Cash Flow Categories: 5 Analysis of Other Comprehensive Income Statement

CORPORATE ACCOUNTING CORPORATE ACCOUNTING CORPORATE ACCOUNTING 10 10 Corporate Accounting Name of the Student Name of the University Authors Note Course ID Introduction: 2 Cash Flow Statement: 2 List of Each Items reported in Statement of Cash Flow 2 Comparative analysis of cash flow categories: 4 Analysis of Other Comprehensive Income Statement: 5 Items reported in other comprehensive income statement: 5 Understanding of items reported in other comprehensive income statement: 5 Reasons for not reporting items in the income statement: 6 Accounting

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Introduction:...............................................................................................................................2
Cash Flow Statement:................................................................................................................2
List of Each Items reported in Statement of Cash Flow........................................................2
Comparative analysis of cash flow categories:......................................................................4
Analysis of Other Comprehensive Income Statement:..............................................................5
Items reported in other comprehensive income statement:....................................................5
Understanding of items reported in other comprehensive income statement:.......................5
Reasons for not reporting items in the income statement:.....................................................6
Accounting for Corporate Income Tax:.....................................................................................6
Firms tax expenses in the latest financial statement:.............................................................6
Tax rate times for company’s accounting income:................................................................6
Deferred tax assets/liabilities:................................................................................................7
Current tax assets:..................................................................................................................7
Income tax expenses on income statement and tax paid on cash flow statement:.................8
Overall understanding of the firm’s financial statement:.......................................................8
Conclusion:................................................................................................................................8
Reference List:...........................................................................................................................9

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Introduction:
The current report is based on the understanding of the corporate reporting
environment of BHP Billiton. The report would be carefully analysing the financial
statements of BHP Billiton over the period of three years. Initially a cash flow statement
analysis will be conducted where each items reported in the cash flow statement of the BHP
Billiton reported in the cash flow statement would be discussed along with the depiction of
changes in the items of cash flow statement. A comparative analysis of operating investing
and financing activities would be conducted for a period of three years.
An analysis of items reported by BHP Billiton in the other comprehensive income
statement would be discussed and the reason for not including the items in the profit and loss
statement. The report would be placing emphasis on the accounting for corporate income tax
by understanding the BHP Billiton tax expenditure, deferred tax assets, current tax assets and
income tax expenditure along with the differences in figures reported.
Cash Flow Statement:
List of Each Items reported in Statement of Cash Flow
As evident from the cash flow statement under the operating activities BHP Billiton
reported profit before tax originating from continuous operations (Scott, 2015). The profit
before taxation represents the profitability measures that considers the profit of BHP Billiton
prior to the payment of any corporate income taxes by subtracting all the expenditure from
the revenues along with the interest expenditure and operating expenditure except the income
tax (BHP Billiton, 2018). The continuing operations for BHP Billiton represents the net
income class in the profit and loss statement that amounts to BHP Billiton daily business
activities.

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Under the operating activities BHP Billiton reported certain adjustment prior to
taxation. This includes the non-cash items of exceptional nature, expenditure related to
depreciation and amortization, impairments conducted on PPE, intangible and the financial
assets (Schaltegger & Burritt, (2017). Further expenditure include net finance costs and share
relating to operating profit of equity accounted investments. BHP Billiton reported a changes
in the assets and liabilities under the operating activities (BHP Billiton, 2018). The changes
included in the areas of trade and other receivables, inventories, trade and other payables
along with the provision on assets and liabilities.
Cash flow from the investing activities represents the items on the statement of cash
flow that reports the aggregate changes in the company’s position of cash originating from
the gains made from investment in the monetary markets together with operating subsidiaries
and changes that results from the sum spend on capital assets investments (Williams, 2014).
The investing activities of BHP Billiton included the purchase of PPE, expenditure on
exploration, the expense of exploration spending that is included in the operating cash flow.
The items listed in the investing activities also included net investment in the accounted
investments along with the proceeds from assets, divestment of subsidiaries and joint
operations (BHP Billiton, 2018). Under the investing activities, BHP Billiton reported net
investing cash flows from the discontinued operations.
The cash flow from the financing activities includes the cash flow from the
organizations cash flow statement that amounts to external activities that enables a company
to raise capital (Warren & Jones, 2018). Apart from raising capital the financing activities
also comprises of the repayment of investors, adding or changing loans or issue of stocks.
BHP Billiton cash flow from financing activities include the proceeds that are derive from the
interest bearing liabilities. It also includes proceeds originating from debt instrument,
repayment of the interest bearing loans, proceeds originated from the ordinary shares,

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contributions made to the non-controlling interest and the purchase of employee stock option
plans (Henderson et al., 2015). The financing activities of BHP Billiton included the payment
of dividend to both the shareholders and to non-controlling interest as well.
Comparative analysis of cash flow categories:
The three board categories of cash flow statement constitutes cash flow from
operating activities, cash flow from investing activities and cash flow from financing
activities. BHP Billiton net cash flow from the operating activities for the financial year of
2015 stood $19,296 million. However, in the following year of 2016 the net cash flow from
the operating activities declined to $10,625 million (BHP Billiton, 2018). In the recently
concluded financial year of 2017 the cash flow from operating activities increased to stand at
$16,804 million. The primary reason for the declined in cash flow from operations was that
BHP Billiton incurred significant amount of expenses on the payment of net income tax and
royalty related tax that alone accounted for $2,286.
The cash flow from the investing activities for BHP Billiton stood highest in the
financial year of 2015 as it stood 13,154 which also included net investing cash flow from the
discontinued business operations (Macve, 2015). The net amount of cash flow from the
investing activities in 2016 stood $7,245 million while in the subsequent year of 2017 the
cash flow from investing activities stood $4,161. The discontinued operations included the
BHP Billiton demerger from the aluminium business, manganese, nickel and silver lead zinc.
The cash flow from the financing activities for BHP Billiton in the financial year of
2015 stood $8,073 million while in 2016 the cash flow from financing activities stood $284
million (Maynard, 2017). In the recently concluded financial year of 2017 the net cash flow
from the financing activities accounted for $9,133 million (BHP Billiton, 2018). Evidently
there was a stark decrease in cash flow in 2015 as BHP Billiton reported net decrease in cash

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flow of $1,781 million. However, the cash and cash equivalent for the financial year of 2016
and 2017 stood 10,276 and 14,108 million respectively.
Analysis of Other Comprehensive Income Statement:
Items reported in other comprehensive income statement:
The items reported by BHP Billiton in the other comprehensive income statement
included items that might be subsequently reclassified to the income statement (Hoyle et al.,
2015). This included items that were available for sale investments such as net valuation of
losses or gains taken to the equity and net amount of valuations of losses or gains that were
transferred to the income statement. There were cash flow hedges relating to gains or loss
from equity or the gains and losses that were transferred to the equity statement (Watson,
2018). BHP Billiton reported exchange variations on transactions of foreign operations that
were taken to equity and items that were transferred to income statement. BHP Billiton
recognized tax within the comprehensive income statement.
There were items under the other comprehensive income statement that were not to be
classified into the income statement. This included the re-measurement of the gains and
losses on the pension and medical arrangements.
Understanding of items reported in other comprehensive income statement:
An understanding can be gained for BHP Billiton items available for sale investment
represents the equity shares that were bought with the intention of selling prior to it reaching
maturity or holding the same for a long period given that it does not have the maturity date
(BHP Billiton, 2018). The accounting standards requires the companies to reclassify any form
of investment or debt equity securities when they are bought or held for selling purpose.

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BHP Billiton also reported cash flow hedges. A cash flow hedge is better understood
as the hedge of the exposure relating to the variability of the cash flow which is attributable
to certain risks related with the identified assets and liabilities.
Reasons for not reporting items in the income statement:
The objective of other comprehensive statement and profit and loss statement is
provide users with the better understanding of the BHP Billiton financial position which may
enable the users to evaluate the future cash inflow and outflow of BHP Billiton (Johnston &
Kutcher, 2015). The IFRS requires BHP Billiton to present the income statement as
combined statement of profit and loss. BHP Billiton is under obligation of the IFRS to
separately present the other comprehensive income statement that would reclassify the profit
or loss along with those items that would never be reclassified to statement of profit and loss
(Morris, 2017). The associated tax impacts is necessarily required to be allocated to these
sections.
Accounting for Corporate Income Tax:
Firms tax expenses in the latest financial statement:
Income tax expenditure relates to the amount of expenditure that a business identifies
during the account period associated to its taxable profits for the government tax. As
identified in the annual report of BHP Billiton the tax expense for the company during the
financial year of 2017 stood $4,100 billion (BHP Billiton, 2018).
Tax rate times for company’s accounting income:
The effective tax rate for the BHP Billiton during the financial year of 2017 stood
39.7 per cent this is because the financial year of 2017 tax expenditure of BHP Billiton
reflected a higher profits. The tax rate for BHP Billiton is not same based on the times of the
company’s accounting income (BHP Billiton, 2018). The financial year of 2016 reflected a

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taxation benefit that was mainly because of the operating losses originating from the
recording of impairments.
Deferred tax assets/liabilities:
The deferred tax assets for BHP Billiton during the financial year of 2017 stood
$5,788 million. Whereas the deferred tax liabilities provided by BHP Billiton in the balance
sheet for the year 2017 stood $3,765 million (BHP Billiton, 2018). The deferred tax by BHP
Billiton is provided in full and temporary differences that originates between the tax bases for
the assets and liabilities along with their carrying amount in the financial statements.
The reason for recognizing the deferred tax asset in the balance sheet is that it is
possible that the taxable profits in the future would be available against which the
provisional differences can be put into use (Gao et al., 2015). The deferred tax for BHP
Billiton is measured based on the rate of tax that are anticipated to be applied upon realising
an asset or when there is a settlement of liability. Necessary judgements are made to sum of
deferred tax assets is identified based on the probable future assessable profits. On the other
hand the primary reason for identifying the deferred tax liabilities is because of the
differences that are temporary in nature relating to investments caused largely by retained
earnings held in the overseas tax jurisdictions.
Current tax assets:
BHP Billiton recorded a current tax assets of $195 US$M for the financial year of
2017. The company also reported income tax payable of $2,119 US$M for the financial year
of 2017 (BHP Billiton, 2018). The income tax payable is not as same as the income tax
expense because the income tax expenses is what BHP Billiton owns in tax based on the
standard accounting rules whereas the income tax payable represents the actual amount of the
taxes that is owned by the BHP Billiton based on the tax code rules (Gao et al., 2015). The

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current amount of tax represents the anticipated amount of tax on the assessable income
during the year based on the tax rates and the laws adopted during the reporting data whereas
any form of adjustment to the tax payable for BHP Billiton is in respect of the previous years.
Income tax expenses on income statement and tax paid on cash flow statement:
The income tax expenses reported in the income statement is different from the
income tax paid on the statement of cash flow (Wang et al., 2015). The income tax reported
in the income statement for the year 2017 stood $4,100 US$M while the income tax paid in
cash flow stood $2,585 US$M (BHP Billiton, 2018). The differences is primarily because of
the income tax effects on the certain gains and losses that relates to the investing and
financing activities. Another reason for differences in the income tax paid and income tax
payable is because there are certain accounting transactions that has originated in the ordinary
business courses as a results of this the final amount of tax determination remains uncertain
(Rathke, 2016,).
Overall understanding of the firm’s financial statement:
The overall understanding of the firm’s financial statement provides an interest fact
that the company recognizes the tax that is payable by using the tax rates and the substantially
adopted laws on the reporting data. The financial reports provides an understanding of the
taxes that are payable is based on the adjustments made in respect of the previous years. An
interesting fact has been learned that BHP Billiton reports deferred tax assets based on the
temporary differences of the assets and liabilities. Although it was confusing to understand
how the taxes payable in the income statement and taxes paid on the cash flow were different
but an interesting fact of uncertain assumptions disclosed by BHP Billiton provides a lucid
understanding of tax treatment.

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Conclusion:
On a conclusive note, the report provided interesting understanding of the treatment
of the current items that was reported in the other comprehensive income statement. The
report evidently discloses that the IFRS requires BHP Billiton to present the income
statement as combined statement of profit and loss.
Reference List:
BHP Billiton. (2018). Financial results and operational reviews. [online] Available at:
https://www.bhp.com/investor-centre/financial-results-and-operational-reviews
[Accessed 11 May 2018].
Gao, Z., Givoly, D., & Laux, R. (2015). Assessing the Relation between Taxes and Stock
Returns: The Critical Role of Choosing the Tax Variable.
Gao, Z., Givoly, D., & Laux, R. (2015). On the valuation of tax expense.
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial
accounting. Pearson Higher Education AU.
Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015). Advanced accounting. McGraw Hill.
Johnston, D., & 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), 79-102.
Macve, R. (2015). A Conceptual Framework for Financial Accounting and Reporting:
Vision, Tool, Or Threat?. Routledge.
Maynard, J. (2017). Financial Accounting, Reporting, and Analysis. Oxford University Press.

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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), 198-208.
Rathke, A. (2016, December). The Effects of Inter-temporal Tax Allocation on Current Tax
Expenses. In III Workshop de Contabilidade e Tributação (Vol. 1, No. 1).
Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues,
concepts and practice. Routledge.
Scott, W. R. (2015). Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Wang, Y., Butterfield, S., & Campbell, M. (2016). Deferred tax items as earnings
management indicators. International Management Review, 12(2), 37.
Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.
Watson, L. (2018). The Deferred Tax Asset Valuation Allowance and Firm
Creditworthiness. The Journal of the American Taxation Association, 40(1), 81-85.
Williams, J. (2014). Financial accounting. McGraw-Hill Higher Education.

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