Corporate Accounting: Analysis of Owner’s Equity and Debt Equity Position

This report analyzes the accounting standard setting process followed by AASB and provides a comparative analysis of four companies in the minerals and mining industry. It also includes an analysis of owner’s equity and debt equity position of the companies.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author’s Note

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Table of Contents
Introduction......................................................................................................................................2
Corporate Regulations.....................................................................................................................2
Part ii............................................................................................................................................2
Reason as to Why IFRS is not Compulsory for Member Countries............................................3
Analysis of Owner’s Equity.........................................................................................................3
Debt Equity Position Analysis.....................................................................................................6
Conclusion.......................................................................................................................................7
Reference.........................................................................................................................................8

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Introduction
The main purpose of this report is to analyze the accounting standard setting process
which are followed by AASB in order to introduce a new accounting standard which can help the
business to further improve the reporting framework of the business. The report also shows the
process through which discussions are carried on for the purpose of introducing a particular
accounting standard. In addition to this, the first part also contains an explanation as to what role
is played by AASB in assisting IASB in formulating new accounting standards. In the second
part of the assessment, four companies are to be considered for the purpose of identifying
different items which are shown in the financial statements of the four companies. The
companies which are considered for this assessment are Rio Tinto ltd, Ausdrill Ltd, Adelaide
Brighton ltd and Boral ltd. All the companies which are considered belong the same industry
which is minerals and mining business (Riotinto.com. 2018). The financial statements are
considered for a period of four years. The requirement of the report is to analyze the owner’s
equity of the companies and also comment on the changes which have taken place on the debt
equity situation of the companies.
Corporate Regulations
Part ii
The Australian Accounting Standard Board (AASB) follows policies and procedures for
the purpose of formulating b standards which are to be followed by the organizations. The first
step is to identifying the technical issues which the organizations are facing while carrying out
the reporting framework. In the second step, detail analysis is to be conducted for the issues
which are faced by the corporations and the board also needs to consider and long-term impacts

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which are applicable on a business (Sinclair and Bolt 2013). The next step will involve the board
developing a proposal for the standard and the same is to be sent for discussion. In such
discussion, the board will discuss whether the project is worthwhile for consideration and
including the same in the agenda of the business (Allen and Ramanna 2013). The discussion
process will be allowing analysis of the topic and also discussion for the same with the other
accounting boards such as IASB and also discuss the same with the stakeholders of the business
(Teixeira 2014). If all the requirements of the accounting standards are satisfactory and it is
established that the standard will be beneficial to organizations than the accounting standard is
issued.
Reason as to Why IFRS is not Compulsory for Member Countries
International Financial Reporting Standard (IFRS) are standards of accounting which are
issued by International Accounting Standard Board (IASB) for the purpose of bring about
universality in treatments in accounting over the world. The reporting structure of a business
heavily depends on the standards which are adopted by the business for the purpose of reporting
the financial information relating to the business. The reason due to which reporting under IFRS
framework is not mandatory for the member countries of IASB is because full implementation of
the accounting standard leads to a fall in the quality of reporting. An example can be given of
USA as the IFRS system is not favorable for some of the businesses which are operating in US.
Another reason which can be identified is that the costs which are associated with the adoption of
IFRS framework is much more than the benefits which are related with the same.
Analysis of Owner’s Equity
The owner’s equity section is shown in the balance sheet of the company and forms part
of the equities and liabilities head which is shown in the annual report of the company (De

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Franco et al. 2013). The four companies which are selected for this assessment shows that the
items which are included in the owner’s equity of the business as shown in the financial
statement prepared by the business. The items are discussed below in details:
 Issued Capital: The issued capital of a business refers to the capital which is collected
by businesses with the help of shares which is issued by businesses. The share capital of
the business reflects the owner’s capital which can be used in any productive manner and
in return for the investments, the owners receive a share of profits of the business for the
period.
 Reserves: This refers to a part of the profits of the business are kept aside by the business
for emergency use or for a specific purpose such as payment of interest or purchase of
assets (Bayoumi and Saborowski 2014). Similarly, there are other types of reserves as
well which the business needs to maintain.
 Retained Earnings: The retained earnings of a business represent a part of the profit
which is kept aside by the management which can be used for reinvesting in the business
(Weil, Schipper and Francis 2013). The retained earnings of the business which is shown
in the owner’s equity of the business can be used by the business for financing activities
of the business and also for dividend payments.
Analysis of Owner’s Equity of Rio Tinto Ltd
The share capital of the business which is shown for the year 2014 is shown to be $ 4,535
million and the same has reduced to around $ 3,950 million which is for the year 2015. This
shows that the business has buy back some number of shares of the business. The share capital
for the year 2017 is shown to be $ 4,140 million which has improved from the year 2016 which

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signifies that the business issues new shares during the year. The reserves and retained earnings
of the business which is shown in the year 2015 has decreased in comparison to previous year
analysis. The reserve balance and retained earnings which is shown in 2017 is $ 12,284 million
and $ 23,761 million respectively which is a positive sign for the business of Rio Tinto ltd.
Analysis of Owner’s Equity of Adelaide Brighton Ltd
The owner’s equity balances which is shown in the annual report of the company in
which the share capital balance which is shown in the financial statement for the year 2015 is
shown to be $ 729.2 million which has reduced slightly in comparison to figures which are
shown for previous year. The share capital balance which is shown for the year 2017 is $ 733.1
million which has increased from 2016 figures (Annualreports.com. 2018). The retained earnings
of the business also show tremendous increase in the figures from 2016 estimates which signifies
that the management is able to generate appropriate savings from the profits which is generated
by the business. The retained earnings in 2015 is shown to be $ 474.3 million and the same is
shown to be $ 483.3 million in 2016 and the same has further increased in 2017 which shows a
growing trend. The reserves of the business is shown to have fluctuating results.
Analysis of Owner’s Equity of Ausdrill Ltd
The owner’s equity of the business for the year shows that the contributed equity of the
business which refers to share capital which is utilized by the business for the year. The
contributed equity of the business for the four years period is shown to be $ 526,447,000. The
management of the company has not changed and has remained the same throughout the four
years which is considered for this assessment. The reserves of the business for the year 2014 is
shown to be positive and then the same is shown to be negative for the year 2015. This suggest

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that the business has accumulated losses which are shown in the reserves of the business. The
balances of reserves are used by businesses for the purpose of setting off losses of the business
and until the losses are set off, the same will be showed in reserves of the business. The losses of
the business is seems to be on a rise as the value of reserves which is in negative increases year
by year from 2016 to 2017 (Ausdrill.com.au. 2018). The retained earnings of the business which
is shown to be highest in 2014 for $ 223,016,000 and the same falls significantly in 2015 which
is shown to be $ 38,027,000. The retained earnings of the business are shown to be $
121,444,000 which shows improvements from previous year which is a positive sign for the
business.
Analysis of Owner’s Equity of Boral Ltd
The owner’s equity for Boral ltd shows that issued capital of the business for the year
2018 is shown to be $ 4265.1 million and the same have almost doubled itself from previous year
estimate. This suggest that the management of the company has issued shares to the public
during the year. The share capital of the business for the year 2015 and 2014 also shows
estimates that are similar to 2016 estimate (Boral.com. 2018). This means that the management
of Boral limited required significant amount of capital in 2017. The retained earnings of the
business for the year 2017 is shown to have significantly improved during the year 2017. This
shows that the business is performing extremely well (Cazier et al. 2015).
Debt Equity Position Analysis
The debt equity position of the business shows the capital structure which is sued by the
business for the purpose of financing the activities of the business (Coleman, Cotei and Farhat
2016). The annual report of 2017 for Rio Tinto Ltd shows that the management of the company

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relies more on debt capital of the business as the balance of debt capital is shown to be $ 15,148
million which has reduced from $ 17,470 million which is shown for 2016 analysis. This shows
that the management has repaid a part of loan of the business. In the case of Adelaide Brighton
ltd, the share capital is more often used by firm and the business also has debt capital. The
borrowings of the business has increased significantly while there is minimal changes in equity
capital of the business.
The management of Ausdrill ltd uses a significant low portion of debt capital and has
more of equity capital in the capital structure mix of the business. This shows that the business
wants to reduce the risks which comes along with debt capital and utilize more of equity capital.
As per the annual report of Boral ltd, the management relies more on equity-based capital rather
than debt capital of the business.
Conclusion
The above discussion shows the accounting standard setting process of an accounting
body which is AASB and the discussion also reveals that AASB can also provide assistance to
IASB in formulating strategies by considering the implications and also how the same can
improve the reporting framework. The assessment was also shows comparative analysis of four
companies which belong to same industry and also show what items are incorporated in Owner’s
Equity of the business. The assessment also considers debt and equity analysis of all four
companies.

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Reference
Allen, A. and Ramanna, K., 2013. Towards an understanding of the role of standard setters in
standard setting. Journal of Accounting and Economics, 55(1), pp.66-90.
Annualreports.com. (2018). Adelaide Brighton Limited - AnnualReports.com. [online] Available
at: http://www.annualreports.com/Company/adelaide-brighton-limited [Accessed 20 Sep. 2018].
Ausdrill.com.au. 2018. [online] Available at:
http://www.ausdrill.com.au/images/ausdrill/files/20170823_AUSDRILL_ANNUAL_REPORT_
2017.pdf [Accessed 20 Sep. 2018].
Bayoumi, T. and Saborowski, C., 2014. Accounting for reserves. Journal of International Money
and Finance, 41, pp.1-29.
Boral.com. 2018. [online] Available at:
https://www.boral.com/sites/corporate/files/media/field_document/Boral-Annual-Report-
2017.pdf [Accessed 20 Sep. 2018].
Cazier, R., Rego, S., Tian, X. and Wilson, R., 2015. The impact of increased disclosure
requirements and the standardization of accounting practices on earnings management through
the reserve for income taxes. Review of Accounting Studies, 20(1), pp.436-469.

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Coleman, S., Cotei, C. and Farhat, J., 2016. The debt-equity financing decisions of US startup
firms. Journal of Economics and Finance, 40(1), pp.105-126.
De Franco, G., Vasvari, F.P., Vyas, D. and Wittenberg-Moerman, R., 2013. Debt analysts' views
of debt-equity conflicts of interest. The Accounting Review, 89(2), pp.571-604.
Riotinto.com. 2018. [online] Available at:
https://www.riotinto.com/documents/RT_2017_Annual_Report.pdf [Accessed 20 Sep. 2018].
Sinclair, R. and Bolt, R., 2013. Third sector accounting standard setting: Do third sector
stakeholders have voice?. Voluntas: International Journal of Voluntary and Nonprofit
Organizations, 24(3), pp.760-784.
Teixeira, A., 2014. The International Accounting Standards Board and evidence-informed
standard-setting. Accounting in Europe, 11(1), pp.5-12.
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.