text=What

%20is%20Horizontal%20Analysis%3F,approach%20to%20analyze%20historical%20trends.

7. Nexford Learning Solutions (2023) Accounting Analytics,

https://nexford.instructure.com/courses/4589/pages/acc6050-module-3-accounting-analytics?
module_item_id=185146

8. Nexford Learning Solutions (2024) Importance of analysis in understanding financial statement

reporting, https://nexford.instructure.com/courses/4589/pages/acc6050-module-3-accounting-

analytics?module_item_id=185146

9. Adam Hayes, (2023). Understanding Trend Analysis and Trend Trading Strategies.

https://www.investopedia.com/terms/t/trendanalysis.asp