Scenario Analysis: Woolworths Ltd Subsidiary Dick Smith Electronics Lease Obligations

Question

During 2012 the Australian company Woolworths Ltd (WOW) sold its subsidiary business called Dick Smith Electronics. Within 8 months of the FOR SALE sign going up Anchorage bought the Dick Smith Business for $20 million. This is the same amount Woolworths Ltd bought the Dick Smith Business for 30 years ago. (Woolworths Ltd bought the business from Dick Smith the man.) Refer to the 2012 preliminary financial report of Woolworths Ltd (WOW) on their Web site http://www.woolworthslimited.com.au/. (Actual report address is http://www.woolworthslimited.com.au/icms_docs/135571_FY12_Preliminary_Final_Report.pdf) Answer the question
Dick Smith Electronics had significant ongoing lease obligations. Define a lease. Why would these lease obligations be relevant to the assessment of the sale of Dick Smith Electronics for Woolworths Pty Ltd? Dick Smith Electronics had not been losing money and its debt obligations equalled its asset value, so why would Woolworths Ltd been keen to sell Dick Smith Electronics.

Summary

The question belongs to Accounting and it is about Woolworths Ltd accounting. Woolworths Ltd has a subsidiary named Dick Smith Electronics. Dick Smith Electronics has high ongoing lease obligations because of which it had lost more money. Here, a lease agreement has been defined.

Total Word Count 138

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