Comparative analysis of equity and debt position

In this research, a comparative equity and debt statement of two companies are shown on the basis of last three years. In this research, a comparative equity and debt statement of two companies are shown on the basis of last three years. Listing items of equity: Dark Horse Resources: It is an Australian company engaged with the business of minerals and resources, with a priority of investment in gold and lithium projects in Argentina.

CORPORATE
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK: 1 OWNER'S EQUITY........................................................................................................1
1. Listing items of equity:............................................................................................................1
TASK 2: CASH FLOW STATEMENTS........................................................................................3
2. Comparative analysis of equity and debt position:..................................................................3
3. List of items reported in cash flow statements of both companies: ........................................4
4. Comparative analysis of companies performance of last three years......................................6
TASK 3............................................................................................................................................7
6. List of items reported in comprehensive income statements: .................................................7
7. List of items reported in other comprehensive income statements:.........................................8
8. Comparative analyses of items listed in comprehensive income statements:..........................8
9. Should Comprehensive incomes included while evaluation of manager's performance: .......9
TASK 4: ACCOUNTING FOR CORPORATE INCOME TAX....................................................9
10. List of Tax expenses shown in financial statements of both companies: .............................9
11. Calculation of effective tax rate of both companies :............................................................9
12. List of deferred tax assets or liabilities reported in balance sheet:.....................................10
13. Changes in deferred tax assets or deferred liability:............................................................10
14. Calculation of Cash Tax amount:........................................................................................10
15. Calculation of Cash Tax Rate:.............................................................................................10
16. Difference between Cash Tax and Book Tax :....................................................................11
CONCLUSION............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Corporate accounting is branch of accounting which pertains preparation of final
accounts and consolidate cash flow statements. Not only this corporate accounting engaged with
analysation of company's annual reports and accounting for special cases such as amalgamation,
merge up, accounting for partnership , sole trader, and preparation of balance sheets. In this
research, a comparative equity and debt statement of two companies are shown on the basis of
last three years. The companies are Dark Horse Resources and Aeon Metals Limited, both
engaged in same business criteria. Both companies belong to Australia and listed in Australian
Stock Exchange (ASX) (Schaltegger, Etxeberria and Ortas, 2017).
TASK: 1 OWNER'S EQUITY
1. Listing items of equity:
Dark Horse Resources:
It is an Australian company engaged with the business of minerals and resources, with a
priority of investment in gold and lithium projects in Argentina. Main aim of this company is to
produce top grade Lithium Hydroxide for international electronics market and be a great
depositor of high quality of gold.
Aeon Metals Limited
it is a minerals and resources producer company in Australia. Exploration molybdenum,
copper,zinc and metals. After establishment, earlier company was known by the name of Aussie
Q Resources Limited and some years before in 2012 changed its name to Aeon Metals Limited.
Aeon Metals Limited was incorporated in 2006 and established in Sydney, Australia (Zadek,
Evans and Pruzan, 2013).
Analysing equity items of last 3 years of both companies:
DARK
HORSE
RESOURCE
S
AEON
METALS
LIMITED
Equity items 2017 $ 2016 $ 2015 $ 2017 $ 2016 $ 2015 $
Issued capital 18774762 14484254 13874914 48379 48379 45332
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Reserves 900888 843667 829762 40960 8830 5523
accumulated
losses
-10588573 -14675068 -13107220 -28163 -24682 -22217
Net equity 9087077 652853 1597456 24312 32527 28638
ISSUED CAPITAL:
The issued capital is part of company's authorised capital which issued to public or
private /existing shareholders. it is that part of capital on which the allotment of shares is made.
Moreover, issued capital of Dark Horse Resources increases year after year, but issued capital of
Aeon Metals Limited is stable since last year.
Reasons behind increment in issued capital of Dark Horse resources may be, company
wants to reduce its debts, or company plans to invest in new project, or may be due to excess of
retained earnings that's why company decided to issue new shares to existing shareholders and
utilise the retained earnings.
But, in case of Aeon metals limited the issued capital is stable since last year means
company wants to increase debts ratio in capital structure of company. In year 2015-16 the
issued capital of company increases but in year 2017 company didn't issue shares. Issued capital
increases by steady rate (DeBusk, 2012).
RESERVES:
Reserves are the assets of company in liquid form, maintained to meet the future payment
and unforeseen or contingent liability. Moreover, it shows the liquidity form of company,
generated from retained earnings and extra profits(profits of share holder not yet distributedas
dividends) of company.
In above comparative statement, reserves increases year after year, reserves depend on
funds availability and shows liquidity performance of company as shown above, both companies
have reserves normally built up from retained earnings and extra profits (Edgerton, 2012).
ACCUMULATED LOSSES:
Accumulated losses are the negative balances of company's retained earnings. Retained
earnings are the undistributed profits or dividends of shareholder held with the company. At the
end of accounting era, the net loss/income transfers from consolidate profit and loss statement to
retained earnings account. The favourable balance of retained earning account is called
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accumulated profits and vice-versa. In above statement, accumulated losses of last three years
deducted from the reserves of last three years of Dark horse resources as same, after the
deductions of accumulated losses from reserves then the remaining amount is Net Equity of Dark
Horse Resources.
In case of Aeon Metals Ltd. Accumulated losses of past three years deducts from reserves
held with the company in order to find exact amount of net equity.
TASK 2: CASH FLOW STATEMENTS
2. Comparative analysis of equity and debt position:
Statement showing debt-equity ratios of both companies of last three years:
YEARS DARK HORSE RESOURCES AEON METALS LIMITED
2016-17 0.16 1.34
2015-16 2.77 0.76
2014-15 0.45 1.72
Debt- equity ratios of both companies are shown, the debt- equity ratios depicts the
capital structure of company (means debts or owners equity). The ratios of debt-equity shows
criteria of financing of company means investors or creditors ratio. If debt ratio is high then it
means more creditors/debt more risk, and high rate of equity shows more owner's funds and less
credits, means financially sound company (Edwards, 2013).
Company with high equity ratios is financially strong company and considers less riskier
than more debts/ Creditors the companies with low equity ratios. Debt is obligation on company
and must be repaid to lender and also with the payment of regular interests. Although debt
financing source is more risky and expensive than equity financing.
On the basis of above data, the debt-equity ratio of Aeon Metal Limited is comparatively
higher than Dark House Resources, means aeon metal has more debt to equity (more liability and
less owner's funds) which depicts,
The company has to pay interest on the debt amount. Firms with large debt balances feels
tremendous pressure in case of low profits or losses. Although company have to face huge
Financial risk, Debt needs to be serviced i.e., principal and interest have to be paid, irrespective
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of the fact whether the company has earned profits in that year or not, thus, it may lead to the
bankruptcy of the company also (Hoskin, Fizzell and Cherry, 2014).
Hence, Dark Horse Resources is well financially sound company in comparison with
Aeon ltd.
3. List of items reported in cash flow statements of both companies:
Some items of Dark horse resources cash flow data:
Activities particulars Years 2017 2016 2015
OPERATING
ACTIVITIES
 Payment
to supplier
-304415 -191242 -255667
 Interest
received
852 341 826
FINANCING
ACTIVITIES
 Issue of
share
capital
1958310 292133 500229
INVESTING
ACTIVITIES
 Exploratio
n costs
-2374998 497011 302686
Some items of Aeon Metals Limited cash flow data:
Activities particulars 2017 thou. $ 2016 2015
OPERATING
ACTIVITIES
 Payment
to supplier
1674 1394 1622
 Interest
received
97 161 102
FINANCING
ACTIVITIES
 Issue of
shares
…....... 3260 2094
INVESTING
ACTIVITIES
 Exploratio
n costs
3204 2227 4235
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From the above analysed data, those items analysed from operating, financing, investing
activities are analysed which are changed year after year, since last three years.
Operating activities:
 Payment made to supplier: It means payment to supplier of raw material and
intermediate goods made by cash, cheque or from any other mode, it's a type of
operating activity and directly related to production and amount of supplier's payment
changes due to increase in quantity order of raw material, means when company wants
to increase production.
 Interest received: It means operating income in form of interest received, as in case
company engaged in financial services or made investments also. In case of dark horse
resources, the interest received increases year after year but, not in case of aeon metals
limited because no income earned by company in form of interest, due to no investments
shown in the balance sheet of Aeon Metals Ltd. (Huseynov and Klamm, 2012).
Financing Activities:
 Issue of shares: In above data it is shown that in case of Dark Horse Resources issue
amount of shares increases year after year. Company wants to expand the business
criteria or for innovations and future growth of organisation. But in case of Aeon Metals
Limited, company raised funds in year 2015 and 2016 not in 2017. In debt-equity
analysation the ratios of debt and equity of Aeon limited are high means company prefer
to raise funds from debts instead of share issue.
Investing Activities:
Exploration costs: it means company incurs exploration costs when it explores or expands
the business criteria. May be company wants to diversify the business or wants to set new
branches in different cities or countries. Each industry wants to expands the business through out
the world as in above data exploration costs of both company’s years after year, means company
wants to expands the business or wants to set new branches at different place or may be wants to
start business in different business sector. (Raiborn and Sivitanides, 2015).
4. Comparative analysis of companies performance of last three years.
DARK HORSE RESOURCES
Inflow of cash from operating, financing, investing activities.
DARK HORSE RESOURCES
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ACTIVITIES YEAR 2017 YEAR 2016 YEAR 2015
OPERATING 280220 190901 254870
FINANCING 2782755 823740 540210
INVESTING 2378903 470061 288647
AEON METALS LIMITED
ACTIVITIES YEAR 2017 000 $ YEAR 2016 000 $ YEAR 2015 000 $
OPERATING 1577 677 1077
FINANCING …............... 7836 1912
INVESTING 3184 2252 4264
From the above data, income from three categories of activities of both companies are
stated.
Operating activities: it means activities which are related directly to production and
calculation of gross profit made on the basis of direct expenses and income. funds raised from
financing and investing activities is quite more than operating activities. For example, raw
material, wages and salaries etc.
Financing Activities: it means activities which are related to finance and raising funds
for future growth of organisation. These activities include financing funds from different sources
and dividend payment interest on debentures and loan. Funds raised from financing activities are
generally more than revenue earned from operating and investing activities (Rogoff, 2017).
Investing Activities: it means activities which are related to investments are come under
investing activities. Investments are crucial for business growth and also for exploration of
business. Investment is essential for earning revenues and incomes besides with operating and
financing activities.
5. Comparative analysation of two companies:
DARK HORSE RESOURES AEON METALS LIMITED
In flows from operating activities increases
year after, and maximises the profit, because
Inflows from operating activities decreases
year after year and affects companies
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company increases the production limit. profitability.
Cash inflow from financing activities increases
due to new issue of shares per year.
Cash inflow from financing activities decreases
due to no issue of shares in year 2017 and
company prefer more debt instead of owners
funds.
Investment criteria expands every year, results
in increasing amount of cash inflow from
investing activities.
Cash in flow from investing activities reduces
because no investment made in year 2017 and
2016.
TASK 3
6. List of items reported in comprehensive income statements:
Dark house resources comprehensive income statements:
Particulars Year 2017 2016 2015
Depreciation expenses -601 -1675 -1266
Administration and
consulting expenses
-123027 -732484 -56800
Employees benefit
expenses
-39153 -49954 -32600
Aeon Metals limited comprehensive income statements:
Particulars year2017 2016 2015
Depreciation ….......... …........... …............
Administration
expenses
637000 462000 21700
Employees benefit
exp.
…................ …................ …................
In above data, items are listed which comes under comprehensive income statements.
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 Depreciation: it is a non-cash expense. Depreciation is gradual and permanent decrease
in value of assets due use of it, obsolescence etc. depreciation expenses decrease in 2017
in case of dark house resources but, aeon metals Ltd. recorded no depreciation in
comprehensive statement.
 Administration expenses: it means expenses incurred for administrative premises. And
consulting expenses are those expenses which incurred in providing expert advice from
professionals to employees (Schaltegger, Burritt and Petersen, 2017).
 Employees benefit expenses: it is a non-wage compensation provided to employees in
addition to their normal wages and salaries. Such bonus, health and dental care etc.
7. List of items reported in other comprehensive income statements:
The items of comprehensive income statements are not to be included in income statement/
profit and loss statements because in consolidate comprehensive statement only those income
and expenses are to recorded which are not yet incurred but to be incurred in future. Moreover,
only those incomes are to be recorded which is earned but yet not received. For instance, the
income and expenses which are belongs to the same accounting year, are to be incurred or
received in next accounting year, means accrued items are recorded in comprehensive income
statements (Uyar, 2016).
8. Comparative analyses of items listed in comprehensive income statements:
DARK HOUSE RESOURCES:
Particulars Year 2017 2016 2015
Depreciation expenses -601 -1675 -1266
Administration and
consulting expenses
-123027 -732484 -56800
Employees benefit
expenses
-39153 -49954 -32600
AEON METALS Ltd.
Particulars Year 2017 2016 2015
Depreciation expenses …................ …................... …...........
Administration and 637000 462000 217000
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consulting expenses
Employees benefit
expenses
…............. …............. ….............
If these items of comprehensive income statements are to be recorded in profit and loss
account, then it affects the performance of organisation and unnecessarily minimises the profit.
Because expenses/ income are to be recorded in comprehensive statements are at estimated
values not on their actual values. In profit and loss account items are recorded on accrual basis
and only those expenses and income are recorded which are actually incurred or received. If
these item added to profit and loss account, the profit attributable to shareholders minimises
unnecessarily.
9. Should Comprehensive incomes included while evaluation of manager's performance:
No, comprehensive income included while evaluating the performance of the managers of
the company because If income of comprehensive statements is to be added in income/expenses
statement, then it gives irrelevant and unfair result of profit. Because income recorded in
comprehensive statements are not at its actual value, at its estimated value. And it affects badly
the performance of managers of organisation. Not only this, in case of non-cash expenses like
depreciation, only the actual amount of depreciation of same year is charged by profit and loss
account, because if estimated amount which is to be depreciate not yet now but in future, if
charged by P/L, it minimises the profit as well as decrease value of assets unfairly.
TASK 4: ACCOUNTING FOR CORPORATE INCOME TAX
10. List of Tax expenses shown in financial statements of both companies:
Income tax expense the computation of the tax expense is considerably more complex. Tax
law may provide for different treatment of items of income and expenses as a result of tax policy.
The differences may be of permanent or temporary nature. Permanent items are in the form of
non-taxable income and non-taxable expenses. Things such as expenses considered not
deductible by taxing authorities the range of tax rates applicable to various levels of income,
different tax rates in different jurisdictions. In case of dark horse resources there is no income tax
expense in year2017 but in 2016 (665A$) were the income tax expense. And in case of Aeon
metals Ltd. There is no income tax expense since last two years.
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11. Calculation of effective tax rate of both companies :
Effective tax rate is the rate by which tax is calculated on earning before tax. Effective tax
rate= income tax expense /earning before tax, now there is no information regarding income
tax expense of dark horse resources of year 2017 but in 2016 the tax expenses were 665 A$.
hence tax rate of year 2016 is 0.000423.
In case of Aeon metals Ltd. There are no tax expenses incurred by company since last two
years then we assume that '0' is the tax expense then, tax rate is 0. hence tax rate of Dark Horse
resources is higher than Aeon metal Ltd.
12. List of deferred tax assets or liabilities reported in balance sheet:
Deferred tax is either has a positive impact as 'assets' or negative impact as 'liability' on
balance sheet because of tax owed and tax overpaid due to temporary differences. Deferred tax
can fall into one of two categories, one is deferred tax assets and second is deferred tax liability,
will appeared as entries on balance sheet and represents the negative or positive amount of tax
owed. But there can be one without another, a company can have only deferred tax liability and
deferred tax assets. Deferred tax liability of Dark Horse Resources is 1931A$ and there is no
deferred tax assets or liability in Aeon Metals Ltd. Annual reports.
13. Changes in deferred tax assets or deferred liability:
Yes, in case of Dark horse resources in year 2016 deferred tax liability of 1931 A$ and in
year 2017 all were written off. but in case of Aeon Metals Ltd. There were no tax liability or
deferred tax assets (financial statements, 2017).
14. Calculation of Cash Tax amount:
Cash tax amount is calculated by adding current tax with deferred tax and including all in
adjustments regarding tax and tax expenses. Current tax +deferred tax (including all
adjustments)
Cash tax amount for the year is 2207140 A$. After adding all adjustments with tax. And
in year 2016 the deferred tax liability was 665A$ and in next year all were written off. Except
this there is no deferred tax assets or deferred tax liability since last two years in case of aeon
metals Ltd.
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15. Calculation of Cash Tax Rate:
Cash tax amount is determined under tax laws and reflects the sum a company must pay
to satisfy its obligations to the government. Cash tax rate is calculated by using current tax and
cash tax; =current tax /cash tax=665/2207140=0.000301. hence, cash tax rate for this year is
0.000301.
there is nothing mentioned in the annual report of Aeon Metals Ltd. About the cash
tax,therefore calculation of cash tax rate cannot be made.
16. Difference between Cash Tax and Book Tax :
The cash tax refers to the amount payable to government in form of tax on income . The
income that is reported and amount of cash tax paid is determined under the tax laws and is the
means by which revenues are raised for government operations.
The Book tax refers to the taxes shown on a company’s annual reports Investors and lenders use
these financial statements to understand the financial health of both public and private
companies.
CONCLUSION
From the above project report, it has been concluded that corporate accounting is taken
into account by an organisation in order to evaluate the financial strength of the companies. Both
Aeon and Dark house are profitable and earn reliable amount of revenue during the time. After
making proper analysis of the items which are listed in the equity head it has found the basic
reason for the variation in couple of years. The overall analysis provides valuable outcomes
which favours Dark horse company because of their overall financial strength is effective as
compare to other company. The best factors are the tax matter which is more managed by the
Dark house in effective ways in relation to other one.
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REFERENCES
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Online
financial statements, 2017. [Online]. Available through: <
https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-
annual-report.pdf?sfvrsn=0>.
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