Corporate Accounting

The report is focused on analysing the various items listed in the financial statements of BHP Billiton, Rio Tinto and Ausdrill Limited. The objective is to evaluate their cash flow position, other comprehensive income statement, debt and equity positions along with corporate taxation.

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

1CORPORATE ACCOUNTING
Executive Summary:
The report is focused on analysing the various items listed in the financial statements of BHP
Billiton, Rio Tinto and Ausdrill Limited. The objective is to evaluate their cash flow position,
other comprehensive income statement, debt and equity positions along with corporate taxation.
The initial section of the report has emphasised on the debt and equity aspects of the three above-
mentioned organisations. After this, the cash flow positions of the organisations are evaluated
effectively. The next section has dealt with assessing the other comprehensive income statements
of the organisations. Finally, the report has shed light on evaluating the different aspects of
taxation of the organisations.

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Table of Contents
Introduction:....................................................................................................................................4
Equity and liability:.........................................................................................................................5
Question (i):.................................................................................................................................5
Question (ii):................................................................................................................................6
Question (iii):...............................................................................................................................7
Cash flow statement:........................................................................................................................8
Question (iv):...............................................................................................................................8
Question (v):..............................................................................................................................10
Question (vi):.............................................................................................................................13
Other comprehensive income statement:.......................................................................................14
Question (vii):............................................................................................................................14
Question (viii):...........................................................................................................................14
Question (ix):.............................................................................................................................14
Question (x):..............................................................................................................................15
Accounting for corporate income tax:...........................................................................................15
Question (xi):.............................................................................................................................15
Question (xii):............................................................................................................................16
Question (xiii):...........................................................................................................................17

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Question (xiv):...........................................................................................................................17
Question (xv):............................................................................................................................18
Question (xvi):...........................................................................................................................18
Question (xvii):..........................................................................................................................18
Conclusion:....................................................................................................................................19
References and Bibliographies:.....................................................................................................20

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Introduction:
The report intends to analyse the financial statements of three ASX listed organisations
functioning in the same industrial sector. The organisations chosen include BHP Billiton, Rio
Tinto and Ausdrill Limited, as they operate in the Australian mining sector. The report takes into
account the evaluation of the latest annual reports of the three organisations including the
assessment of segments such as equity and liability, other comprehensive income statement and
corporate income tax.
BHP Billiton is one of the leading mining companies in Australia, which is involved in
inventing, acquiring, developing and marketing natural resources globally. The main products of
the organisation include copper, petroleum, coal and iron ore. It has been founded in 1851 with
an employee base of 27,161 staffs (BHP 2018).
Rio Tinto is engaged in mining, finding along with processing mineral resources globally.
The organisation provides copper, aluminium, molybdenum, silver, industrial minerals, gold,
titanium dioxide, borates, iron ore, salt, uranium, metallurgical coal and iron ore. It is an Anglo-
Australian organisation established in 1973 with workforce of around 46,807 staffs
(Riotinto.com 2018).
Ausdrill Limited functions as a global mining services organisation. The main operations
include Drilling Services Australia, Contract Mining Services Africa, Equipment Services and
Supplies and other segments. The organisation is engaged in reverse circulation, rotary air blast,
diamond drilling, bores production and monitoring, surface hole drilling, rotary air blast and

5CORPORATE ACCOUNTING
others. The organisation is founded in 1987 having employee base of around 5,278
(Ausdrill.com.au 2018).
Equity and liability:
Question (i):
From the annual reports of the three chosen organisations, it is apparent that all of them
have certain equity items in their balance sheet statement.
As per the annual reports of Rio Tinto, there are three main equity items, which include
share capital, reserves and retained earnings. The share capital of the organisation has increased
from $4,174 million in 2015 to $4,360 million in 2017 owing to the rise in number of equity
shares. Increase in reserves could be observed from $9,139 million in 2015 to $12,284 million in
2017 owing to the increase in foreign currency translation reserve, hedge reserve and others
(Brigham et al. 2016). Finally, increase in retained earnings could be observed from $19,736
million in 2015 to $23,761 million in 2017, as it has managed to increase its profit over margin
over the years (Riotinto.com 2018).
For BHP Billiton, the main equity items include share capital, treasury shares, reserved
and retained earnings. No change could be observed in share capital from 2015 to 2017, as the
organisation has not issued additional equity shares in the market (Miller-Nobles, Mattison and
Matsumura 2016). Treasury shares are observed to decline significantly from $76 million in
2015 to $3 million in 2017, as it has minimised its share buyback strategy. Reserves are observed
to decline from $2,557 million in 2015 to $2,400 million in 2017 due to the fall in hedge reserve
and foreign currency translation reserve (Marshall 2016). Finally, retained earnings have fallen

6CORPORATE ACCOUNTING
from $60,044 million in 2015 to $52,618 million in 2017 due to decline in overall profit level of
the organisation (BHP 2018).
In case of Ausdrill Limited, the three equity items include contributed equity, reserves
and retained earnings. Like BHP Billiton, no change could be observed in contributed equity of
the organisation due to no additional shares issued in the meantime. However, there are
significant fall in reserves over the three-year period. Finally, significant rise in retained earnings
could be witnessed from 2015 to 2017 due to considerable increase in profitability
(Ausdrill.com.au 2018).
Question (ii):
From the annual report of Rio Tinto in 2017, there is presence of both current and non-
current liabilities. The current liabilities include borrowings and other financial liabilities, trade
payables, tax payable and provisions comprising of post-retirement benefits. The total current
liabilities have increased mainly due to rise in trade payables. Non-current liabilities comprise of
borrowings and other financial liabilities, trade payables, deferred tax liabilities, tax payables and
provisions comprising of post-retirement benefits. However, non-current liabilities have
decreased owing to considerable decline in long-term borrowings and other financial liabilities
(Riotinto.com 2018). As a result, the total liabilities have decreased from 2015 to 2017 for Rio
Tinto.
In case of BHP Billiton, the current liabilities constitute of trade payables, interest
bearing liabilities, other financial liabilities, current tax payable, provisions and deferred income.
The current liabilities have declined from $12,853 million in 2015 to $11,366 million in 2017
due to fall in trade payables. On the other hand, the non-current liabilities include trade payables,

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interest bearing liabilities, other financial liabilities, deferred tax liabilities, provisions and
deferred income. There has been significant decline in non-current liabilities from $54,035
million in 2015 to $42,914 million in 2017, as interest bearing liabilities have declined
considerably. This has resulted in decline in total liabilities of the organisation in 2017 (BHP
2018).
According to the annual reports of Ausdrill Limited, current liabilities include trade
payables, borrowings; current tax liabilities and employee benefit obligations, which have
increased owing to increase in employee benefit obligations. The non-current liabilities include
borrowings, deferred tax liabilities and employee benefit obligations. The amount has declined
from $433,300,000 in 2015 to $408,852 million in 2017 due to fall in long-term borrowings
(Ausdrill.com.au 2018).
Question (iii):
In order to contrast the debt and equity position of the three organisations, debt-to-equity
ratio is deemed to be the most suitable measure.

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2016 2017 2018
-
0.20
0.40
0.60
0.80
1.00
1.20
0.77
0.98
0.87
1.07
0.95
0.87
1.04
0.90 0.88
Debt to Equity Ratio
BHP Billiton Rio Rinto Ausdrill Limited
From the above table and figure, it could be observed that all three organisations utilise
more debt capital rather than equity financing for meeting their capital needs. Out of these
organisations, the maximum amount of debt capital is used by Rio Tinto and Ausdrill Limited.
However, in terms of liabilities, Ausdrill Limited has the lowest liability amount compared to the
other two organisations. Thus, in terms of financial leverage, BHP Billiton has the lowest
amount of risk followed by Ausdrill Limited and Rio Tinto.
Cash flow statement:
Question (iv):
From the cash flow statements of BHP Billiton, the main items under operating cash
flows include dividends received, interest paid and interest received, income tax refund and
payment and changes in assets and liabilities. These cash flows have fallen considerably from
2015 to 2016; however, improvements could be observed in 2017. The investing cash flows of
the organisation mainly include purchase of property, plant and equipment, exploration expense,

9CORPORATE ACCOUNTING
proceeds from asset sale and proceeds from divestment of operations, subsidiaries and joint
operations. The investing cash flows have fallen over the year mainly due to decline in purchase
of property, plant and equipment implying less investment on fixed assets (Gordon et al. 2017).
In case of financing cash flows, the significant items include proceeds from interest bearing
liabilities, settlements or proceeds from instruments associated with debt, repayment of interest
bearing liabilities, ordinary share proceeds, share purchase for staffs and others. These cash
flows have increased significantly in 2017 owing to lower proceeds generated from interest
bearing liabilities. However, the significant rise in operating cash flows have offset such increase
due to which increase in closing cash balance could be observed in 2017 (BHP 2018).
In case of Rio Tinto, the major items falling under operating cash flows include dividend
from equity-accounted units, consolidated operational cash flows, payment of net interest and
dividend and tax payment. These cash flows have increased considerably from 2015 to 2017
owing to increase in consolidated operational cash flows. The investing cash flows of the
organisation constitute of purchase and sale of fixed and intangible assets, disposals of
subsidiaries, joint ventures and subsidiaries, purchase and sale of financial assets acquisitions of
subsidiaries, joint ventures and subsidiaries. These cash flows have fallen from 2015 to 2017 due
to increased earnings from disposals made. The financing cash flows include payment of equity
dividends, proceeds from and repayment of borrowings, share repurchase and others. The main
reason that these cash flows have increased in 2017 is due to share repurchase and payment of
equity dividend. As a result, positive increase in cash balance could be observed in 2017
(Riotinto.com 2018).
For Ausdrill Limited, the main items falling under operating cash flows include customer
receipts, supplier payments, interest receipt and payment, income tax refund and payment along

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with receipt of management fee. These cash flows have decreased from 2015 to 2017 due to fall
in receipts from customers. The investing cash flow items primarily include payments for fixed
assets and investments, proceeds from fixed assets and business sale and others. The reason that
these cash flows have increased from 2015 to 2017 is due to considerable payment for fixed
assets, particularly, property, plant and equipment. The financing cash flow items include
repayment of hire purchase, secured borrowings and lease liabilities, dividend payment to
shareholders and proceeds from and repayment of unsecured borrowings. These cash flows have
decreased considerably due to repayment of secured borrowings. Due to this, increase in cash
balance could be observed in 2017 compared to 2016 (Ausdrill.com.au 2018).
Question (v):
BHP Billion:

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2015 2016 2017
-$15,000
-$10,000
-$5,000
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$19,296
$10,625
$16,804
-$13,154
-$7,245
-$4,161
-$8,276
$284
-$9,133
BHP Billiton
Net Cash from Operating Activities Net Cash Used in Investing Activities
Net Cash Used in Financing Activities
It could be observed from the above figure that the operating cash flows of the
organisation have declined from 2015 to 2017 and this denotes falling business income from
operational business functions (Khansalar and Namazi 2017). After this, the organisation has
decreased its investment over the years by minimising the payment of fixed assets. However, it
has incurred huge expenses for repaying interest bearing liabilities (BHP 2018).
Rio Tinto:

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2015 2016 2017
-$15,000
-$10,000
-$5,000
$-
$5,000
$10,000
$15,000
$20,000
$9,383 $8,465
$13,884
-$4,600
-$2,104 -$2,373
-$7,670 -$7,491 -$9,141
Rio Tinto
Net Cash from Operating Activities Net Cash Used in Investing Activities
Net Cash Used in Financing Activities
Froom the above figure, it is apparent that there is huge increase in operating cash flows
due to increased earnings from consolidated operational cash flows. However, there is fall in
investing cash flows due to earnings from disposals (Reid and Myddelton 2017). Finally, there
has been rise in financing cash flows due to share buyback by the owners of the organisation
(Riotinto.com 2018).
Ausdrill Limited:
i

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2015 2016 2017
-$150,000
-$100,000
-$50,000
$-
$50,000
$100,000
$150,000 $117,936
$91,006 $94,613
-$738
$60,853
-$101,127-$104,693
-$47,772
-$6,965
Ausdrill Limited
Net Cash from Operating Activities Net Cash Used in Investing Activities
Net Cash Used in Financing Activities
The above figure clearly indicates that the operating cash flows have fallen from 2015 to
2017 due to decline in customer receipts. However, huge expenses incurred for property, plant
and equipment have increased the investing cash flows for Ausdrill Limited. On the other hand,
financing cash flows have fallen in 2017 from 2015 due to no expenses incurred in repaying
secured borrowings (Ausdrill.com.au 2018).
Question (vi):
Based on the above analysis, it could be stated that BHP Billiton has earned maximum
amount from operating cash flows followed by Rio Tinto and Ausdrill Limited, even though the
trend is declining over the years. It could be witnessed that all organisations are involved in
investment of buying property, plant and equipment, intangibles and other business acquisitions.
When all the aspects are combined together, it could be observed that they have made huge
investments. Finally, the three organisations have incurred huge expenses for interest, finance
costs and dividends, which have resulted in increased cash flows.

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Other comprehensive income statement:
Question (vii):
From the annual reports of BHP Billiton, the main items reported in other comprehensive
income statement include available for sale investment, cash flow hedge and the items that could
not be reclassified to the income statement (BHP 2018).
For Rio Tinto, the main items included in its other comprehensive income statement are
cash flow hedges, foreign currency translation reserves, profit or loss on foreign operation
transactions and others (Riotinto.com 2018).
Ausdrill Limited has reported certain items in its other comprehensive income statement
that include foreign currency translation, net exchange differences, non-controlling interests and
others (Ausdrill.com.au 2018).
Question (viii):
The three organisations have not recorded the above-mentioned items in other
comprehensive income statement, as their nature is extraordinary and they are not used for
carrying out their daily business operations. The organisations use them for disclosing their
business activities during the year (Black 2016). Therefore, these reasons prevent the
organisations to report the items in their income statement for which comprehensive income
statement is used to report them.
Question (ix):
From the annual reports of the three organisations, cash flow hedges are common in other
comprehensive income statement. Rio Tinto has registered the highest other comprehensive

15CORPORATE ACCOUNTING
income followed by Rio Tinto and Ausdrill Limited, as identified from their annual reports.
Moreover, it could be seen that these organisations have taken into consideration foreign
currency translation transactions in their other comprehensive income statement. These have
resulted in attributing income to non-controlling interests as well as shareholders of the
organisation (Bratten, Causholli and Khan 2016).
Therefore, if these items are recorded in the income statements of the three chosen
organisations, the impact would be on net profit directly with increase or decline in extraordinary
items. This clearly implies that the profitability aspects of the organisation would be affected by
inclusion of these items in other comprehensive income statement (Graham and Lin 2018).
Question (x):
The performance of entities need not depend on comprehensive business items, as they
are depicted characteristically in their annual reports. Moreover, it is evident that these items are
extraordinary and periodic in nature. Furthermore, the items incorporated in other comprehensive
income statement are mainly extraordinary in nature. Hence, when all these aspects are present,
the management of the business organisations need not use other comprehensive income for
analysing the performance of the managers (Khan, Bradbury and Courtenay 2018).
Accounting for corporate income tax:
Question (xi):
The annual reports of the organisation have disclosed the tax expenses incurred for both
the existing year and the previous year. Based on the annual report of BHP Billiton in 2017, the
organisation has incurred income tax expense of $3,933 million in 2017, while it has received

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income tax benefit of $1,297 million in 2016. Thus, it has experienced increase in tax expense in
2017 (BHP 2018).
As observed from the 2017 annual report of Rio Tinto, the income tax expense of the
organisation has been $3,965 million in 2017 compared to $1,567 million in 2016, which
signifies that the tax amount has increased considerably over the year (Riotinto.com 2018).
The 2017 annual report of Ausdrill Limited discloses income tax expense of $13,885,000
in 2017 in contrast to $4,581,000 in 2016. This denotes that the organisation has experienced
significant increase in tax expense in 2017 like the other two organisations (Ausdrill.com.au
2018).
Question (xii):
In order to compute the effective tax rate of BHP Billiton, Rio Tinto and Ausdrill
Limited, the following calculation is performed, which is shown in the form of a table as follows:
The effective tax rate of the organisations implies the average tax rate, which they use for
computing the taxable amount on business profit (Richardson, Taylor and Lanis 2015). By
dividing the earnings before tax by income tax expense, effective tax rate is considered. The
above table clearly shows that BHP Billiton has incurred the highest effective tax rate followed
by Rio Tinto and Ausdrill Limited.

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Question (xiii):
One of the most vital aspects for financial reporting of business organisations is deferred
tax assets and liabilities and the organisations are liable to disclose the amounts in their financial
statements at the end of an accounting period (Dyreng, Hoopes and Wilde 2016). From the
annual reports of BHP Billiton, Rio Tinto and Ausdrill Limited, it could be seen that they have
disclosed the amounts of deferred tax assets and deferred tax liabilities supported by financial
footnotes. The main reason that these items are recorded is that provisional variation exists
between tax profit and accounting profit. Another reason that supports their inclusion in the
financial reports includes carry forward of tax assets and tax liabilities in the existing year from
the previous period (Anesa et al. 2018).
Question (xiv):
From the annual report of BHP Billiton in 2017, it is found that deferred tax assets
amount to $5,788 million in 2017, which have been $6,147 million in 2016. Hence, there is
downfall in the amount of deferred tax assets. On the other hand, the organisation has deferred
tax liabilities of $3,765 million in 2017 compared to $4,324 million in 2016 implying decline in
the same (BHP 2018).
From the annual report of Rio Tinto in 2017, the amount of deferred tax assets has been
$3,395 million in 2017 compared to $3,728 million in 2016. On the other hand, deferred tax
liabilities have increased from $3,121 million in 2016 to $3,628 million in 2017 (Riotinto.com
2018).

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As per the 2017 annual report of Ausdrill Limited, deferred tax assets have been
$36,372,000 in 2017 in contrast to $37,300,000 million. On the contrary, deferred tax liabilities
are observed to fall from $23,584,000 in 2016 to $22,077,000 in 2017 (Ausdrill.com.au 2018).
Question (xv):
Question (xvi):
From the above table, it could be seen that Rio Tinto has the highest cash tax rate of
31.08% followed by BHP Billiton and Ausdrill Limited having cash tax rates of 30.73% and
29.21% respectively.
Question (xvii):
The main reason that the cash tax rate and the book tax rate do not resemble each other is
that the organisations project the cash tax rate depending on the existing year. However, the
estimation of book tax rate is conducted depending on the existing and the upcoming year
(Taylor and Richardson 2014). When cash tax rate is computed, the deferred tax assets, deferred
tax liabilities and weight of interest are taken into consideration, which could result in tax

19CORPORATE ACCOUNTING
savings. However, in order to compute the book tax rate, the above items are not taken into
consideration (Kawano and Slemrod 2016).
Conclusion:
From the above discussion, it is clear that all the three organisations comprising of BHP
Billiton, Rio Tinto and Ausdrill Limited are dependent primarily on debt financing so that
adequate amount is obtained for financing the business operations. Moreover, it could be
witnessed that these organisations collect considerable cash amounts from the customers and
they invest heavily for the purchase and repayment of fixed assets, intangible assets and others.
Along with this, it has been analysed that all the three organisations do not consider
extraordinary items in other comprehensive income statement, since they do not have direct
associations with the day-to-day business activities of the organisations. From the taxation
section, it is evident that all the three organisations have to take into account finance costs,
deferred tax assets as well as deferred tax liabilities so that the cash tax rate could be calculated
effectively.

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