Mining Company Liability Recognition

This assignment delves into the liability recognition practices of two prominent Australian companies: Evolution Mining (a gold mining company) and Orica (a chemical manufacturer specializing in explosives). It compares their approaches to recognizing liabilities, focusing on differences in asset capitalization and amortization methods. The analysis draws upon relevant accounting standards and industry best practices, ultimately providing recommendations for improvement based on the findings.

Running head: ACCOUNTING FINANCIAL ANALYSIS REPORT
Accounting Financial Analysis Report
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1ACCOUNTING FINANCIAL ANALYSIS REPORT
Executive Summary:
The current report aims to evaluate the various recognition criteria of the two selected
mining companies of Australia, which are Evolution Mining and Orica Limited. It has been
found that both Evolution Mining and Orica are disclosing their respective obligations in
accordance with the prevailing laws and legislations of the nation. Both the organisations have
similar revenue and liabilities recognition criteria; however, the only difference is observed in
case of asset recognition. Thus, it is recommended to Orica to realise assets at fair value, as it
provides a true and fair estimate of a particular asset or a class of assets.

2ACCOUNTING FINANCIAL ANALYSIS REPORT
Table of Contents
1. Introduction of the two selected companies:...............................................................................3
1.1 Names of the companies:.......................................................................................................3
1.2 Establishment year:................................................................................................................3
1.3 Main activities:......................................................................................................................3
1.4 Products or services:..............................................................................................................4
1.5 Organisational structure:........................................................................................................4
1.6 Business achievement:...........................................................................................................5
2. Comparison and contrast of revenue recognition of Evolution Mining and Orica:....................5
3. Comparison and contrast of asset recognition of Evolution Mining and Orica:.........................6
4. Comparison and contrast of liabilities recognition of Evolution Mining and Orica:..................8
5. Summary of interesting findings and recommendations:............................................................9
References:....................................................................................................................................10

3ACCOUNTING FINANCIAL ANALYSIS REPORT
1. Introduction of the two selected companies:
1.1 Names of the companies:
The two mining companies of Australia that have been selected in order to fit the purpose
of this report include Evolution Mining and Orica Limited.
1.2 Establishment year:
Evolution Mining is established in the year 1998, while Orica Limited is established in
the year 1928, in which it was named as “Imperial Chemical Industries of Australia and New
Zealand (ICIANZ)”. On 2nd February 1998, the organisation has changed its name to Orica
Limited.
1.3 Main activities:
Orica Limited is a multinational organisation of Australia and it is one of the largest
global provider of blasting systems and commercial explosives to the quarrying, mining,
construction and oil and gas markets. In addition, it is involved in supplying sodium cyanide for
extraction of gold and an expert provider of ground support services related to tunnelling and
mining (Orica.com 2018).
Evolution Mining Limited is a gold exploration firm having its business operations in
Western Australia. The focus of the organisation is on carrying out its projects safely and
effectively along with developing the same to its full potential. Moreover, it has economic
interest in Ernest Henry in Queensland, which would provide 100% of future gold and 30% of
future silver and copper (Evolutionmining.com.au 2018).

4ACCOUNTING FINANCIAL ANALYSIS REPORT
1.4 Products or services:
Orica Limited has three main business areas, which take into account blasting, minova
and sodium cyanide. The main products and services of blasting include contracted services,
boosters, bulk explosives, initiators, packaged explosives and many others. The major products
and services of minova take into account steel bolts and plates, mesh, resin capsules and ballast
bonding polymers. The primary products and services of sodium cyanide comprise of analysers,
sparge and training. On the other hand, the main products of Evolution Mining include gold,
silver and copper products, which are extracted from the mine areas.
1.5 Organisational structure:
Figure 1: Organisational structure of Evolution Mining
(Source: Evolutionmining.com.au 2018)

5ACCOUNTING FINANCIAL ANALYSIS REPORT
Figure 2: Organisational structure of Orica Limited
(Source: Orica.com 2018)
1.6 Business achievement:
Some of the significant business achievements of Orica Limited include the following:
 Considerable expansions of capacity at the nitrate plants of Kooragang and Yarwun
 It has acquired the Excel Mining Systems, which diversifies the breadth of stabilisation
systems offered to the customers in the underground mining sector
On the other hand, some of the considerable business achievements of Evolution Mining
comprise of the following:
 It has won the “NSW Mining Safety Excellence Award” in June 2017
 It has won the “8th Annual International Merger and Acquisition Awards” in April 2016
2. Comparison and contrast of revenue recognition of Evolution Mining and Orica:
Revenue recognition of Orica Limited:

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According to the annual report of 2017, external sales are gauged at the fair value of the
consideration, which are either received or yet to be receivable, net of returns, volume rebates
and trade discounts. Moreover, the realisation of sales revenue is made at the time considerable
ownership risks and rewards are passed over to the purchaser.
Revenue recognition of Evolution Mining:
The annual report of 2017 of the organisation states that revenue is realised when the
risks and rewards of the products are passed over to the customers and it is not engaged in any
further processing. The risk is passed only upon the receipt of the bill of lading at the time the
commodity is delivered for shipment. The revenue on provisionally priced sales is realised
depending on the projected fair value of the overall consideration receivable (Bice 2014).
3. Comparison and contrast of asset recognition of Evolution Mining and Orica:
Asset recognition of Evolution Mining:

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For assets like plant and equipment, they are recorded at cost minus impairment and
accumulated depreciation. Cost signifies the fair value of the item at the date of acquisition and it
includes expenditure directly attributable to the item acquisition (Gitman, Juchau and Flanagan
2015). However, freehold land is measured directly at cost. An asset is derecognised at the time
it is sold or it is unexpected to fetch any further economic benefits. Any loss suffered or profit
made from such derealisation is recorded in the income statement in the year the item is
derecognised (Hosseinzadeh et al. 2016).
Asset recognition of Orica:
Based on the annual report of the organisation, it could be found that property, plant and
equipment is recorded at cost less accumulated depreciation and impairment. However, in this
case, cost denotes expense attributable directly to the item acquisition and it takes into account
capitalised interest as well (Lodhia and Martin 2014).

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4. Comparison and contrast of liabilities recognition of Evolution Mining and Orica:
Liabilities recognition of Evolution Mining:
At the time of initial recording of liability, the present value of the projected cost is
capitalised as part of the carrying amount of the associated mining assets. With the passage of
time, the discounted liability is raised due to the variation in the present value depending on the
rate of discount depicting the assessments of the existing market (O'Connor et al. 2015). The
capitalisation of current amount is made as portion of mine development and it is amortised
based on units of production.
Liabilities recognition of Orica:
A liability is recognised when the organisation has legal or constructive obligation
because of past event. It is likely that the future compromise of economic benefits would be
needed in settling the obligation and a valid projection of the liability could be assessed (Xiang,
Worthington and Higgs 2015).

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5. Summary of interesting findings and recommendations:
Based on the above evaluation, it could be stated that both Evolution Mining and Orica
are disclosing their respective obligations in accordance with the prevailing laws and legislations
of the nation. Both the organisations have similar revenue and liabilities recognition criteria;
however, the only difference is observed in case of asset recognition. Thus, it is recommended to
Orica to realise assets at fair value, as it provides a true and fair estimate of a particular asset or a
class of assets.

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References:
Bice, S., 2014. What gives you a social licence? An exploration of the social licence to operate in
the Australian mining industry. Resources, 3(1), pp.62-80.
Evolutionmining.com.au., 2018. [online] Available at: https://evolutionmining.com.au/wp-
content/uploads/2017/11/Evolution-Mining-Annual-Report-2017_F2.pdf [Accessed 28 Jan.
2018].
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Hosseinzadeh, A., Smyth, R., Valadkhani, A. and Le, V., 2016. Analyzing the efficiency
performance of major Australian mining companies using bootstrap data envelopment
analysis. Economic Modelling, 57, pp.26-35.
Lodhia, S. and Martin, N., 2014. Corporate sustainability indicators: an Australian mining case
study. Journal of cleaner production, 84, pp.107-115.
O'Connor, F.A., Lucey, B.M., Batten, J.A. and Baur, D.G., 2015. The financial economics of
gold—a survey. International Review of Financial Analysis, 41, pp.186-205.
Orica.com., 2018. Orica Company Reports. [online] Available at:
http://www.orica.com/Investors/company-reports#.Wm1eRPmWbIU [Accessed 28 Jan. 2018].
Xiang, D., Worthington, A.C. and Higgs, H., 2015. Discouraged finance seekers: An analysis of
Australian small and medium-sized enterprises. International Small Business Journal, 33(7),
pp.689-707.

11ACCOUNTING FINANCIAL ANALYSIS REPORT