Revenue Recognition Comparison: BHP and Evolution Mining

This assignment compares the revenue recognition methods used by two mining companies: BHP Billiton and Evolution Mining. It delves into their respective accounting policies for recognizing assets and liabilities, examining differences in techniques such as fair value measurement versus physical inventory counting. The analysis aims to identify areas of compliance with AASB standards and highlight potential recommendations for improvement.

Running head: ADVANCED FINANCIAL REPORTING
Advanced Financial Reporting
Name of the Student
Name of the University
Author’s Note

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Executive Summary
The main aim of this report is compare and contrasts the recognition criteria of revenue, assets
and liabilities of two Australian ASX listed mining companies; they are BHP Billiton and
Evolution Mining. From the discussion, it can be seen that both the companies have more
similarities in the recognition criteria of revenue, assets and liabilities than the differences.

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Table of Contents
Introduction......................................................................................................................................3
Introduction of the Companies........................................................................................................3
BHP Billiton................................................................................................................................3
Evolution Mining.........................................................................................................................4
Comparing and Contrasting the Revenue Recognition Criteria......................................................4
BHP Billiton................................................................................................................................4
Evolution Mining.........................................................................................................................5
Comparing and Contrasting the Asset Recognition Criteria...........................................................6
BHP Billiton................................................................................................................................6
Evolution Mining.........................................................................................................................7
Comparing and Contrasting the Liability Recognition Criteria......................................................8
BHP Billiton................................................................................................................................8
Evolution Mining.........................................................................................................................8
Conclusion and Recommendations..................................................................................................9
References......................................................................................................................................10

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Introduction
In today’s business world, Financial Reporting refers to one of the major aspects for the
success of the companies. Financial accounting refers to a particular field of accounting that is
concerned with the summary, analysis and reporting of the financial transactions related with the
business operations (Scott 2015). This aspect also involves in the effective and correct
development and presentation of financial statements of the business organizations. Advanced
financial reporting is an integral part of the process of financial accounting that put an obligation
on the companies to comply with the required accounting regulations and standards for the
preparation and presentation of financial statements. The main purpose of the development and
presentation of financial statements is to inform the investors about the financial health of the
companies with the assistance of company annual report. For this reason, business organizations
are required to comply with the required recognition criteria for various financial substances like
revenue, assets and liabilities (Nobes 2014). The main aim of this report is compare and contrasts
the recognition criteria of revenue, assets and liabilities of two Australian ASX listed mining
companies; they are BHP Billiton and Evolution Mining.
Introduction of the Companies
BHP Billiton
BHP Billiton is one of the biggest Anglo-Australian multinational mining companies.
The company was established in the year of 1885 and the company is headquartered at
Melbourne, Australia. BHP Billiton mainly deals with mining, metals and petroleum products.
The main products of the company are iron ore, coal, petroleum, copper, natural gas, nickel,
uranium and others. From the business operations of BHP Billiton, it can be observed that the

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company operates under a dual listed company structure and the firm has two parent companies;
they are BHP Billiton Limited and BHP Billiton PLC. A unified board is responsible for the
business operations of the company. In the year 2015, BHP Billiton took a step for the
simplification of their business portfolio with the creation of an independent global mining
corporation (bhp.com 2018).
Evolution Mining
Evolution Mining is a major Australian gold mining company. The company was
established in the year of 2011. The focus of the company is to operate in a safe and efficient
way. Evolution Mining operates in five gold mining operations (evolutionmining.com.au 2018).
Three of them are in Queensland, one in New South Wales and another one in Western Australia.
It can be seen that the company has achieved many milestones over the years. Evolution Mining
was announced as the winner of the NSW Mining Safety Excellence Award in the year 2016. At
December 2016, the ore gold reserve of the company stood 6.99 million ounces and the mineral
resources were 14.18 million ounces (evolutionmining.com.au 2018).
Comparing and Contrasting the Revenue Recognition Criteria
BHP Billiton
From the latest annual report of BHP Billiton, it can be observed that there are two
sources of revenue for the company; they are Sale of Products and Provisionally Priced Sales.
From the latest annual report of BHP Billiton, it can be seen that the company measured their
business revenue based on fair value of the received or receivable consideration (Wagenhofer
2014). More specifically, the recognition of the revenue from sale of products is done where
there is a transfer of risk and reward ownership of the products to the customers based on pre-

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determined delivery time and their measurement can be done on a reliable basis (bhp.com 2018).
On the other hand, the recognition of the revenue from provisionally priced products are done on
the basis of fair value of the received or receivable consideration based on the contractual price.
In this context, it needs to be mentioned that the determination of the sales price is done on the
basis of fair value agreement. The time between provisional pricing and final invoice pricing is
60 to 120 days. Thus, it can be seen that the company has followed the principles of Australian
Accounting Standard Board (AASB) for the purpose of revenue recognition (bhp.com 2018).
Evolution Mining
From the latest financial reports of Evolution Mining, it can be observed that the
company has followed a simple process for the recognition of their business revenues. Evolution
Mining uses to recognize their revenue from the sales of business goods when a transfer of the
ownership of risk and reward is there from the company to the customers based on the pre-
determined price (evolutionmining.com.au 2018). In this context, it needs to be mentioned that
the quality and quantity of the products need to be determined in an accurate basis. Moreover,
the measurement of the revenue is done based on fair value. The company uses the provisional
price agreements for the metals of concentrate sales. On the other hand, prevailing spot price is
used for the selling price of metal concentrates (Srivastava 2013). The time between provisional
pricing and final invoice pricing is 30 to 90 days. Apart from these, the company does the
recognition of provisionally priced sales is done based on the fair value estimation of the total
received consideration and receivable consideration (evolutionmining.com.au 2018).
Fro the above discussion, it can be seen that both BHP Billiton and Evolution Mining
follow fair value accounting for the recognition of revenue. As per similarity, it can be seen that
both the companies have two sources of revenue; they are revenue from sale of goods and

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revenue from provisionally priced sales. As both of the companies operates in Australia and both
of them have complied with the principles of AASB, a large number of similarities can be seen.
Comparing and Contrasting the Asset Recognition Criteria
BHP Billiton
From the latest annual report of BHP Billiton, it can be observed that the company has
adopted different strategies for the recognition of different assets. The first type of assets is
Property, Plant and Equipment (PPE) (bhp.com 2018). For the computation of PPE, BHP
Billiton uses to record them at the cost value after the deduction of accumulated depreciation and
impairment charges. In this aspect, the cost of PPE refers to the fair value of the assets obtained
at the time of the acquisition and it includes the necessary directs costs associated with the
implementation and development of PPE. The next type of asset in BHP Billiton is Intangible
assets that include goodwill and other intangible assets. BHP Billiton does the recognition of
goodwill when there is a difference between the fair values of the consideration at the time of
acquisition and the fair value of the identifiable assets. In addition, the other intangible assets of
the company are recognized at fair value after the deduction of impairment charges and
amortization costs (Cotter 2012). After that, trade and other receivables are the current assets of
the company. It needs to be mentioned that BHP Billiton recognizes their trade receivables based
on fair value after the consideration of amortization costs, effective interest rates, allowances and
impairment costs. Inventories are another type of current assets of BHP Billiton. The latest
annual report of BHP Billiton states that irrespective of the nature and type of inventory, their
recognition is done at the lower cost of value and net realizable value. The determination of cost

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is done based on average costs. Moreover, it needs to be mentioned that BHP Billiton uses
absorption-costing method for the determination of costs (bhp.com 2018).
Evolution Mining
As per the latest annual report of Evolution Mining, the recognition of plant and
equipment is done based on cost price after the deduction of accumulated depreciation and
impairment costs. Fair value is considered based for the determination of the costs of plant and
machinery. Straight line method is used for depreciation purpose. Cash and cash equivalent is
another type of assets for the company (evolutionmining.com.au 2018). Their recognition is done
based on amortized costs. Another type of asset for Evolution Mining is trade and other
receivable. For the recognition of trade and other receivables, fair value measurement basis is
used after the consideration of amortized costs with the use of effective interest rate after
deducting impairment. The due date for trade receivables is 30 days. The next type of asset of
Evolution Mining is inventories. It needs to be mentioned that physical measurement is done for
the measurement of inventories. Other hand, the recognition of inventory is also done based on
lower of cost and net realizable value (Biondi and Lapsley 2014).
From the above discussion, it can be seen that there are many similarities in the
recognition criteria of both BHP Billiton and Evolution Mining for assets. It can be observed that
in most of the cases, both of the companies use fair value method for the recognition of PPE,
trade receivables and intangible assets. However, in case of the recognition of inventory,
difference can be seen. BHP Billiton uses fair value for the valuation of inventories where
Evolution Mining uses physical method for the recognition of inventory.

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Comparing and Contrasting the Liability Recognition Criteria
BHP Billiton
From the annual report of BHP Billiton, it can be observed that the company recognizes
their trade and other payable on the basis of fair value (Clor‐Proell, and Maines 2014). Another
major liability of the company is net debt. The annual report states that net debt includes cash
and short-term cash deposits. For the purpose of recognition, BHP Billiton considers the carrying
value of these liabilities that is calculated on the basis of fair value (bhp.com 2018). In this
context, it needs to be mentioned that the major components of net debt are bank loans, notes and
debentures, finance leases, bank overdraft, short-term borrowings and others. In case of
provisions, the recognition process is done in the presence of some significant judgment like the
application or real discount rate, the timing of cash flows, the costs associated with future
rehabilitation activities and others (bhp.com 2018).
Evolution Mining
In the annual reports of Evolution Mining, interest-bearing liabilities have major
importance. Evolution Mining does the recognition of these liabilities based on fair value after
deducting the transaction costs directly attributed towards the measurement of attribution costs.
The recognition of gains and losses is done in the profit and loss account. After that, in case of
trade and other payables, Evolution Mining does the recognition of the carrying value based on
the fair value and it has been done due to the short-term nature of the liabilities (Müller, Riedl
and Sellhorn 2015). It can be seen that there are different kinds of provision for the company. In
case of the provisions of employee benefits, they are measured based on the amount expected to
be paid at the time of settlement. On the other hand, the provisions for long-service leave
liabilities are recognized based on the present value (evolutionmining.com.au 2018).

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From the above discussion, it can be seen that there are many similarities between BHP
Billiton and Evolution Mining in the recognition of their business liabilities. It can be seen that
both the companies use fair value for the recognition of their trade and other liabilities. However,
it can be seen that there is a difference between the recognition criteria of provisions for both the
companies.
Conclusion and Recommendations
From the above discussion, it can be observed that both BHP Billiton and Evolution
Mining have some similarities along with some differences in the recognition of their assets,
liabilities and revenue. However, the portion of similarities is more than the portion of
differences. In case of the recognition of revenue, the above discussion shows that both the
companies have complied with the strategies of fair value method. Thus, there is not any
difference. In case of assets, it can be observed that both BHP Billiton and Evolution Mining
have applied fair value technique for obtaining cost of the assets after the deduction of
accumulated depreciation and impairment. However, difference can be seen in case of the
recognition of inventory as Evolution Mining use physical technique for the recognition of
inventory. In case of liabilities, it can be seen that there is a difference between the recognition of
provision due to the presence of different types of provisions for the companies.
Based on the whole discussion, some recommendations are provided below:
 It is recommended to these companies to comply with the standards and regulations of
AASB for the recognition of revenue.
 It is also recommended to these companies to adopt fair value measurement technique for
recognizing assets and liabilities.

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References
BHP Billiton. (2018). Our history. [online] Available at:
https://www.bhp.com/our-approach/our-history [Accessed 31 Jan. 2018].
Bhp.com. (2018). Annual Report 2017. [online] Available at: https://www.bhp.com/investor-
centre/-/media/documents/investors/annual-reports/2017/bhpannualreport2017.pdf [Accessed 31
Jan. 2018].
Biondi, L. and Lapsley, I., 2014. Accounting, transparency and governance: the heritage assets
problem. Qualitative Research in Accounting & Management, 11(2), pp.146-164.
CLOR‐PROELL, S.M. and Maines, L.A., 2014. The impact of recognition versus disclosure on
financial information: A preparer's perspective. Journal of Accounting Research, 52(3), pp.671-
701.
Cotter, D., 2012. Advanced financial reporting: A complete guide to IFRS. Financial
Times/Prentice Hall.
Evolutionmining.com.au. (2018). Annual Report 2017. [online] Available at:
https://evolutionmining.com.au/wp-content/uploads/2017/10/171020-Evolution-Mining-Annual-
Report-2017.pdf [Accessed 31 Jan. 2018].
Evolutionmining.com.au. (2018). Evolution Mining – Australian Gold Company. [online]
Available at: https://evolutionmining.com.au/ [Accessed 31 Jan. 2018].
Evolutionmining.com.au. (2018). Overview – Evolution Mining. [online] Available at:
https://evolutionmining.com.au/overview/ [Accessed 31 Jan. 2018].

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Müller, M.A., Riedl, E.J. and Sellhorn, T., 2015. Recognition versus disclosure of fair
values. The Accounting Review, 90(6), pp.2411-2447.
Nobes, C., 2014. International Classification of Financial Reporting 3e. Routledge.
Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Srivastava, A., 2013. Selling-price estimates in revenue recognition and earnings
informativeness.
Wagenhofer, A., 2014. The role of revenue recognition in performance reporting. Accounting
and Business Research, 44(4), pp.349-379.

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