Company Description

            Nestle Group is the world’s biggest food and beverage manufacturer in terms of revenues. The Swiss multinational is headquartered in Switzerland. Its portfolio of products includes medical food, baby food, breakfast cereals, bottled water, confectioneries, ice cream, dairy products, pet food, snacks, coffee, and tea. Annual sales of the group are approximately $1.1 billion with over 447 factories, 339,000 employees operating in 189 countries. The business also holds shareholding in other businesses such as L’Oreal.

Prepaid Assets of Nestle Group

            Prepaid assets represent expenses paid in one accounting period, but will not be recognized until a later accounting period. The prepaid expenses are shown in the balance sheet as current assets because of their future economic benefits. The matching principle of accounting requires that expenses are matched to the revenues in the periods they are realized. The two most common uses of prepaid expenses are insurance and rent. Prepaid rent is rent paid in advance while prepaid insurance is one which has not yet expired on the date of preparing the balance sheet. Hence, the balance sheet of the company reflects the unexpired costs of the prepaid expenses, while the income statements shows the expired costs.

            Nestle Group has a significant amount of prepaid assets unlike a small business. From the balance sheet of the company in 2019, the prepayments and accrued income were 498 million Swiss Franc, while in 2018 they were 530 million CHF (Nestle Group, 2019). The huge amount of prepayments is as a result of leases for premises, equipment, and unexpired insurance. The expenses paid in advance cannot be expensed in the current accounting period, because it would not be in line with accounting principles, thus they are shown as prepaid assets in the balance sheet. The group has to pay for leases for its factories and office space in advance to ensure business continuity and vend off other interested parties. It also has to pay for insurance for its employees in advance to ensure occupational safety and comply with laws and regulations in the various jurisdictions it operates.  

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Nestle Group. (2019). Consolidated Financial Statements of the Nestle Group 2019. Retrieved from https://www.nestle.com/sites/default/files/2020-02/2019-financial-statements-en.pdf (Accessed 11 June 2020).