BHP Billiton Company: Corporate Accounting

This report analyzes the financial statements of BHP Billiton Company and provides insights into its cash flow statement, operating, investing and financing activities, items reported in other comprehensive income statement, tax expense, deferred tax asset or liability, and current tax asset.

BHP Billiton Company
Corporate Accounting
Name of the Author:
Table of Contents

INTRODUCTION......................................................................................................................1
ANSWER TO QUESTION NO- 1............................................................................................1
ANALYSING INFORMATION PRESENT IN CASH FLOW STATEMENT.......................1
ANSWER TO QUESTION NO- 2............................................................................................1
OPERATING, INVESTING AND FINANCING ACTIVITIES: A SUMMARISED
EXPLAINATION......................................................................................................................1
ANSWER TO QUESTION NO- 3............................................................................................2
ITEMS REPORTED IN OTHER COMPREHENSIVE INCOME STATEMENT..................2
ANSWER TO QUESTION NO- (iv).........................................................................................2
UNDERSTANDING OF EACH ITEM REPORTED IN OTHER COMPREHENSIVE
INCOME STATEMENT...........................................................................................................2
ANSWER TO QUESTION NO- (v)..........................................................................................3
REASON OF NON-REPORTING OF THESE ITEMS IN STATEMENT OF PROFIT AND
LOSS..........................................................................................................................................3
ANSWER TO QUESTION NO- (vi).........................................................................................3
TAX EXPENSE OF BHP BILLITON.......................................................................................3
ANSWER TO QUESTION NO- (vii)........................................................................................3
IS THE FIGURE OF TAX EXPENSE SAME AS ACCOUNTING INCOME MULTIPLIED
BY BHP BILLITON’S EFFECTIVE TAX RATE?..................................................................3
ANSWER TO QUESTION NO- (viii)......................................................................................4
COMMENT ON DEFERRED TAX ASSET OR LIABILITY.................................................4
ANSWER TO QUESTION NO- (ix).........................................................................................4
IS CURRENT TAX ASSET SAME AS INCOME TAX EXPENSE?......................................4

ANSWER TO QUESTION NO- (x)..........................................................................................5
IS THE INCOME TAX EXPENSE SAME AS INCOME TAX PAID?...................................5
ANSWER TO QUESTION NO- (xi).........................................................................................5

INTRODUCTION
With the increasing taxation complexity and compliance framework of the company
for preparing the financial statement has been becoming complex throughout the time. In this
report, BHP Billiton Company has been selected to prepare this report. This company is
having it’s headquarter in Melbourne, Australia and indulged in operating the iron, Silver,
steel and copper busienss around the globe.
ANSWER TO QUESTION NO- 1
ANALYSING INFORMATION PRESENT IN CASH FLOW STATEMENT
The cash flow statement is the statement which reflects the inflow and outflow in the present
year irrespective of the fact that whether it belongs to the current year or not. The cash flow
statement is accompanied with the three main activities such as operating activities’,
investing activities and financial activities (Wang, Butterfield, and Campbell, 2016).
The cash inflow from the operating activities has been dominated by the dividend received
amount. There are several expenses have been recorded in the operating activities such as
interest, net taxation, and other operating items. The dividend received of the BHP Billion
has been US $ 636 million in financial year 207 which is 18% higher as compared to last year
data. The financial activities shows the reduction in its cash flow due to the decrease in its
dividend payment to US $ 4130 in 2017 (Ladas, Negkakis, and Samara, 2017).
ANSWER TO QUESTION NO- 2
OPERATING, INVESTING AND FINANCING ACTIVITIES: A SUMMARISED
EXPLAINATION
US$ IN MILLION 2016-17 2015-16 2014-15
Net cash provided or used by operating
activities
16,804 10,625 19,296
Net cash provided or used in investing (4,161) (7,245) (13,154)

activities
Net cash provided or used in financing
activities
(9,133) 284 (8,276)
Source: BHP Billiton Company, 2018).
It is analyzed that net cash flow from operating activities is US$ 16804 million in financial
year 2017 which is 12% higher as compared to last year data (Sözbilir, Kula, and Baykut,
2015).
The outflow off investing activities has shown 18% increment due to its investment in the
research and development department.
The financial activities cash inflow has been increased due to downfall in the dividend
payment and increased share capital inflow.
BHP Billiton Company has increased its cash outflow due to the reduction in its interest
payment also redeemed its debt portion (Gao, Givoly, and Laux, 2015).
There has been increased in its cash flow to US$ 3510 million and US$ 3664 million in
financial year 2017 and 2016 respectively (Johnston, and Kutcher, 2015).
ANSWER TO QUESTION NO- 3
ITEMS REPORTED IN OTHER COMPREHENSIVE INCOME STATEMENT
This table reflects the recording of the items in the comprehensive income statement.
US$ in million 2016-2017 2015-16 2014-15
Profit/(Loss) for the period from both
continuing and discontinuing operations
6,222 (6,207) 2,878

Other comprehensive income
Items that may be reclassified to profit or
loss (net of tax)
(59) 60 (91)
Items that will not be reclassified to profit or
loss (net of tax)
10 (37) (45)
Other comprehensive income (net of tax) (49) 23 (136)
Total comprehensive income/(loss) for the
period
6,173 (6,184) 2,742
Total comprehensive income/(loss)
attributable to:
Equity holders of the parent entity 332 176 973
Non-controlling interests 5,841 (6,360) 1,769
TOTAL 6,173 (6,184) 2,742
Source: BHP Billiton Company, 2018).
ANSWER TO QUESTION NO- (iv)
UNDERSTANDING OF EACH ITEM REPORTED IN OTHER COMPREHENSIVE
INCOME STATEMENT
As per the IFRS reporting standards certain items are recorded in the Comprehensive Income
Statement.

Comprehensive Income Statement records two specific categories. One first is related to
subsequent reclassification to income statement and those items which cannot be classified
into other income statement (Morris, 2017).
The first account includes transaction of the foreign exchange gain, increased loss and other
items which have direct and indirect items on the profit (Kim, 2017).
The second account includes non-controlling interest of the investors and shareholders details
and their investment (Okenwa, Francis, and Abiahu, 2017). These items cannot be
reclassified in the books of account.
ANSWER TO QUESTION NO- (v)
REASON OF NON-REPORTING OF THESE ITEMS IN STATEMENT OF PROFIT AND
LOSS
It is analyzed that recording of the business transactions in the books of account of coapny is
done by using the proper accounting standards and rules. As per the IFRS rules proper
recording of the data and presentation of the data should be done by following separate
accounting standards each and every items recording in the books of account should be done
by following proper IFRS rules and standards (Gao, Givoly, and Laux, 2015).
ANSWER TO QUESTION NO- (vi)
TAX EXPENSE OF BHP BILLITON
Tax is the legal obligation of Company which they need to pay on their profit. The total tax
payment of BHP Billiton is US $ 4100 million.
US$ IN MILLION 2016-
17
2015-16
Total taxation expense/(benefit) comprises:
Current tax expense 4288 2456

Deferred tax (benefit)/expense (188) (3508)
4100 (1052)
Income tax paid 2084 1645
Source: BHP Billiton Company, 2018).
ANSWER TO QUESTION NO- (vii)
IS THE FIGURE OF TAX EXPENSE SAME AS ACCOUNTING INCOME MULTIPLIED
BY BHP BILLITON’S EFFECTIVE TAX RATE?
The figure of tax expense shown in the profit and loss account is computed by following the
tax rate charged on the taxable income as per the AASB 112 (Rubinstein, & Vettori, 2018).
Accounting income multiplied by BHP Billiton’s effective tax rate is done by using the
accounting income computed as per the accounting rules.
US$ IN MILLION 2016-
17
2015-
16
Income tax expense differs to the standard rate of corporation tax as
follows:
Profit/(loss) before taxation 10322 (7259)
Tax on profit/(loss) at Australian prima facie tax rate of 30 per cent 3097 (2178)

Tax on remitted and unremitted foreign earnings 478 (376)
Non-tax effected operating losses and capital gains 259 671
Amounts under/(over) provided in prior years 199 (28)
Foreign exchange adjustments 88 125
Tax rate changes 25 14
Investment and development allowance (53) (36)
Tax effect of profit/(loss) from equity accounted investments, related
impairments and expenses
(82) 631
Recognition of previously unrecognised tax assets (106) (36)
Impact of tax rates applicable outside of Australia (189) (620)
Other 217 536
Income tax expense/(benefit) 3933 (1297)
Royalty-related taxation (net of income tax benefit) 167 245
Total taxation expense/(benefit) 4100 (1052)
Source: BHP Billiton Company. 2018).
The main reason of differences between the both tax amounts is recording of the items in the
financial statement.

The recording of bad debts, provision for the doubtful debts and other accounts are
differently recorded as per the accounting and taxation rules
ANSWER TO QUESTION NO- (viii)
COMMENT ON DEFERRED TAX ASSET OR LIABILITY
The deferred tax assets is the amount of assets arise due to the excess payment of tax by
company (Sansing, 2018).
The balance of deferred tax assets in both the financial year 2017 and 2016 have being US$
5788 million and US$ 6147 million respectively (Watson, 2018).
The deferred tax arises when the tax payment as per the taxation rule and regulation is more
than the tax payment liabilities as per the accounting rules and regulation.
ANSWER TO QUESTION NO- (ix)
IS CURRENT TAX ASSET SAME AS INCOME TAX EXPENSE?
US$ IN MILLION 2016-17 2015-16
Current tax asset 195 567
Income tax expense/(benefit) 4100 (1052)
Source: BHP Billiton Company. 2018).
The current tax assets are the amount of tax overpaid or paid in advance by Company (BHP
Billiton Company. 2018).
An income tax expense is the amount charged on the profit and loss account. It is related to
the current year and deducted from the profit and loss with a view to identify the true and fair
view of assets.

ANSWER TO QUESTION NO- (x)
IS THE INCOME TAX EXPENSE SAME AS INCOME TAX PAID?
The income tax shown in the profit and loss account is not same with the income tax paid
Reason
The income tax paid is the total amount of tax payment made by company irrespective of the
fact that whether it relates to this year or not.
The income tax expenses are the current legal liability of company which is deducted from
the profit and loss (Chen, et al. 2018).
ANSWER TO QUESTION NO- (xi)
Interesting
Taxation rules and regulation consistently changes with the changes in economic factor
Difficult
It is hard to follow accounting and income tax rules at the same time.
Confusing
It is very confusing to determine the right amount of tax which company needs to pay.
Surprising
We cannot record the deferred tax assets and deferred tax libiliteis in the books of account at
the same time (De Franco, Kothari, and Verdi, 2011).
Conclusion
The cash flow statement is the statement which reflects the inflow and outflow in the
present year irrespective of the fact that whether it belongs to the current year or not. The
recording of the tax is done by company by following the income tax rules and AASB 112.

References
BHP Billiton Company. (2018). Annual report. Available at https://www.bhp.com/media-
and-insights/reports-and-presentations?q0_r=category%3DAnnual%2BReports., Accessed on
222nd May 2018
Chen, C.W., Collins, D.W., Kravet, T.D. and Mergenthaler, R.D., 2018. Financial statement
comparability and the efficiency of acquisition decisions. Contemporary Accounting
Research, 35(1), pp.164-202.
De Franco, G., Kothari, S.P. and Verdi, R.S., 2011. The benefits of financial statement
comparability. Journal of Accounting Research, 49(4), pp.895-931.
Gao, Z., Givoly, D. and Laux, R., 2015. Assessing the Relation between Taxes and Stock
Returns: The Critical Role of Choosing the Tax Variable.
Johnston, D. and Kutcher, L., 2015. Do stock-based compensation deferred tax assets provide
incremental information about future tax payments?. The Journal of the American Taxation
Association, 38(1), pp.79-102.
Kim, J.H., 2017. What Really Determines the Information Content of Tax Expense and
Deferred Tax?. 회회회회회, 42(2), pp.1-44.
Ladas, A.C., Negkakis, C.I. and Samara, A.D., 2017. Accounting quality deferred tax and
risk in the banking industry. International Journal of Banking, Accounting and Finance, 8(1),
pp.1-19.
Miller, G.S. and Skinner, D.J., 2012. Determinants of the valuation allowance for deferred
tax assets under SFAS No. 109. Accounting Review, pp.213-233.
Morris, J.L., 2017. Classification of Deferred Tax Assets and Deferred Tax Liabilities: An
Evaluation of FASB's Attempt at Standards Simplication. Journal of Accounting and
Finance, 17(8), pp.198-208.
Okenwa, O.C., Francis, E. and Abiahu, M.F., 2017. Assessment of Deferred Tax Recognition
and Measurement under IFRS and Nigeria-SAS: An Empirical Examination.

Oxner, K.M., Oxner, T.H. and Phillips, A.D., 2018. Impact of the Tax Cuts and Jobs Act on
Accounting for Deferred Income Taxes. Journal of Corporate Accounting & Finance, 29(2),
pp.12-21.
Rubinstein, F., & Vettori, G. G. (2018). Taxation of Investments in Bitcoins and Other
Virtual Currencies: International Trends and the Brazilian Approach.
Sansing, R., 2018. Valuing the deferred tax liability. Journal of Accounting Research, 36(2),
pp.357-363.
Sözbilir, H., Kula, V. and Baykut, L.E., 2015. A Research on Deferred Taxes: A Case Study
of BIST Listed Banks in Turkey. European Journal of Business and Management, 7(2), pp.1-
10.
Wang, Y., Butterfield, S. and Campbell, M., 2016. Deferred tax items as earnings
management indicators. International Management Review, 12(2), p.37.
Watson, L., 2018. The Deferred Tax Asset Valuation Allowance and Firm
Creditworthiness. The Journal of the American Taxation Association, 40(1), pp.81-85.

Appendix
BHP BILLITON LTD ADR (BHP) Statement of CASH FLOW
Fiscal year ends in June. USD in millions
except per share data.
2013
-06
2014
-06
2015
-06
2016
-06
2017
-06
TT
M
Cash Flows From Operating Activities
Depreciation & amortization 6945 8701 9158 8661 7719 795
6
Investment/asset impairment charges 311 797 828 210 188 373
Inventory -47 -54 151 527 -679 -445
Other working capital -472 205 -338 -320 327 563
Other non-cash items 1151
5
1571
5
9497 1547 9249 800
3
Net cash provided by operating activities 1825
2
2536
4
1929
6
1062
5
1680
4
164
50
Cash Flows From Investing Activities
Investments in property, plant, and
equipment
-
2157
3
-
1599
3
-
1194
7
-
6946
-
4252
-
437
7
Property, plant, and equipment reductions 2338 114 66
Acquisitions, net 2202 768 185 206 -48 202
Purchases of investments -338 -
1193
-15
Sales/Maturities of investments 204 956 445
Purchases of intangibles -400 -192 -98
Sales of intangibles 8
Other investing activities -304 -294 -
1212
-505 139 -510
Net cash used for investing activities -
1787
1
-
1583
4
-
1256
8
-
7245
-
4161
-
468
5
Cash Flows From Financing Activities
Debt issued 9975 6288 3440 7395 1613 913
Debt repayment -
2580
-
7198
-
4168
-
2788
-
7120
-
915
7
Common stock issued 21 14 9
Repurchases of treasury stock -445 -368 -355 -106 -108 -136
Cash dividends paid -
6167
-
6387
-
6498
-
4130
-
2921
-
444
9
Other financing activities 18 1183 -704 -87 -597 -
123
9
Net cash provided by (used for) financing 822 - - 284 - -

activities 6468 8276 9133 140
68
Effect of exchange rate changes -34 23 -5 -1 322 652
Net change in cash 1169 3085 -
1553
3663 3832 -
165
1
Cash at beginning of period 4881 5667 8752 6613 1027
6
139
28
Cash at end of period 6050 8752 7199 1027
6
1410
8
122
77
Free Cash Flow
Operating cash flow 1825
2
2536
4
1929
6
1062
5
1680
4
164
50
Capital expenditure -
2197
3
-
1618
5
-
1204
5
-
6946
-
4252
-
437
7
Free cash flow -
3721
9179 7251 3679 1255
2
120
73