The Corporate Accounting

Running head: Corporate Accounting
Corporate Accounting
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Table of Contents
Introduction................................................................................................................................1
Discussion..................................................................................................................................1
Different sources of fund.......................................................................................................1
Evaluation of sources of fund................................................................................................3
Percentage of different sources of funds................................................................................4
Certain benefits and drawbacks of sources of funds..............................................................5
Various types of liabilities.....................................................................................................7
AASB 137 Provisions, Contingent Assets and Contingent Liabilities..................................8
Reporting AASB 137 Provision.............................................................................................9
Recorded assets of the companies........................................................................................10
Measurement basis of the assets..........................................................................................10
Conclusion................................................................................................................................11
References................................................................................................................................12

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Introduction
This paper focuses on the two of the ASX Listed companies in the retail sector.
Telstra Ltd and Woolworths Ltd are the leading retail companies in Australia. The annual
report of three years of both the companies are critically evaluated to identify different
sources of fund and even the evaluation of the funds over the three accounting year. Various
changes relating to sources of funds are evaluated. Internal and external environment are
taken into consideration to analyse various sources of fund and to identify their percentage
with respect to various environment. This paper explores various assets, liabilities that has
been recorded in the financial statements, even identifies which of them comes under interest
bearing category, and which are not-interest bearing (Zeitun and Tian 2014). AASB 137
provisions relating to contingent assets and liabilities is critically evaluated to identify if this
provision has any impact on the annual reports of both the companies. Different advantages
and dis-advantages of sources of fund are discussed in details. At the end, this paper would be
examining various methods by which assets of both the companies are being valued.
Discussion
Different sources of fund
For smooth functioning of operational activities of the business there should be
adequate sources of fund and even efficient use of various funds should be done in an
effective way that will result in a profitable situation for the organization.
Woolworths Ltd.
As it is a retail business, it utilises various funds in financing operational activities of
the company. This company uses various sources of fund such as equity and preference
shareholdings, long-term and short-term borrowings, retained earnings and many more. As

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per 2019, annual report the company uses more internally generated fund in its operational
activities. The firm in most of its financing activities uses equity capital, which comprises of
equity share capital, retained earnings and reserves & surplus. In 2018, annual report the firm
rely on external sources such as borrowings, various financial liabilities and many more by
which the firm reduce the risk factors, as debt financing is less risky compared to equity
financing. From the annual reports, it can be examined that Woolworths Ltd is trying to
maintain a balance between equity financing and debt financing to manage different sources
of fund in an efficient way thus it will be profitable for all the stakeholders of the company.
Telstra Ltd
This company uses various internally and externally generated fund for its financing
activities. Various funds that are commonly used by Telstra Ltd are equity capital, debt
capital and retained earnings. This company tries to allocate its shares to its existing
shareholders thus; in return, the shareholders invest funds in the company. Even debt
financing is done by generating sources of fund via bonds, short term and long term
borrowings, short term commercial papers, AUD private placements and finance leases and
may more. It mostly depends on debt capital as it proves to be less risky for the investors due
to which more funds are invested in the organization. The profits that are generated by the
firm are not being distributed to the shareholders as dividend rather the profits are kept as
retained earnings which are used by the company as funds for carrying out its different
financing activities.

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depends on its existing stakeholders and acquire funds from them to accomplish the
company’s obligations (Hasan, Hossain and Habib 2015). Even the retained earnings and the
reserves amount of the firm has increased over time (Woolworths.com 2020). There is an
opportunity cost, which the shareholders are incurring to fulfill the targets and obligations of
the company. The shareholders are sacrificing the dividend amount that they were supposed
to get. Some external sources of funds are taken into consideration in terms of borrowings
(woolworth.com 2020).
In case of Telstra Ltd, the firm is using more amount of debt financing to carry out its
investing activities (Nyamita, Nyamita and Dorasamy 2014). Over the period of three years,
more of debt capital is used as compared to equity capital however the total capital used in
2019 is less as compared to 2018 (Telstra.com 2020). The business wants to undertake less
risk so it depends on externally generated sources of fund. Even equity capital is used for
financing business activities however; the reserves came to be negative over the period of
three years (Telstra.com 2020). It can be said that both the company uses equity capital and
debt capital to carry out its financing decisions.
Percentage of different sources of funds

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The above table shows the segregation of equity financing and debt financing of
Woolworths Ltd and Telstra Ltd for a period of three years. Equity financing refers internally
generate funds while debt financing are externally generate funds. Equity capital includes
issued shares, reserve and surplus, retained earnings whereas debt capital includes current,
non-current borrowings, and many more, which are used by the business in its operational
activities (woolworth.com 2020). Woolworth Ltd is using more of equity capital in respect of
debt capital as the company wants to depends more on its shareholders rather than depending
on any external funds (Gadoiu 2014).
For the Telstra Ltd the management depends more on debt financing to carry out its
business activities (Wu, Si and Wu 2016). Out of the total capital of the Telstra Company,
more weightage is given to debt capital as the company acquire external funds to operate its
business activities. The company wants to reduce the capital boosts business cash flow
(Telstra.com 2020). The company avails cheaper source of finance as debt finance attracts tax
benefits and also debt financing is assumed to be less risky as compared to equity financing.
Certain benefits and drawbacks of sources of funds
The capital framework of both the retail companies is almost same however; uses of
various funds from equity capital and debt capital are done in different ways as per the
convenience of the companies (Danis, Rettl and Whited 2014). Each of the funds have
different impact on the capital structure of the companies and have various types of benefits
and drawbacks, which are as follows:
Equity Capital
Benefits

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 In equity capital there is no obligation given to the shareholders regarding regular
payment of dividend, the firm has authority to retain the amount of profit and use that
profit as funds in various financing activities.
 Equity capital comes with risk sharing factor and with benefit. By investing in
equities the investors avails certain risks in exchange of the profit share that they will
earn from the company.
 Equity shareholders of the companies get voting rights and even the management of
the company, which plays important role in the decision-making process of the
company.
 Equity share capital are the perpetual source of capital for the business and the
company is liable to repay it only at the time of liquidation. Assets of the company
has no impact on them at the time of issuing equity shares.
Drawbacks
 Issues relating to overcapitalization may arise, as it is not possible to redeemed equity
capital. As no obligation regarding repayment of fund is there, the investors can put
pressure on the management of the firm, which may result in any kind of disruption in
the business.
 At earlier stage, more amount of dividend is to be paid to the shareholders to attract
more investments, which may leads to speculation in the market and the firm cannot
experience the benefits of trading on equity, if only the company issues equity shares.
Debt capital
Benefits
 In debt financing as funds are externally generated and the investors does not have
any obligations on how the owners run the business. Borrowings are taken from

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outside the company thus; tax deduction opportunity can be availed by the
company.
 In debt capital structure all the sources of funds and their respective interest are
pre-determined, thus it becomes favorable for the company to work on its cash
flow and making payment according to the obligations. In debt financing, all
liabilities that will incur are predictable.
Drawbacks
 The credit worthiness of the company gets affected due to debt financing.
Most of the times the lenders demand some type of collateral security in return
of the investment they provide to the company, in this situation the company
has to keep some of its assets on mortgage to acquire the funds from the
investors.
 Interest on loan payment needs to be paid during a specified time and that too
without fail; if the cash flow of the firm is not predictable then it will become
difficult for the firm to make the loan payments. Even the sales of the firm can
affect the repayment of loan. By acquiring debt funds the company cash flow,
can declines that will lead to higher risk for the firm.
Retained Earnings
Benefits
 Retained earnings helps a company for reinvestment and these earnings are
already available, the company need not wants to acquire any kind of help
from the stakeholders.
 By using retained earnings, the firm eliminates the loss that incurred due to
underpricing.

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Drawbacks
 Retained earnings are highly variable as certain firms have stable
dividend policy and even these earnings have high opportunity costs as
the equity shareholders sacrifice these earnings.
 These earnings are invested into marginal projects, which leads to
negative NPV and even do not give any importance to the opportunity
costs.
Various types of liabilities
In every companies balance sheet the term liabilities is present which consists of
current and non-current liabilities. The long term liabilities of the Woolworth company
consists of long term borrowings which would be contributing huge amount of interest for the
company whereas other long term liabilities such as provision will not attract any kind of
interest. The short-term liabilities consists of the items such as creditors, short-term
borrowings, provisions and many other financial liabilities. The creditors are appearing to be
the significant current liability for the company. Certain provisions are made for any type of
losses that the company might face in future and short-term borrowings are acquired to fulfil
current obligations for the business. In case of current liabilities, short-term borrowing and
other financial liabilities will attract interest and other current liabilities such as provisions
will not do so.
The liabilities of Telstra Company consists of current liabilities and non-current
liabilities. These items are extremely significant for the balance sheet of the company as it
shows the financial position of the company in the market. The non-current liability of the
business consists of long-term elements such as borrowings, provisions, financial liabilities
and deferred tax liabilities. The current liabilities of the business includes, short term

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borrowings, creditors, tax payable, revenue received in advance and many more. The short-
term borrowings of the company while derivative financial liabilities are interest bearing. The
liquidity position of the company is not efficiently maintained as the current liability of the
business has increased over three financial year. The company might face some issues in
fulfilling its short-term obligations. A period of 30 to 45 days is there for the payment of
creditors however the company usually pays the obligations at the original due date.
AASB 137 Provisions, Contingent Assets and Contingent Liabilities
The AASB137 provision defines the meaning of provision, contingent assets and
contingent liabilities. It also describes the responsibility of the management how to recognize
the provision and the contingent items (AASB 137 2020). The main goal of this standard to
make significant recognition of the provisions, contingent assets and contingent liabilities.
The measurement of impairment of assets, depreciation, and other doubtful debt in case of
uncertainty are clearly explained in this provision. The management should clearly mention
the notes of account for significant disclosure of the financial annual report. As all the
stakeholders rely on the financial report of the company, proper disclosure helps them in their
investing decision. Certain historical events are evaluated in this provision. This provision
explores the management responsibility towards preparation of a clear and efficient annual
report. Provisions can estimate all the events that have impact on the reporting process of the
business and even what role management is playing in their disclosure process. The
management should provide a transparent report that can be used by the stakeholders and
proves beneficial for them.
Reporting AASB 137 Provision
The consolidated balance sheet of the Woolworths Ltd includes contingent liabilities.
The contingent liability is present is the annual report because of the guarantee that is
provided by the company. The management, for proper disclosure and reporting of the

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contingent liability follows the AASB 137 provision. The contingent liabilities arises because
of the guarantee given by the management in terms of workers compensation self-insurance
liabilities and many other guarantee provided by the management in usual course of business.
Proper notes to accounts relating to the provisions are mentioned in the annual report for
better understanding. Certain provisions are created by the business so that the provisions can
be used if any type of losses arises in future.
In 2019 annual report of the Telstra Ltd, the balance sheet does not contains any
contingent liabilities. Provision regarding contingent liabilities are not made in the annual
report as the company is unable to recognize and measure any kind of liabilities that is going
to be incurred in future even uncertainty relating to future outcomes are not identified by the
company. For Government grants such as mobile service obligation program and many other
contracts related to government no such provisions regarding contingent liability is made.
Some of the contingencies are related to the operational activities of the business such as
legal claims, certain regulations and complaints. Notes to accounts are mentioned in the
annual report relating to certain laws claimed by the employee and third parties
contingencies. AASB 137 provisions relating to contingent assets and contingent liabilities
are properly recognized and mentioned in the financial annual report of Telstra Ltd.
Recorded assets of the companies
Assets are one of the important elements of the company’s balance sheet, which helps
in the operational activities of the business. The assets of the Woolworth Company includes
current and non-current assets. The current assets are liquid in nature and can be easily
converted into cash to fulfil the current obligations of the business. The short term assets of
the company consists of inventory, trade receivables, cash and cash equivalents, derivatives
and other current assets. The long-term assets of the business includes tangible and intangible
assets such as property, plant and other non-current assets.

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The financial statement of the Telstra Company consists of balance sheet, which has
current and non-current assets in it. The short term assets includes trade and other
receivables, deferred costs, inventory, current tax receivables, cash and cash equivalents,
contract assets and many more. The long term assets of the company consists of intangible
assets, deferred tax assets, long term trade receivables and other receivables, inventories,
investments, financial assets and many more. All assets with their proper valuation has been
done in the balance sheet of the company.
Measurement basis of the assets
The company decide certain accounting standards based on which the measurement of
assets is done. The fixed assets are valued at costs from which accumulated depreciation,
impairment losses and amortisation costs are subtracted. In case of plant, property and
equipment are measured as per the nature of the assets in which they are used. Initially short-
term assets such as trade receivables are recognised at fair value and then they are measured
at amortised cost. Each assets are recognised and measured based on certain standards formed
by Australian accounting standards.
Conclusion
Lastly, it can be concluded form the paper that both the ASX Listed companies
provided a financial annual report, which is transparent. Even proper notes to account and
disclosures relating to provisions are clearly mentioned in the annual reports. The
stakeholders can rely on the annual reports of the company where all contingent assets and
contingent liabilities are recognized to deal with any losses that might incur in future. All
liabilities and assets are recorded in the consolidated balance sheet of both the companies.
The above discussions mentions the capital structure of the companies and it provides the
stakeholders adequate information related to the business operations.

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References
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capital. Journal of Contemporary Accounting & Economics, 11(1), pp.46-60.

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