Corporate and Financial Accounting - Assignment

Corporate and Financial
Accounting

ABSTRACT
Corporate and Financial accounting are considered as crucial business aspects on which business
operations of the company is based. With the help of changes in the capital structure of the
company, its financial position also gets affected. From this report it has been assessed that there
has been decrease in the level of issued capital and accumulated losses of Santos Limited with
increase in its reserves rate over a period of three year. In case of Soul, there has no changes in
its capital structure. Furthermore, important sources of funding along with their advantages and
disadvantages will be explained. Specified criteria needs to be fulfilled by business organisation
for conducting of any form of business operations.

EXECUTIVE SUMMARY
Corporate accounting deals with the accounting of each event and transaction taking
place in company. Where financial accounting deals with the managing financial transaction s
of company. The report has taken examples of Santos Ltd & Soul Pattinson for analysing the
annual financial statements. The report is for analysing the annual reports of company and how
they are interpreted for making decisions. The report have explained and given an understanding
about the items recorded under different heads in financial statements of company. The change
over the sub sequent years can be because of various decisions taken in the financial year. The
difference between the small , large propriety and reporting entity depends upon the revenues
and assets at the year end. The reporting requirement of companies also change with the size of
propriety.

TABLE OF CONTENTS
ABSTRACT.....................................................................................................................................2
EXECUTIVE SUMMARY ............................................................................................................3
INTRODUCTION...........................................................................................................................1
1. Items as recorded under owners’ equity section......................................................................1
2. Movement of each item recorded under the owner equity section..........................................2
3. Items recorded under the category of liability.........................................................................3
4.Movement in liabilities of the companies.................................................................................3
5. Advantages and disadvantages of sources of fund..................................................................5
PART B............................................................................................................................................1
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5
APPENDIX......................................................................................................................................6

INTRODUCTION
Corporate and financial accounting are two most important business terms supports business in
making high profits and growth. The term corporate accounting is related with preparation of
final accounts and reports pertaining to a particular time period depicting about special events as
taken place in the company such as corporate restructuring, amalgamation etc. On the other hand
financial accounting helps the company in tracking and monitoring financial transactions as
recorded, analysed and presented in the financial statements of the company. The present report
is about Santos Limited and Soul Pattinson (W.H.) which are engaged in the business of Gas,
petroleum, liquefied natural gas production, treatment and its marketing function. It will define
about items which are to required to be recorded under Owner's equity and Liabilities section.
Furthermore, explanation about advantages and disadvantages related to sources of funding as
used by companies will be made. At last, the report will streamline about elaborating concept of
Small as well as Large proprietary business, reporting entity along with important terms of
compliance and reporting requirements which are required to be followed.
1. Items as recorded under owners’ equity section.
In case of Santos Limited and Soul Pattinson (W.H.) following items are recorded under
the category of equity heading:
1. Share Capital – It is the total number, types of shares which becomes part of company's
share structure. In simple words, share capital of the company is nominal value related to
the shares being issued by the company (Piketty, 2015). Funds which the company has
raised from the general public at large in exchange of its on shares is called as share
capital.
2. Reserves – It is defined as a part of retained earnings which has been kept aside by the
company so as to meet future contingencies. Reserves are created by the company before
making distribution of profits to shareholders and in form of tax amount, for meeting
needs of a particular purpose. It helps company in maintaining its financial position
sound for future business operations.
3. Retained profits – Also known as Retained surplus, which company retains from the
perspective of making reinvestment in same new business operations or projects, to make
payment of debts amounts etc. The amount of retained earning is decided by company
after dividend pay out as well as reservation ratio is fixed (Ball and et.al., 2019).
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4. Issued capital – Is defined as number of shares which has been issued by the company to
its shareholders for meeting the requirements of funds by the company in carrying own
its business operations.
5. Accumulated losses – Also known as retained loss which is displayed on the part of
balance sheet in case when the debt side of the company is more in comparison of its
profit earned.
2. Movement of each item recorded under the owner equity section.
1. Santos Limited
Particulars Amount (in US $) Percentage change
2016 2017 2018 2016 – 2017
% change
2017 – 2018
% change
Issued
Capital 8883 9034 9031 1.70% -0.03%
Reserves -510 51 607 -110.00% 1090.20%
Accumulated
losses -1293 -1934 -2359 49.57% 21.98%
Interpretation – In case of Santos Limited, there has been negative change in the Issued
capital part from 1.70% in year 2016 – 2017 to (0.03%) in the year 2017 – 2018 which means
that company has buyback its shares from the market. Furthermore, it has increases its reserves
portion from (110%) to 1090.20% for meeting unforeseen requirements of future period. In case
of accumulated losses, company has not made proper distribution of dividend payout and
reservation ratio.
2. Soul Pattinson (W.H.)
Particulars Amount (in US $) Percentage change
2016 2017 2018 2016 – 2017
% change
2017 – 2018
% change
Share
Capital 43232 43232 43232 0.00% 0.00%
Reserves 623684 611226 605865 -2.00% -0.88%
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Retained
profits 623684 2603186 2718057 317.39% 4.41%
Interpretation – There has been no changes made in the share capital structure of the
company in past three years time period. In case of reserves, there has been decline in this
amount from the year 2016 to 2018 i.e. $623684 to $605865 for fulfilment of business
obligations i.e. by making investment in new business projects for business growth. Also, the pat
of retained earnings of the company has increased from 2016 to 2017 with 317.39% which
means that company is retained amount out of its profits with reinvestment purpose which
further has declined to 4.41% from 317.39% in coming year.
3. Items recorded under the category of liability.
Following are the items recorded under the heading of liabilities section by Santos
Limited and Soul Pattinson:
Current Liabilities – Are those short term obligations of financial nature which are going to be
due within a period of one year or during course of normal operating cycles.
1. Trade and other payables – Is an amount which is due on part of the company against
its suppliers and vendors for goods and services consumed on the credit basis.
2. Contract Liabilities – Liability which one party of contract takes into consideration on
behalf of another party pertaining to the contract (Bauer, 2018).
3. Interest-bearing loans and borrowings – It is loan amount as per which the debt is
expressed in form of principal and interest is charged on the unpaid balance of principal
amount remaining outstanding across time.
4. Derivative financial instruments – A contract among two or more parties having its
value based on the value of agreed underlying financial assets such as bonds, stocks etc.
defining an obligation to pay at specified time period.
5. Current tax liabilities – Is related with current tax amount as due for the current or prior
time period being unpaid will be recognised as an obligation for company.
Non current liabilities – Are long-term liabilities or obligations which are not due for settlement
within a period of one year.
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1. Deferred tax liabilities – Is an income tax obligation which arises from difference on
temporary basis in between book expenses and tax deduction recorded in balance sheet
that will be paid on future accounting period of time (Akinkoye and Seriki, 2018).
4.Movement in liabilities of the companies
Santos
Liabilities 2016 2017 2018 % change
2016-17
% change
2017-18
Trade & Other
payables
520 495 661 -4.80% 25.11%
Interest
bearing loans
& borrowings
420 207 967 -50.70% 78.5%
Provisions 121 142 116 14.00% -18.30%
Other financial
liabilities
366 82 6 -77.59% -92.60%
Non Current
Liabilities
Interest
Bearing loan
4819 3736 3952 -22.47% 5.40%
Deferred Tax
Liabilities
221 240 1614 7.90% 85.13%
Provisions 1464 1494 2147 2.00% 30.40%
Interpretation – Analysing the financial reports of Santos the movement of liabilities in the three
years percentage changes are drawn in the above table. In year 2016-17 trade payables have
shown decrease of 4.8% which raised with 25.11% in 2017-18 the increase is seen because it has
adopted new production scheme for which supplies are received on credit. There is significant
decline in short term interest bearing loan of 50.7% in 2016-17 but the loan again increased with
78.5% in year 2017-18. The loan may be raised for meeting short term capital requirement.
There is not much change in short provisions in three years it showed increase in 2017-18 and
again declined with 18.3% in year 2017-18 because the provisions were not required to be made
seeing the efficiency of production scheme. Other financial liabilities have considerable decline
over the two years it declined by 77% approx in 2016-17 which further decreased with 92% in
4

year 2017-18 the decrease is from 366 to 6. The financial liabilities were related to the short term
working capital requirement but after the successful execution of the production process, short
term liabilities were repaid by company.
In non current liabilities long term loan have decreased with 22.47% in 2016-17 and
showed slight increase of 5.4% in 2017-18, the decrease in previous year was because a bank
loan was repaid by sale of asset and the increase in next year is seen due to loan raised for
purchasing capital asset.. There is high rise in deferred tax liabilities and long term provisions in
year 2017-18 from year 2016-17 because of varying schedules of depreciating assets.
Soul Pattison
Liabilities 2016 2017 2018 % change
2016-17
% change
2017-18
Trade and
Other payables
75831 80866 131521 6.22% 38.52%
Interest-
bearing
liabilities
52167 42356 25267 -18.80% -40.34%
Non Current
Liabilities
Deferred tax 240038 394882 405270 39.21% 2.50%
Provisions 96892 112773 186388 14.08% 39.40%
Interpretation- The report of Soul Pattison shows that in current liabilities trade payables have
increased with 6.22% in 2016-17 and with further rise of 38.52% because of increase in
production. Need of Short term interest loan have reduced in year 2016-17 by 18.8% and further
by 40.34% in 2017-18 this may be because of increased revenues. The deferred tax liability of
company has increased by 39.21% in 216-17 and increased with 2.5% in 2017-18 because the
company had made delay in recognizing tax expenses for current year. company must pay out
its deferred tax liabilities. And increase is seen in provisions of 14.08% in 2016-17 and further
increase of 39.40% over the years which due to the rise in contingent liabilities of company.
5. Advantages and disadvantages of sources of fund
Both the companies are using equity and short term loans from financial institution as
sources of fund.
Equity Capital
5

Advantages
 By raising funds through equity companies lose the obligation of making regular
payments. This helps company to use the cash inflows for operating and growing the business.
Disadvantages
 Owners have to share the control
 Over ownership in equity finance.
Financial Institution
Advantages
 Loans are available at low rates of interest and and gives the company fixed payment
expense at beginning. It increase the credit ratings of business on regular payment of loan (Abramova, Pires
and Bernardino, 2016).
Disadvantages
 Company has to involve in lengthy paper work for raising loan through financial
institutions.
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PART B
Propriety companies
Corporations Law Sec. 45A
A company is a propriety company which is registered, converted to propriety company under
this Act. Propriety company is to be registered under Sec 118, 601BD or 1362B.
There are condition that must be satisfied by the propriety company which are – Company
limited with shares or a limited company with a share capital(Potter and et.al., 2019). Second
should not have more than fifty shareholders which are not employees of company. Should not
do any activity which requires disclosures to the investors (Corporations Law Sec. 45A, 2019).
Small Propriety company
A company is classified as small propriety company if meets any two of of the following
conditions for a financial year.
a). Gross operating revenue consolidated for a financial year for the company and entities
controlled by it is not more than $50 million.
b). Gross value of assets after consolidation of company and entities controlled by it at the year
end is not more than $25 million.
c).There are less than 100 employees in company and entities controlled by it in financial year
end (Small Propriety Company, 2019).
Most of the Small propriety companies do not have the obligations of preparing financial reports
as per Part 2M.3 of Corporations Act, 2001.when they are not required to prepare reports they do
not have much compliance reports.
Small propriety company is not required to prepare financial statements. Small companies have
less regulatory framework. Small companies do not get trust of people easily which is a barrier in
its growth.
Large Propriety company
Company is classified as large propriety company on satisfying any two of the conditions in a
financial year end.
a). Gross operating revenue after consolidation of company and the entities controlled by it for a
financial year is not less than $50 million.
b). Gross value of the assets after consolidation of company and entities controlled by it are not
less than $25 million.

c). There are more than 100 employees in company and entities controlled by it during
financial year end (Large Propriety Company, 2019).
Generally large propriety companies requires preparation and lodgement of audited annual
financial reports as per Part 2M.3 of Corporations Act 2001. Being large in size it has to comply
with increased number of reporting requirements. Company
Large company can raise fund through equity as well as bonds which is not available for small
companies. The auditing of accounts enable them to identify the defects in operating function s
of company. Along with the benefits it has increased responsibilities of complying with all
regulations of the laws and act.
Reporting Entity
An entity whose economic activities in financial informations are useful to existing as well as
potential investors, creditors and lenders. These information help them get information required
for decision making purposes for availing resources (Flory and et.al., 2019). Reporting entity
provides users with general purpose financial report to give understanding about the financial
position and financial performance of company.
The reporting entity concept as per Statements of Accounting Concept.
There are number of concepts for reporting entity which are there in existing regulations
and legislations and for compliance general purpose financial reports are to be prepared by
company. It includes concept of legal entity employed in private sector legislations. The legal
status is required to be reported whenever it occurs by private sector. Whereas in public sector
they are accountable for application of fund concept in reporting. The concept is tied with
informational needs of different users including the GFRS. It requires the entities to be
identified with reference to its user's existence that depend on financial reports to make and
evaluate allocation of resources. So that investors can come to more accurate and reliable
decisions. Class of entities defined under other concepts like fund or legal concept which
include entities that should specifically recognised as reporting entity (Alves Aranha and et.al.,
2015). On virtue of users which are dependent on users of general purpose reports while other
entities shall not be recognised as such.
The reporting concept is not dependent upon the private or public sector but on the motive
behind establishment of business. The concept requires due to the objective tied with it for the
preparation of financial reports as per the dependent users of it.

Compliance and Reporting Requirements of three Entities
Small Propriety Company
If the company meets the criteria which defines it as small propriety company than it is
not obligatory for companies to make or lodge with ASIC audited financial statements as per
Corporations Act 2001 s45A(2). There are exceptions where company is required to make and
lodge financial reports. Foreign controlled company. Where financial reports are to be prepared
on request of more than 5% shareholders vote. On the direction of ASIC where direction can be
general or may be specific.
Where small entities are having control of foreign companies and not part of the the large
groups. These entities are not required to prepare and lodge reports or appoint auditors if
directors of company tend to rely on relief given by ASIC Instrument 2017/204 (Jonsson and
et.al., 2016). They are required to lodge notice of resolution within time limits given in that
instruments. Directors of small entities are required to rely over the relief & lodge the Form 384.
Companies having control of foreign companies and parent company has lodged the financial
reports with the ASIC have no requirement to prepare, lodge or appoint auditors. Also the
companies that are member of closed groups have no obligation of preparing and lodging the
financial statements.
Large Company
Companies satisfying the two conditions laid down under the Corporation Act, 2001 are
classified as large propriety company. The companies are required to prepare financial
statements and the audited ones are to be lodged with the authorities. Financial reports which
are prepared by companies as per Corporation Act, 2001 shall be complied with accounting
standards and AASB meeting requirement of IFRS (Krylov and et.al., 2019). Companies are
require to lodge income statement, balance sheet, cash flow statements as well as other
documents. The compliance of reporting and legal framework gives the company and outsiders
accurate position of company. The compliance gives credibility to the business and its
operations. Therefore it is important for large companies to comply with legal and statutory
requirement.
Reporting Entity
It is mandatory for reporting entities to submit financial as well as non financial
informations to government agencies. Different entities have different compliance requirements

therefore they are required to prepare different reports as per the requirements laid down by
authorities. A reporting entity is required to lodge following statements with the government
authority. Statements of financial position, statements of profit or loss & other comprehensive
income, cash flow statements for year, statements of changes in equity and consolidated
financial statements (Morgan, 2016). All these statements are to be prepared as per GPFR – Tier
1 complying with all applicable standards of AASB and Tier 2 complying with applicable
standards of RDR.
CONCLUSION
From the above report it can be concluded that every company is required to make proper
recording of its financial transactions of every accounting period for effective business decision
making process. Number of items both under the owner's equity and liability section are required
to be considered for evaluating changes made in the capital structure of the company from time
to time. Also, by understanding forming procedure of companies, one can start its business
operations in form of small or large proprietary company and reporting entity as well. Before
incorporation of any business firm, it is very much important to have strong as well as effective
business plans and strategies in line with business aims and objectives for smooth business
operations and growth.

REFERENCES
Books and Journals
Abramova, V., Pires, F. and Bernardino, J., 2016. Open Source and Proprietary Project
Management Tools for SMEs. Journal of Information Systems Engineering &
Management.1(3). pp.177-186.1-98.
Akinkoye, E. Y. and Seriki, A. I., 2018. Retained earnings and firms’ market value: Nigeria
experience. International Journal of Business and Economic Development (IJBED). 6(2).
Alves Aranha, E. and et.al., 2015. Open innovation and business model: a Brazilian company
case study. Journal of technology management & innovation.10(4). pp.9
Ball, R. and et.al., 2019. Earnings, retained earnings, and book-to-market in the cross section of
expected returns. Journal of Financial Economics.
Bauer, R., 2018. Works for Me: What's Next for Pennsylvania Corporate Income Tax Liabilities
after Nextel Communications of the Mid-Atlantic v. Commonwealth. Vill. L. Rev.. 63.
p.477.
Flory, J. A. and et.al., 2019. Increasing Workplace Diversity: Evidence from a Recruiting
Experiment at a Fortune 500 Company. Journal of Human Resources.pp.0518-9489R1.
Jonsson, L. and et.al., 2016. Automated bug assignment: Ensemble-based machine learning in
large scale industrial contexts. Empirical Software Engineering. 21(4).pp.1533-1578.
Krylov, V. E. and et.al., 2019, April. Crowd Recruiting: Modern Approaches to Recruitment.
In Institute of Scientific Communications Conference (pp. 631-636). Springer, Cham.
Manigart, S. and Sapienza, H., 2017. Venture capital and growth. The Blackwell handbook of
entrepreneurship. pp.240-258.
Morgan, H., 2016. How Social Recruiting Impacts Job Search. Career Planning and Adult
Development Journal.32(2). p.33.
Piketty, T., 2015. About capital in the twenty-first century. American Economic Review. 105(5).
pp.48-53.
Potter, B. and et.al., 2019. Keeping it private: financial reporting by large proprietary companies
in Australia. Accounting & Finance.59(1). pp.87-113.

Online
Santos Annual report. 2018. [Online]. Available through:
<https://www.santos.com/media/4651/2018-annual-report.pdf>.
Soul Pattinson (W.H.) Annual report. 2018. [Online]. Available through:
<https://www.whsp.com.au/whsp/wp-content/uploads/2018/10/2018-WHSP-Annual-
Report.pdf>.
Large Propriety Company. 2019.[Online]. Available through:<https://asic.gov.au/regulatory-
resources/financial-reporting-and-audit/preparers-of-financial-reports/are-you-a-large-or-
small-proprietary-company/>
Small Propriety Company. 2019.[Online]. Available through: <https://asic.gov.au/regulatory-
resources/financial-reporting-and-audit/preparers-of-financial-reports/small-proprietary-
companies/small-proprietary-companies-not-controlled-by-a-foreign-company-where-asic-
requests-a-financial-report/>
Corporations Law Sec. 45A. 2019.[Online]. Available
through:<http://classic.austlii.edu.au/au/legis/cth/repealed_act/cl184/s45a.html>

APPENDIX
1. Santos Limited Balance Sheet

2. Soul Pattinson Limited Balance Sheet