Corporate Accounting: Analysis of Finance Statements of ASX Listed Entities

The report analyses the finance statement of 3 ASX listed entities and the way they reported various items like assets, liabilities, other comprehensive income and cash flow statement. It further focuses on corporate income tax and computes the cash tax rate of the companies.

Running head: CORPORATE ACCOUNTING
Corporate accounting
Name of the student
Name of the university
Student ID
Author note

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CORPORATE ACCOUNTING
Executive summary
Aims of the report is to analyse the finance statement of 3 ASX listed entities and the way
they reported various items like assets, liabilities, other comprehensive income and cash flow
statement. For this report 3 companies that will be taken into consideration are Altura
Mining, Rio Tinto and BHP Billiton. The report will represent the amount of changes for
assets, liabilities and cash flows. It will further focus on corporate income tax and will
compute the cash tax rate of the companies.

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Table of Contents
Introduction................................................................................................................................3
Equity and liabilities..................................................................................................................3
(i) Equity items....................................................................................................................3
(ii) Liability items................................................................................................................6
(iii) Comparative analysis of debt and equity position.........................................................9
Cash flow statement.................................................................................................................10
(iv) Listed cash flow items...............................................................................................10
(v) Comparative analysis.................................................................................................11
(vi) Comparative analysis selected for explaining insights..............................................14
Other comprehensive income statement..................................................................................14
(vii) Reported items under other comprehensive income (OCI).......................................14
(viii) Why items of OCI are not reported in the profit and loss statement.........................16
(ix) Comparative analysis of items reported under OCI..................................................16
(x) Including comprehensive income for evaluating the manager’s performance..........16
Accounting for corporate income tax.......................................................................................17
(xi) Tax expenses recorded in financial statement of 2017..............................................17
(xii) Effective rate of tax...................................................................................................17
(xiii) Deferred tax assets or deferred tax liabilities............................................................17
(xiv) Increase or decrease in deferred tax assets or liabilities reported by the entities......18

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(xv) Cash tax.....................................................................................................................18
(xvi) Rate of cash tax.........................................................................................................19
(xvii) Difference of cash tax rate from the book tax rate....................................................19
Conclusion................................................................................................................................19
Reference..................................................................................................................................21

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Introduction
Altura Mining is an ASX listed company based in Perth, Australia and carries on the
business of lithium. It is engaged in exploration and development of coal mining and
minerals. The company is fulfilling the increasing demand of raw material required for
manufacturing lithium ion batteries. It is focussed on developing and constructing its 100%
owned lithium project Pilgangoora located in Pilbara, Western Australia (Alturamining.com,
2018).
Incorporated on 30th March 1962, Rio Tinto became the leading mining and metal
company in Australia. It’s major business is finding, mining and processing of mineral
resources. It has various segments like Iron Ore, Aluminium, minerals and energy, Diamonds
and copper. The company assists in meeting the society’s requirement through different
researches and innovations and help the world to grow (Riotinto.com, 2018).
Established during 2001 through merging of Broken Hill, Billiton and Proprietary,
BHP Billiton became the biggest mining and global resources organization. It is 7th biggest
producer in world for aluminium and considered as the largest producer of manganese,
copper, nickel, aluminium, iron ore, titanium, uranium and silver (BHP, 2018).
Equity and liabilities
(i) Equity items
Altura Mining – equity items listed in the balance sheet of the company are as follows –
 Contributed equity – contributed equity that is also known as paid in capital is the
component of total equity recognised in the balance sheet of the company. Another
way of reporting the contributed equity is to record it under the head shareholder’s

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equity as a separate account. It represents the contributed amount of shareholders for
share of ownership in the company (Titman, Keown & Martin, 2017).
 Reserves – reserve is considered as an equity component that does not consider the
part of basis share capital. It represents the surplus accumulated through various
sources including revaluation reserve that is upward revaluation of the assets or
issuance of share at premium (Maaloul & Zéghal, 2015).
 Accumulated loss – generally the amount of retained earnings that is the accumulated
earnings are used for distributing dividend. If the account balances of accumulated
earning shows negative figure the amount of retained earnings will also represent
negative balance that is reported as accumulated loss.
Changes in equity for the company is as follows –
Issued capital amount went up owing to the contribution of equity and changes in the
amount of accumulated losses were owing to the distribution from the retained earnings.
Rio Tinto – equity items listed in the balance sheet of the company are as follows –
 Share capital – fund raised through share issuance in consideration for cash or other
form is known as share capital. In investing into the company through purchasing the
shares the shareholders becomes the part owner of the company. it is considered as
the long term source of raising funds.

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 Share premium – share premium is the value of share exceeding its par value. Share
premium amount can be used only for some particular purposes mentioned in the
company’s bylaws (Marshall, 2016).
 Other reserves – as described for Altura Mining
 Retained earnings – retained earnings is the surplus amount available at the date of
balance sheet and the amount of retained earnings is reduced with the distribution of
dividend to the shareholders (Reid & Myddelton, 2017).
Changes in equity for the company is as follows –
Retained earnings amount changed for dividend payment and share buyback. Amount
of reserves changed for share buyback.
BHP Billiton – equity items listed in the balance sheet of the company are as follows –
 Share capital - as described for Rio Tinto
 Treasury shares – it is the issued share that the company bought back. It reduces the
number of share outstanding in open market for any entity. Treasury shareholders are
not entitled to get dividends and are not entitled to voting rights (Sarfaty, 2015).
 Retained earnings – as described for Rio Tinto
 Reserves - as described for Altura Mining
Changes in equity for the company is as follows –

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Reserves amount reduced as various employee related payment and adjustments made
from the reserve amount. Retained earnings amount changed for dividend payment
(ii) Liability items
Altura Mining - liquidity items listed in the balance sheet of the company are as follows –
 Trade and other payables – trade and payable is the amount payable by the company
to the supplier for purchase made by it or service consumed by the company.
 Borrowings – raising finance through financial institutions like bank or 3rd party is
known as borrowings. In case of borrowing it is agreed that the borrowed money
along with interest will be repaid in future period. Based on the maturity date
borrowing is segregated into long term and short term (Waddock, 2017)
 Provisions – the amount set aside for meeting the estimated but uncertain future
liability is known as provisions. Provision amount can be utilised for meeting future
obligations.
 Liabilities held for sale – liabilities held for selling purpose are measured at carried
value of the liabilities held for sale and faire value of the liability less disposal cost,
whichever is lower.
Changes in liability for the company is as follows –

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Borrowing reduced due to repayment and increased for new borrowings. Trade and
other payable increased for accruals of new payable amount.
Rio Tinto – liquidity items listed in the balance sheet of the company are as follows –
 Borrowing and other financial liabilities – As explained for Altura Mining
 Trade and other payables – As explained for Altura Mining
 Deferred tax liabilities – DTL is the tax that is due for the current period or assessed
for the current period, however the payment for which has not yet been made. If it is
certain that the company will pay more tax in future for the transaction of current
period the company will record the DTL in balance sheet.
 Tax payable – it represents the tax payable to the government during one year period
and is recorded in the current liabilities (Warren & Jones, 2018).
 Provision for the post retirement benefits – it includes different post retirement
benefits and defined pension benefits. Post retirement benefits include health care
plans and welfare plans. The employees are entitled to the benefits based on the years
he / she served the company.
Changes in liability for the company is as follows –

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Borrowing reduced due to repayment and increased for new borrowings. Trade and
other payable increased for accruals of new payable amount. Long – term provision including
post retirement benefits increased owing to the adjustments of changes in estimates and
currency translation.
Altura Mining - liquidity items listed in the balance sheet of the company are as follows –
 Trade and other payables – As explained for Altura Mining
 Borrowings or interest bearing liabilities – As explained for Altura Mining
 Other financial liabilities –
 Tax payable – As explained for Rio Tinto
 Provisions – As explained for Altura Mining
 Deferred income – it is the advance payment received from customers for the services
that is not yet to be provided. Receiver records this amount as liability under actual
basis of accounting.
Changes in liability for the company is as follows –

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Current tax payable increased as the rate of tax has been increased and the
unrecognised tax asset amount of last year. Borrowing reduced due to repayment and
increased for new borrowings. Trade and other payable increased for accruals of new payable
amount.
(iii) Comparative analysis of debt and equity position
Debt –equity amount –
Debt-equity percentage –

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Comparative for debt and equity is carried out for assessing the solvency position of
the company. High proportion of debt indicates that the company is highly leveraged and its
solvency is exposed to risk of interest payable on high amount of borrowing. It can be
recognised from the above table that if the debt-equity position of all the companies are
compared it can be stated that Altura Mining is in safest position as major portion of its
capital is raised through equity. On the other hand the debt –equity position of Rio Tinto and
BHP Billiton do not have much difference. They are moderately leveraged.
Cash flow statement
(iv) Listed cash flow items
Cash flows statement of all the companies generally comprised of 3 items – (i) cash
flow from operating activities (ii) cash flow from the financing activities and (iii) cash flows
from investing activities. Facts of each head are mentioned below –
 Cash flow from operating activities – it represents all the cash generated from the
operational activities of the company. It includes expenses as well income from
interest, payment to suppliers, receipts from customers, adjustments for depreciation
and income tax.
 Cash flow from the financing activities – this section reflects the cash paid and
received from financial activities. It includes amount received from share issue less
associated expenses and payment made towards borrowing or lease (Chang et al.,
2014).

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 Cash flows from investing activities – this section reflects the cash paid and received
from investment activities like purchase or sale of fixed assets. Further, the amount
involved with investment held for maturity also included in this section.
Changes in each item of the cash flows statement –
Altura Mining – cash used for investing activities significantly increased to $ 43,581,000
from $ 17,14,000. Increase in the amount was contributed to purchase of fixed asset like
plant, equipment and property for the value of $ 35,109,000. Cash generated though
financing activities increased to $ 25,848,000 as compared to previous year’s $ 40,309,000
due to the amount received from issuance of shares.
Rio Tinto - Cash used towards financing activities increased to $ 9,141 million as compared
to previous year’s $ 7,491 due to buyback of shares for the value of $ 2,083 million. Cash
used for investing activities significantly increased to $ 2,373 million from $ 2,104 million.
Increase in the amount was contributed to purchase of fixed asset like plant, equipment and
property for the value of $ 4,482 million (Pavlović & Bogdanović, 2013).
BHP Billiton - cash used for investing activities significantly reduced to $ 4,161 million from
$ 7,245 million. Reduction was due to fewer amounts expensed for purchase of fixed asset
like plant, equipment and property in 2017 as compared to previous year. Cash expensed
though financing activities was $ 9,133 million as compared to previous year’s cash
generation for the amount of $ 284 million due to the increase of value for interest bearing
obligations.
(v) Comparative analysis
Altura Mining –

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2017 ($'000) 2016 ($'000) 2015 ($'000)
-50000
-40000
-30000
-20000
-10000
0
10000
20000
30000
40000
50000
Net cash used in op
erating activities
Net cash (used in) /
provided by invest
ing activities
Net cash provided
by (used in) financi
ng activities
Cash flow from the all the activities had improving trend. However, except for
financing activities cash flow from other 2 activities are in negative.
Rio Tinto –

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2017 ($m) 2016 ($m) 2015 ($m)
-15,000.00
-10,000.00
-5,000.00
-
5,000.00
10,000.00
15,000.00
20,000.00
Net cash used in op
erating activities
Net cash (used in) /
provided by investi
ng activities
Net cash provided b
y (used in) financin
g activities
Cash flow from operating activities increased to $ 13,884 million as compared to $
9,383 million for 2015. However, except for operating activities cash flow from other 2
activities are in negative.
BHP Billiton –

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2017 ($m) 2016 ($m) 2015 ($m)
-15,000.00
-10,000.00
-5,000.00
-
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
Net cash flows
from operating act
ivities
Net cash (used in)
/ provided by inv
esting activities
Net cash provided
by (used in) finan
cing activities
Cash flow from operating activities increased to $ 16,804 million as compared to $
19,296 million for 2015. However, except for operating activities cash flow from other 2
activities are in negative.
(vi) Comparative analysis selected for explaining insights
Looking into the insights of the company’s cash flow pattern it can be explained that
Altura Mining generated cash through financing activities whereas BHP Billiton as well as
Rio Tinto both spent cash towards financing activities. On the other hand, Altura Mining
spent cash towards operating activities whereas BHP Billiton as well as Rio Tinto both
generated cash from operating activities (Melloni, Lai & Stacchezzini, 2018).
Other comprehensive income statement
(vii) Reported items under other comprehensive income (OCI)
Altura Mining - Reported items under other comprehensive income for the company are as
follows –

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 Items subsequently to be reclassified under profit and loss statement – under this,
changes in the fair value of the financial assets available for sales and exchange
difference generated through foreign exchange transaction are included (Watson,
2015).
Rio Tinto – Reported items under OCI for the company are as follows –
 Items subsequently to be reclassified under profit and loss statement – it represents
gains or loss from securities available for sale, cash flow hedges and its fair value
changes, tax recognition and exchange difference generated through currency
translation
 Items subsequently not to be reclassified under profit and loss statement – it
represents the items related to post retirement benefits and gains or losses associated
with that, tax associated with OCI and adjustments for deferred tax related to benefit
plan for post retirement period (Jordan & Clark, 2014).
BHP Billiton – Reported items under OCI for the company are as follows –
 Items subsequently not to be reclassified under profit and loss statement – re-
measurement of losses or gains from medical schemes and pensions are included
under this. Further, it includes the amount of tax reported under OCI
 Items subsequently to be reclassified under profit and loss statement – it represents
investments available for sale, cash flow hedges, tax recognition and exchange
difference generated through foreign exchange transaction reported under income
statement and equity both (Khan & Bradbury, 2016).

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(viii) Why items of OCI are not reported in the profit and loss statement
Main objective of preparing the OCI is recording all financial and operating activities
those have impacts on the decision of the financial users. OCI reveals open and more detailed
view of income statement or net income. Further items those can be included under OCI such
as investments available for sale, cash flow hedges, tax recognition and exchange difference
generated through foreign exchange transactions cannot be included in profit and loss
statement (Khan & Bradbury, 2016).
(ix) Comparative analysis of items reported under OCI
It was found through analysing the other comprehensive income statement of 3
companies that the comprehensive loss for Altura Mining is reduced to $ 52,36,000 from $
31,267,000. Comprehensive income of Rio Tinto significantly went up to $ 11,939 million as
compared to $ 4,713 million for previous year. Comprehensive loss amounting to $ 6,184
million was changed to profit amounting to $ 6,173 million. If the amount of income related
to accounting heads those are recorded under comprehensive income if included under profit
and loss statement or income statement it will increase the profit attributable to shareholders
of the company. On the contrary, if the amount of related to accounting heads those are
recorded under comprehensive losses if included under profit and loss statement or income
statement it will reduce the profit attributable to shareholders of the company (Weygandt,
Kimmel & Kieso, 2015).
(x) Including comprehensive income for evaluating the manager’s performance
Comprehensive income represents various items such as investments available for
sale, cash flow hedges, tax recognition and exchange difference generated through foreign
exchange transactions determines the ability of the managers regarding their capability of
planning and estimating values for assets and liabilities from the entity can be benefitted or
for which the entity needs to make payment to fulfil the obligation. Hence, it plays important

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role while assessing the manager’s ability. Therefore, comprehensive income must be
considered for evaluating the manager’s performance (Weygandt, Kimmel & Kieso, 2015).
Accounting for corporate income tax
(xi) Tax expenses recorded in financial statement of 2017
Altura Mining – tax benefit amounting to $ 534,000
Rio Tinto – tax expenses amounting to $ 3,965 million
BHP Billiton – tax expenses amounting to $ 4,100 million
(xii) Effective rate of tax
Effective tax rate is calculated as –
Effective tax rate = Income tax expense / Earning before tax
Altura Mining – effective tax rate for this entity is not applicable as instead of tax expenses it
has tax benefit amounting to $ 534,000 and negative earnings before tax.
Rio Tinto’s effective rate of tax = $ 3,965 million / $ 12,816 million = 30.94%
BHP Billiton’s effective rate of tax = $ 4,100 million / $ 10,322 million = 39.72%
Therefore, BHP Billiton has the highest effective rate of tax at 39.72%.
(xiii) Deferred tax assets or deferred tax liabilities
Altura Mining – the company did not recorded any deferred tax assets or deferred tax
liabilities for the year ended 2017.
Rio Tinto – Deferred tax assets of the company recorded for $ 3,395 million and deferred tax
liabilities recorded for $ 3,628 million for the year ended 2017.

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BHP Billiton – Deferred tax assets of the company recorded for $ 5,788 million and deferred
tax liabilities recorded for $ 3,785 million for the year ended 2017.
Any company recognizes deferred tax assets or deferred tax liabilities in its financial
statement for the amount of temporary differences created through carrying value of assets
and tax bases of liabilities. Further, the company recognizes the deferred tax assets or
deferred tax liabilities if and only if it is certain that the company will have future profit to
offset or adjust the temporary differences (Laux, 2013).
(xiv) Increase or decrease in deferred tax assets or liabilities reported by the
entities
Rio Tinto – amount of deferred tax assets dropped to £ 3,395 million as compared to $ 3,728
for previous year. Amount of deferred tax liabilities went up to $ 3,628 million as compared
to $ 3,121 million for previous year.
BHP Billiton - amount of deferred tax assets dropped to $ 5,788 million as compared to $
6,147 million for previous year. Further, amount of deferred tax liabilities dropped to $ 3,765
million as compared to $ 4,324 million for previous year (Sethi, 2016).
(xv) Cash tax
Cash tax is calculated though adjusting the changes in the deferred tax amount with
the amount of book tax. Details of cash tax computation for the entities are as follows –

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(xvi) Rate of cash tax
Rate of cash tax is calculated through dividing the cash tax amount by the amount of
earnings before interest, tax and amortisation. Details of cash tax rate computation for the
entities are as follows –
From the above table it can be determined that the rate of cash tax is highest for Rio
Tinto.
(xvii) Difference of cash tax rate from the book tax rate
The tax rates are different as the cash tax rate implies the tax rate at which the entity is
required to pay tax to the government and it is calculated on the amount of income
represented in the tax return. On the other hand, book tax rate implies the amount of tax
reported in the financial statement of the company. Therefore, both rates of tax are different
(Narotzki, 2017).
Conclusion
From the above facts and discussion it can be concluded that different items of
income, expenses, assets and liabilities are reported in the financial statement of the
companies mentioned above. Items of equities and liabilities include different items like
share capital, retained earnings, reserves, borrowings, and trade payables. On the other hand,

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the cash flows statement represents cash used or generated from operating activities,
financing activities and investing activities.

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