Corporate Accounting : BHP Limited

Corporate Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
(a) Examine the relative information content of income statement and cash flow statement.....1
PART B............................................................................................................................................3
1. Statements of cash flow...........................................................................................................3
2. Financial strength of each company based on evidence presented in statement...................14
3. Evaluation of three company for lending purpose................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Corporate accounting refers to the branch of accounting that deals with collection of vital
financial information, preparation of cash flow and final account that depict the actual position of
company within a financial year (Waniak-Michalak, Macuda and Krasodomskac, 2016). These
data are used by the manager of company, external stakeholder including competitor to make the
better comparison and effective decision related to business. For the better understanding of
report three company has been selected that is BHP Limited, Santos Limited as well as Funtastic
Limited. These three companies basically prepare cash flow statement to determine the
company's financial position. This report cover topics like cash flow and income statement
information, sources of finance for the company and the item that affect the cash inflow.
PART A
(a) Examine the relative information content of income statement and cash flow statement
Income statement is an essential part of financial statement that helps to determine the
financial position of company by estimating the profit and loss of company in order to make
effective business decision. This statement includes revenue or expenses of company,
administration expenses, gross as well as net profit. This helps the manager to take the business
decision and enhances the overall profitability as well as productivity. Moreover, cash flow
statement which is a part of financial statement that includes cash inflow as well as outflow. In
addition to it cash inflow means refer the income of an organisation which is generated from
three sources and that is operating, investment as well as financial activity. On contrary, cash
outflow refers to the expenses of business that affect the profitability of business.
Content of income statement
Income statement includes the income and expenses which helps to define the financial
position of business. In context to all three companies that is Santos limited, BHP, Funtastic
make the income statement that include various item. These items are defined below:
Revenue: It refer to the overall income earned by the Funtastic, BHP as well as Santos
Limited company within a financial year from the sales of goods to the intermediary or final
consumer.
Expenses: It refer to the overall expenditure incurred by Funtastic, BHP and Santos
Limited company on purchasing the goods and services to run its business operation smoothly.
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Thus, company significantly makes effort to enhance its profit by decreasing the unnecessary
expenses of company.
Profit and Loss:
EBITDA: EBITDA refer to Earning before interest and tax that include depreciation and
depict the actual cash flow of company like the amount earned after bearing up all the
expenditure. Thus, company make sure they left with enough cash so that they can attract the
investor and can take the loan in order to expand its business wisely. Herein, Funtastic, BHP and
Santos Limited makes effort to earn significant amount of profit by managing all its expenses
and revenue wisely (Vladu, Amat and Cuzdriorean, 2017).
EBT: EBT refer to the earning before interest and tax, it include all the operating income
as well as expenses in order to determine the capacity of earning within business. Thus,
Funtastic, BHP and Santos Limited obtain the viable income by managing the routine task of
business significantly.
Content of cash flow: Company prepares the cash flow for certain period of time that
may be monthly, quarterly as well as on the annual basis. Other than balance sheet and income
statement cash flow is prepare by Funtastic, BHP and Santos Limited that determine the inflow
and outflow of cash. Thus, it contain various item defined below:
Operating activity: It include the revenue which is generated from current asset and
liability. Thus, the manager of Funtastic, BHP and Santos Limited companies obtain the
information about day to day activities of business include the revenue and expenditure.
Investing activity: Investing activity include long term asset or liability of Funtastic,
BHP and Santos Limited company for which cash flow statement is prepared that helps to seek
the vital information regarding long term investment.
Financing activity: Financing activity includes the composition of equity capital or the
debt of the company that helps to contribute in making significant business decision for
Funtastic, BHP and Santos Limited company (Michelon and et.al., 2016.).
Therefore, the preparation of income as well as cash flow statement are the essential p[art
of organisation that helps the business to take decision related to expansion and profitability. The
above mentioned company prepare these statement to gain the idea related to actual profit
earning by company within stipulated time period. Thus, cash flow is one of the part of financial
2

statement that gives the justification regarding the profitability that further helps to take business
decision effectively.
PART B
1. Statements of cash flow.
A. Major source of cash.
There are various sources of generating cash for different firm depending upon the nature
of business. From the gives cash flow statements of three firm BPH, Funtastic Limited and
Santos the major sources of cash and its uses are discussed below:
In BPH Limited
 Dividend received, interest received, depreciation, amortisation, discounted operations
and other receivables from operating activity.
 Expenses incurred and expended in different operating cash flow, proceeding from sales
of assets, proceeds from divestment of operation, joint operation form investing activity.
 Net Increase in cash and cash equivalent from continuing operations, net of overdraft,
foreign currency exchange rate from financing activity (Liu and et.al., 2017.).
In Funtastic limited
 Income tax refund and receipts from customer are major source from operating activity.
 Interest and other investment income received and sale of international subsidiary from
investing.
 Proceeds from borrowings, Proceeds from share issue from financing activity.
In Santos Limited
 Receipts from customer, dividends received, pipeline tariffs and other receipts and other
operating activities.
 Disposal of non current assets from investing activities.
 Drawdown of borrowings and from ordinary share from financing activity (Liesen and
et.al., 2015).
The cash for each activity can be used by individual firm for different purpose such as
payment to supplier, excise duty, income tax, royalty. Purchase of oil, gas LPG, evaluation of
assets.
b) Trend in cash flow from.
3

BHP Limited:
2018 ($) 2017 ($) 2016 ($)
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000 18461
16804
10625 Net operating cash flows
Logarithmic (Net operating cash
flows)
2018 ($) 2017 ($) 2016 ($)
Net operating cash
flows
18461 16804 10625
Funtastic limited
4

2018 ($) 2017 ($) 2016 ($)
Net operating cash
flows
(10,182) (2,750) -7329
Santos Limited
2018 ($) 2017 ($) 2016 ($)
0
200
400
600
800
1000
1200
1400
1600
1800
1578
1248
840 Net operating cash flows
Logarithmic (Net operat-
ing cash flows)
2018 ($) 2017 ($) 2016 ($)
Net operating cash
flows
1578 1248 840
c)
From the the above statements it is stated that In BHP limited flow of cash from
operating activity are better ion year 2017 and 2018 but in 2016 the net cash flow from operation
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was less than net income. In 2016 the profit before tax was very less 1791 due to which cash
flow from operation decrease but in 2018 the profit are greater such as 14751 and in 2017 it was
11137 (Kraakman and Hansmann, 2017). Apart this, the main liability for BHP was trade
payable as in 2017 it was 512 and in 2018 it was 719 but in year 2019 it shows negative balance
1272 due to which there is less cash flow from operation than net income.
d)
The above statements shows that, the Funtastic limited was not able to create enough
cash from operating activity because it require more amount than earning to run operations. The
statements shows the negative balance from operations as payment to supplier and employees,
interest and other cost of finance paid are higher than earning from receipts from customer.
From the statements, it is examined that yes BHP limited was able to generate adequate
cash from operating activity such as in 2016 it was 12091, 2017 to 18612 and 2018 it was 22949.
Thus it can be said that company is able to pay all its debt and run operation in significant
manner (Gibassier and Schaltegger, 2015).
The cash flow statements of Santos limited shows that cash flow from operation keeps on
increasing year by year such as in year 2016 it was 840, in 2017 it raises to 1248 and in 2018 it
shows a high increase it was 1578.
E)
The cash flow statements shows that some firm are able to generate enough cash flow
from operation that cover both and capital expenditure and the dividend payments made such as
In BHP limited, the profit are higher in 2017 and cash flow for operating activities are able to
covered dividend payment and capital expenditure. But in Funtastic limited the operation profit
are not enough in-fact it shows negative balance so company is not able to cover capital expenses
and dividend payments. From the cash flow statements, it is also stated that Santos Limited was
able to covered both dividend and capital expenditure and it also earned less profit in 2018 as
compared to 2016 and 2017.
Thus, it can be concluded that BHP and Santos limited was able to generate enough cash
flow from its operation to cover capital expenses and also able to par dividend.
(f)
In case of Funtastic limited if they are able to grow enough cash flow from operating
activity than the company is able to pay amount to outstanding supplier, intangible assets and
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make payment for plant and building. In addition they can also cover extra cost that is incurred
on issuing valuable share in order to grew net profit during an accounting year (Francis, Hasan
and Wu, 2015).
In case of BHP Limited, if they are able to generate adequate cash from different
operation then they are able to pay off various outstanding such as interest, income tax, purchase
a land or property, royalty etc. In addition, if company raise excess fund then they will pay
dividend, exploration, royalty that help in increasing cash inflows from operations. On the other
side if Santos Limited was able to bring forth extra cash from operating activity then payment to
suppliers, expedition and assessment of assets and it can be used in purchasing of gas and oil.
g)
Truly, The BHP Limited utilized the working capital records so as to buy resources,
investigation of consumption, reimbursement of enthusiasm bearing liabilities and acquiring of
offers by worker share possession plan that expanded income from activity and overall gain (Dai
and Vasarhelyi, 2017). As company used working capital in order to pay creditors, monthly cash
expenses and set off the trade payables. The net change in current assets and liabilities were
counted as $118 million for the year 2018, $241 million were used in terms of working capital
for the year 2017. The working capital for the year 2016 was recorded as information $320
million to manage the working capital requirements.
H) From the above disclosed cash flow statements, the different main item that affected the cash
flows in three companies are as flows:
In case of BHP limited the list of item that impact the cash flow are, trade payable, equity
investment, provision, interests and royalty tax payments, purchase of land, equipments, plant
and building, payment of Dividend, net cash flow from operating activity and investing activity
that may shows the positive and negative manner.
The statements also shows that the item that affect the cash flow of Funtastic Limited are
cash generation from operating activities, supplier payments, financial cost, purchase of
intangible, plant or other equipments and fluctuation in exchange rate. The statements of cash
flow also shows the item that affect the operating income of Santos Limited these item are bonus
and extra payment to employees, manufacturing expenses, assets exploration, acquisition of
assets and subsidiary items (Crowther, 2018).
(I)
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Funtastic Ltd
2018 ($) 2017 ($) 2016 ($)
Capital expenditures 426 1428 1209
2018 ($) 2017 ($) 2016 ($)
0
200
400
600
800
1000
1200
1400
1600
426
1428
1209
Capital expenditures
Logarithmic (Capital ex-
penditures)
Interpretation: From the above graph, it has been interpreted that capital expenditure in
year 2016 was 1209, in year 2017 it was 1428 and in year 2018 it reduces to 426.
BHP Limited
2018 ($) 2017 ($) 2016 ($)
Capital expenditures 5994 4816 6479
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2018 ($) 2017 ($) 2016 ($)
0
1000
2000
3000
4000
5000
6000
7000
5994
4816
6479
Capital expenditures
Interpretation: From the above document it tends to be deciphered that the in the year
2016 all out capital use expressed at 6479 in the year 2017 it was expressed at 4816 and in the
year 2018 it was expressed at 5994 which demonstrates that the capital consumption of the
organisation demonstrated a diminishing pattern in the year 2017 however recoup it in the year
2018 expressing at 5994.
Santos Limited
2018 ($) 2017 ($) 2016 ($)
Capital expenditures 2519 683 650
9

2018 ($) 2017 ($) 2016 ($)
0
500
1000
1500
2000
2500
3000
2519
683 650
Capital expenditures
Interpretation: From the above diagram it very well may be deciphered that the pattern
in the capital use of the organisation demonstrated an expanding pattern in the year 2016 it was
at 650 in the year 2017 it was at 683 and in the year 2018 it demonstrated a colossal cost in its
capital which is expressed at 2519.
(j)
From the above graph it has been ascertained that in Funtastic Limited there is not a
single payment paid of dividend to shareholder as there is no trend.
BHP limited
2018 ($) 2017 ($) 2016 ($)
Dividend received 709 636 301
10

2018 ($) 2017 ($) 2016 ($)
0
100
200
300
400
500
600
700
800
709
636
301
Dividend received
Santos Limited
2018 ($) 2017 ($) 2016 ($)
Dividend received 6 12 12
2018 ($) 2017 ($) 2016 ($)
0
2
4
6
8
10
12
14
6
12 12
Dividend received
Linear (Dividend received )
11

(k)
From the above statements of cash flow the total of net borrowing of three respective
company has been evaluated and represented by using suitable graph and calculation.
BHP limited Funtastic limited Santos Limited
Net borrowing (218) (433) 120
BHP limited Funtastic limited Santos Limited
-500
-400
-300
-200
-100
0
100
200
-218 -433
120
Net borrowing
Linear (Net borrowing)
Interpretation: As the above graph shows that there is a negative balance of net borrowing
of BHP limited shows negative balance which is (218), in Funtastic Limited the balance for net
borrowing was (433) and in Santos limited the balance was positive which is approx 120.
(L) Working capital account trend in BHP Limited
2018 ($) 2017 ($) 2016 ($)
Working capital
changes
(118) (333) 320
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2018 ($) 2017 ($) 2016 ($)
-400
-300
-200
-100
0
100
200
300
400
-118 -333
320
Working capital changes
Interpretation:
2. Financial strength of each company based on evidence presented in statement
For an organisation it is required to have financial strength and it can be analysed while
making the financial statement. The owners, promoters and board of directors manage the
business of a corporation so that it can generate higher revenue (Collier, 2015). As all companies
are work in order to maximise the profitability & productivity so that business can sustain for a
long term. It is important for an organisation to identify the financial strength and for that
purpose there are various factors can be identify such as liquidity, stability, profitability etc. So it
is important for the manager of BHP Limited, Santos Limited & Funtastic Limited to analyse the
performance of its business so that it can take corrective actions which are helpful to improve
financial strength of organisation. Ratio analysis are helpful to determine the financial strength of
corporation that shows the profitability of business entity.
As financial strength of Funtastic Limited is good reason being cash outflow from
operating activity are reducing because payment to supplier & cash generated through operations
are minimising. However, cash flow in context to the investing activity was not positive reason
being company have to pay in context to the plant & equipment and intangible assets also
minimising the revenue. Apart from this current liabilities are more as compare to the current
assets that also influence the financial strength.
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As the financial strength of BHP Limited is more better because it emphasis towards the
desires of consumers and provide better services to them and liquidity in the business is also
high. As per the cash flow statement it has been analysed that profit before tax are more & has
less expenses that maximise the profitability (Campopiano and De Massis, 2015). It received
income from interest and dividend which are also increasing. Along with this current liabilities
are reducing and current assets are increasing and it is helpful to maintain the cash flow so it can
be said that financial position of this corporation is much better. As the company is earning good
profits and from investing activities it is also getting sufficient returns which is helpful to
maximise the profits.
As financial strength of Santos Limited is good reason being cash flow from operations
are maximised. Profits has reducing in investing activity reason being its expenditures are
increasing in context to oil & gas assets, building & land and other expenses. Along with this
financing activity does not stable because in the financial year 2016 it is 1178 and in the
financial year 2017 it was (804) and in the financial year 2018 it was 95 and through this
profitability has been affected. So it is important for the management to control the expenses so
that profits can be maximise. Along with this it has emphasis to reduce the outflow so that inflow
can be maximise and it does not face the problem related to shortage of cash.
From these three companies, financial position of BHL is more better because of more
liquidity it has.
3. Evaluation of three company for lending purpose
Lending is the process that involve extension of credit or offering the loan facility to the
company in order to expand the business and enhance the financial position of business
(Armstrong and et.al., 2015). This process helps the business to grow and improve its condition.
On contrary, loan is only offering after considering the creditworthiness of company like
checking the financial statement or past loan statement. In context to Funtastic, BHP and Santos
Limited the company can only seek for financial helps if it has stable financial position earn
sufficient amount of profit. For instance, from 2016-2018 the cash flow statement for BHP
limited is 10276, 14108, 15813, Funtastic Limited is 764, 664, 718 and Santos Limited is 2026,
1231 and 1316 respectively. Thus, on the basis of 2016, 2017 and 2018 data BHP is more
suitable and financially viable in comparison to other companies. Additionally, while going
through the detail discussion company the cash flow in operating activity is 18416 which is
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increasing and much more better in comparison to other two companies that is Funtastic and
Santos limited. Thus, based on the cash flow of company for different years better comparison
can be made by the external shareholder like which one out of all is financially sound and taking
effort to enhance its profit significantly (Al-Sartawi, Alrawahi and Sanad, 2016). Therefore, it is
a significant method which is essential for internal member as well like they will get better idea
where they need to enhance their perform in order to achieve better financial position in
comparison to the other competitor.
CONCLUSION
In conclusion it is stated that, Corporate accounting is process that deals with different
methods like preparation of cash flow statements, accounts, balance sheet, income statements
and other valuable financial records. In Different companies depending upon the size and
structure corporate accounting is used to handle unique business methods like absorption,
preparation of consolidated financial documents. In three above discussed company corporate
accounting is crucial as it helps to display the profitability of operation in specific time frame.
Cash flow statements are helpful to describe the total cash inflows and outflows from valuable
activities such as operating, investing and financing. In conclusion, it is also observed that by
analysing cash flow statements different issues and important information can be gained to make
valuable discussion. In addition, statements of cash flows for three years helps to evaluate the
financial strength of BHP limited, Funtastic and Santos limited and actual reason for selecting
best company for lending purpose.
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