Report about Corporate Accounting 2022

Running Head: CORPORATE ACCOUNTING
CORPORATE ACCOUNTING
Name of the Student
Name of the University
Author Note

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Executive Summary
The main objective of this report is to do an analysis of different sources of funds raised by
Wesfarmers and Telstra Ltd. The study is supported by analysing the annual report of both
the companies. The paper will discuss on the assets and liabilities of both the companies with
relevance to the accounting standard of AASB 137. It is found that, the management of both
the companies has efficiently disclosed the elements in the financial statement. The assets and
liabilities are clearly recognised in the annual report.

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Table of Contents
Introduction................................................................................................................................3
Discussions.................................................................................................................................3
Different sources of raising fund by the companies...............................................................3
Evolution of the sources of funds...........................................................................................4
Percentage of the funds..........................................................................................................5
Relative Advantages and drawbacks of the various sources of Funds...................................6
Key provisions under AASB 137.........................................................................................10
Reporting for AAB 137 standard.........................................................................................10
Categories of assets..............................................................................................................12
Measurement Basis for assets..............................................................................................13
Conclusion................................................................................................................................13
References................................................................................................................................14

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Introduction
This report will assess the business operations of Wesfarmers Ltd and Telstra Ltd.
The annual report of both companies is considered to accurately measure their business
performance. The first part of this paper has discussed the different sources of funds raised by
both companies. The next section of the paper has discussed on AASB 137 standard for
contingent liabilities and assets and their relevance in the annual report of both the countries.
The last part of this paper is to evaluate the different types of assets reported in the financial
position statement of both the companies. The main objective of this report is to develop an
understanding of different sources of funds raised by Wesfarmers Ltd and Telstra Ltd.
Discussions
Different sources of raising fund by the companies
Telstra Ltd
Telstra group raise its funds from the following sources:
 Retained Earnings- Telstra group is sourcing its fund from the profits generated by the
business. The dividends from the profits are not distributed among the shareholders
and instead, the company raise its funds from these profits to do business investments.
 Debt capital- Telstra source its funds by raising debts in the form of bonds, short-term
commercial paper, loans, AUD private placements and Finance leases
(Telstra.com.au, 2020). Recently it has issues a 10 year long term debt of EUR bond
of worth $959.
 Equity Capital- Telstra release its company stock to the shareholders. The
shareholders invest their funds in the company stock.
Wesfarmers

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Wesfarmers is engaged in raising funds from the diversity of sources. The company
raised its fund from the following sources:
 Debt capital- Funds are raised by issuing global market bonds and form various
banking facilities.
 Equity capital- The funds are raised from equity capital. Some of the equity capital of
Wesfarmers is share capital, retained earnings and reserves (Wesfarmers.com.au,
2020). The company issue their shares and keep the shareholder's reserves to source
their fund. They focus more on internal sources to fund their business operations.
Evolution of the sources of funds
An evolution of sources of fund of the two companies:
B
Figure 1: (Evolution of sources of the fund)
Wesfarmers Ltd:
From the above findings, it can be analysed that the total capital of the company has
been an increase in FY 2019, as compared to the previous three years. In FY 2019, the
company has purchased more of its reserved shares for its future use. These shares include
shares issued by the employees. Therefore, capital reserves are used to gain more profits. The

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company has also used these reserves to pay a dividend to its shareholders. But, the total debt
is maintained as compared to the previous years. This debt has been raised from the interest
in the form of loans and borrowings. Both short-term and long-term borrowings are included
here. Funds have been raised in the form of bank debt and capital market debt. Capital market
debt includes both foreign & domestic corporate debts (Wesfarmers.com.au, 2020). The
company has focused on maintaining its diversity of funding sources and maintained their
presence in the market. In March 2019, Wesfarmers had repaid around $500 million domestic
bonds from their cash balances. No new bonds were issued in the current year. The bank
facilities were extended for three years as a source of funds.
Telstra Ltd:
From the above findings, it can be found that the total capital is less as compared to
the previous years. The debt capital in the form of borrowings includes; domestic borrowings,
offshore borrowings, commercial paper, finance leases and bank loans. In the current year,
the gross borrowing cost is $792, which is higher than $777 in FY2018. In 2018, Telstra Ltd
formed a new fund by investing with HarbourVest. This investment has reduced capital
commitments in the future (Telstra.com.au, 2020). Therefore, the capital on the FY 2019 is a
little less as compared to the previous financial years.
Percentage of the funds
Internally generated funds are those which is not generated by borrowing but
generated by some other means in the form of reserves, retained earnings, and many more.
Hence, debt is considered as the external source of funds and equity is considered as the
internal source of funds.

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Figure 2: (Percentage of sources of funds)
The above calculation shows the percentage of debt and equity in the three financial
years of Wesfarmers and Telstra Ltd. Telstra Ltd has properly managed its debt capital in the
three financial years, whereas Wesfarmers ltd has not managed its debt capita. There is a
huge increase in debt capital in the current financial year of 2019 (Wesfarmers.com.au,
2020). From the above analysis, it can be revealed that both companies are trying to maintain
their funds to improve their business efficiency (Telstra.com.au, 2020). The management of
both companies is trying to maintain the risks.
Relative Advantages and drawbacks of the various sources of Funds
The various merits and demerits of the different sources of funds are discussed below:
1. Equity Capital-
Advantages
 In this type of source of funds, no interest payment is not compulsory. The funds
raised from the equity sources are not related to the interest payment.
 The funds received from the equity sources are non-refundable on their obligations.
This is considered as the permanent source of receiving funds.

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 Equity capital or share capital does not create any negative impact on business assets.
 The company can easily raise funds from this capital.
 It increases the creditworthiness of the company (Berge et al. 2018).
 It is not compulsory to pay dividends to the shareholders.
 Risk is comparatively lower than debt capital.
Drawbacks
 The most important drawbacks are that the owners are distributed, which is a loss for
the company. The ownership stake is diluted in this case.
 The cost of equity capital is higher as compared to debt capital. The equity investors
demand a higher return on the company shares. Therefore, the equity holders sell up
more stock at a lower price to compensate for risks and time.
 Equity capital requires more time and effort to get the funds. It is more time-
consuming and effort. It requires the right connections and relations to get equity
funds.
Debt Capital
Advantages
 The main advantage of this type of source is that it is less costly as compared to
equity capital. The cost of capital is very less as compared to the equity capital. This
improves the cash flow in the business operations.
 It maintains the ownership of the company. It helps to control the cost of business
operations.
 It is tax-deductible. Tax is not included in business loans, interest fees, private loans
and various other debts. The business pays the tax deduction.
 The management of the company is more flexible in conducting business operations.

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 Debt capital helps in increasing the profit by controlling the business operations and
maintaining the assets (Yapa Abeywardhana 2017). Debt capital adds pressure to the
management and helps in the proper management of the business inventories.
Drawbacks:
 It does not enhance the investment opportunity of the business.
 It affects the credit rating of the business. Lower credit rating will help the company
to issue the bond at a lower interest rate. In a higher credit rating, the company will
have to issue the bonds at a very higher interest rate.
 The higher amount of debt capital is riskier for the company.
 Debt capital may be affected if it results in cash infusion. In such a case, the lenders
with the cash requirement will be affected. Companies will have to pay the cost of
debt capital irrespective of business failure.
 The burden on this type of source of the fund is higher for the company as compared
to the equity capital. The company will have to pay interest additionally with the
amount borrowed within the maturity period.
Retained Earnings:
Advantageous
 This is a type of equity capital that is used as an internal source of raising funds. It
strengthens the business capital and process.
 The company is not required to take help from others, this fund is readily available
from the company’s accumulated earnings.
 It does not have any ownership, and hence, not payback is needed.
Drawbacks

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 This type of source of funds depletes the short-term cash that could be needed for the
emergency purpose of the business.
 The opportunity cost of retained earnings is very high.
 The amount can be very limited and can be highly variable.
Different Types of liabilities
The liabilities of Telstra Ltd are current liabilities and non-current liabilities. The
liabilities of the company are reflected in the Statement of financial position of the company.
Current liabilities include; trade and other payables like trade creditors and other creditors.
These creditors are non-interest liabilities of the company. The payments of creditors are
generally done within a period of 30 to 45 days. The company is focused on paying back the
obligation at the original due date. Other current liabilities include employee benefits
borrowings, derivative financial liabilities, tax payables, contract & revenue received in
advance. The current liability has been increased as compared to the last three financial years.
This means that the company is unable to maintain its liquidity position. The company may
face difficulty in meeting its current obligations. The trade and other creditors & employee
benefits are non-interest payable liabilities and borrowings & derivative financial liabilities
are interest-bearing liabilities. The non-current liabilities of Telstra Ltd include other
provisions, long-term derivative financial liabilities, long-term borrowings and deferred tax
liabilities.
The liabilities of Wesfarmers also includes the current liabilities & non-current
liabilities. Current liabilities include; income tax payables, payables, derivatives, loans,
provisions and other liabilities. The current liabilities of the company has been decreased as
compared to the previous year. This means that the company has sufficiently maintained its
liquidity position. The non-current liabilities include; long-term borrowings, derivatives and

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other liabilities. Borrowings and other payables are interest-bearing liabilities of the
company, whereas the other non-current liabilities are non-interest bearing liabilities.
Key provisions under AASB 137
The provisions of the standard AASB 137 explains the meaning of provisions,
contingent liabilities and contingent assets. It also describes the management responsibility
towards the above provisions. The main objective of this standard to properly recognise the
criteria that are required for measuring the provisions, contingent liabilities and contingent
assets (Costa et al. 2017). This standard explains the provisions of liabilities in the context of
impairment of assets, depreciation and other doubtful debts in terms of uncertain time and
amount. This provision shows the responsibility of the management towards the company’s
annual report. The management should integrate with the notes of accounts for proper
disclosure of the annual report (Bova 2016). This can helps investors in getting relevant
information related to the company. The provisions of this standard also show the historical
events. Provisions can give a clear review of the company management on how this can
affect the business reporting process.
Reporting for AASB 137 standard
Telstra Ltd has no such contingent assets found in 2019. From the annual report of
Telstra Group, no provisions have been recognised as contingent liabilities due to uncertainty
in the future outcome & inability to measure such liabilities. No contingent liabilities are
attached to government grants like mobile service obligation programs and other contracts
related to government grants. Other contingent liabilities are related to the ASIC deed of
cross guarantee. The companies listed in the deed, guarantee the payment in terms of debt of
the other companies. Certain common law claims by the employees and other third parties are
contingencies disclosed in the notes to the account of the annual report. Other contingencies
include; claims of legal, regulatory and complaints related to business operations. Therefore,

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Telstra group has sufficiently reported the contingencies according to the ASSB 137
provision, contingent liabilities and contingent assets.
From the annual report of Wesfarmers Ltd, various contingent liabilities can be seen
from the income statement. The financial report does not show the contingent liabilities in the
balance sheet. Various contingent liabilities are related to trading guarantees that cannot be
estimated. The annual report has explained the contingent liabilities in the notes to accounts
for the company’s financial statement. The management of Wesfarmers has adequately
shown the contingent liabilities in the annual report.
Figure 3: (Contingent liability of Wesfarmers)
The annual report has also shown provisions in their notes to account for statements
of the balance sheet. These provisions are also disclosed in the company’s balance sheet. The
provisions are disclosed to maintain a level of transparency in the business.
Figure 4: (Provisions of Wesfarmers Ltd)

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Therefore, Wesfarmers has also properly recognised the contingencies according to
the standard of AASB 137, provisions, contingencies, and liabilities. The management is
focused on properly recognising and explaining the contingencies in their annual report.
Categories of assets
The annual report of Telstra Ltd shows two types of assets; current assets and non-
current assets. The current assets include cash & cash equivalents, Trade & other receivables,
contract assets, deferred contract costs, inventories, derivative financial assets, current tax
receivables and assets classified as sales. The non-current assets of the company include;
long-term trade and other receivables, deferred contract assets, inventories, investments,
intangible assets, derivative financial assets, deferred tax assets, benefit assets. The company
has properly reported its total assets in the financial position statement of the company’s
annual report.
Wesfarmers Ltd has recorded two categories of assets in their annual report; current
assets and non-current assets. The current asset includes; cash & cash equivalents, Trade &
other receivables, inventories, Derivatives and other current assets. The non-current assets
include; investments in joint ventures and associates, deferred tax assets, property, plant &
equipment, goodwill, intangible assets, derivatives and other non-current assets. The total
current assets and non-current assets are presented in the comprehensive statement of
financial positions.
Measurement Basis for assets
The total assets of each and every asset are done based on Australian Accounting
Standards. The trade and other receivables are measured at amortised cost and written on its
fair value. The current assets are properly recognised. The non-current assets of the business

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are generally measured at accumulated depreciation method, amortisation and impairment
loss of fixed assets according to the nature of the assets.
Conclusion
Therefore, it is concluded from the above discussion that, the management of both the
companies have maintained a transparency level in the financial reporting process. From the
annual report of the Telstra group and Wesfarmers Ltd, it can be found that the business
operations are flexible and reliable. The contingent liabilities, current assets and non-current
assets are recognised in their annual report. Both companies have properly explained the
elements of business operations in the notes to account for statements of the company’s
balance sheet.

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References
Berger, A.N., El Ghoul, S., Guedhami, O. and Roman, R.A., 2018. Competition and Banks’
Cost of Equity Capital: Evidence from Relatively Exogenous Differences in Regulation.
Available at SSRN 3290940.
Bova, M.E., 2016. The Fiscal Costs of Contingent Liabilities. International Monetary Fund.
Costa, I.L.D.S., Correia, T.D.S., Machado, M.R. and Lucena, W.G.L., 2017. Disclosure dos
Passivos Contingentes: Análise Comparativa entre Empresas de Mercado Aberto no Brasil e
na Austrália. Pensar Contábil, 19(69).
Telstra.com.au. (2020). [online] Available at:
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20F/2019-Annual-
Report.PDF [Accessed 25 Jan. 2020].
Wesfarmers.com.au (2020). [online] Wesfarmers.com.au. Available at:
https://www.wesfarmers.com.au/docs/default-source/asx-announcements/2018-annual-
report.pdf?sfvrsn=0 [Accessed 25 Jan. 2020].
Yapa Abeywardhana, D., 2017. Capital structure theory: An overview. Accounting and
finance research, 6(1).

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