Deferred Tax Analysis of BHP Billiton Company

This report analyzes the cash flow statement, income statement, and deferred tax recording of BHP Billiton Company. It covers topics such as operating, investing, and financing activities, items reported in other comprehensive income statement, tax expense, deferred tax asset or liability, and more. The report follows the guidelines of IFRS and AASB 112.

WOolworth COmpany
Corporate Accounting
Deferred Tax Analysis
Name of the author

Table of Contents
INTRODUCTION.................................................................................................................................2
ANSWER TO QUESTION NO- 1........................................................................................................2
ANALYSING INFORMATION PRESENT IN CASH FLOW STATEMENT................................2
ANSWER TO QUESTION NO- 2........................................................................................................3
OPERATING, INVESTING AND FINANCING ACTIVITIES: A SUMMARISED
EXPLAINATION..............................................................................................................................3
ANSWER TO QUESTION NO- 3........................................................................................................4
ITEMS REPORTED IN OTHER COMPREHENSIVE INCOME STATEMENT............................4
ANSWER TO QUESTION NO- (iv)....................................................................................................5
UNDERSTANDING OF EACH ITEM REPORTED IN OTHER COMPREHENSIVE INCOME
STATEMENT...................................................................................................................................5
ANSWER TO QUESTION NO- (v)......................................................................................................6
REASON OF NON-REPORTING OF THESE ITEMS IN STATEMENT OF PROFIT AND LOSS
...........................................................................................................................................................6
ANSWER TO QUESTION NO- (vi)....................................................................................................6
TAX EXPENSE OF BHP BILLITON...............................................................................................6
ANSWER TO QUESTION NO- (vii)...................................................................................................7
IS THE FIGURE OF TAX EXPENSE SAME AS ACCOUNTING INCOME MULTIPLIED BY
BHP BILLITON’S EFFECTIVE TAX RATE?.................................................................................7
ANSWER TO QUESTION NO- (viii)..................................................................................................9
COMMENT ON DEFERRED TAX ASSET OR LIABILITY..........................................................9
ANSWER TO QUESTION NO- (ix)....................................................................................................9
IS CURRENT TAX ASSET SAME AS INCOME TAX EXPENSE?..............................................9
ANSWER TO QUESTION NO- (x)....................................................................................................10
IS THE INCOME TAX EXPENSE SAME AS INCOME TAX PAID?.........................................10
ANSWER TO QUESTION NO- (xi)..................................................................................................10
Conclusion...........................................................................................................................................11
References...........................................................................................................................................12
Appendix.............................................................................................................................................14

INTRODUCTION
With the changes in economic conditions each and every organization needs to comply with
the IFRS rules and accounting standards. In this report, BHP Billiton Company has been
selected which reflects all the key points and tax compliance program of company. This
report focuses on the cash flow statement analysis, income statement analysis and recording
of the deferred tax in the books of account of Company. In this report, analysing information
present in cash flow statement and its comparison with the recording of the income statement
has been done. After that, recording of the deferred tax assets and income tax payment will be
analyzed as per the AASB 112 and accounting rules and regulations.
ANSWER TO QUESTION NO- 1
ANALYSING INFORMATION PRESENT IN CASH FLOW STATEMENT
It is analyzed that cash flow statement is the document which is accompanied he reason of
preparing the cash flow statement is to understand the cash movements prevailing in the
business, as the income statement is prepared on accrual basis. So, it becomes difficult to
understand that whether the incomes that are reported have been actually received or not, and
whether the expenses shown are actually paid or not. Cash flow statement shows the
movement of cash without giving any regards to the year of accrual. Any transaction that
reported cash inflow or outflow is reported. The cash flow statement of the BHP Billiton
Company has shown high cash outflow from eh investing activities and payment of dividend
to shareholders (Appiagyei, Djajadikerta , and Xiang, 2016).
It has been observed that that dividend paid recorded in the cash flow statement of the
company in 2017 is US $ US$ 636 million which is 100% higher as compared to the 2016
data i.e. US $ 301 million.
The expenditure of BHP Billiton has been reduced to US$ 6946 million in financial year
2016 to US$ 4252 in financial year 2017 (Miller, and Skinner, 2012).
.

ANSWER TO QUESTION NO- 2
OPERATING, INVESTING AND FINANCING ACTIVITIES: A SUMMARISED
EXPLAINATION
US$ IN MILLION 2016-17 2015-16 2014-15
Net cash provided or used by operating
activities
16,804 10,625 19,296
Net cash provided or used in investing
activities
(4,161) (7,245) (13,154)
Net cash provided or used in financing
activities
(9,133) 284 (8,276)
It is analyzed that the net operating cash flow from its busienss has been up and resulted to
US$ 16804 million in 2017 which is 20% higher as compared to last year data.
The receipt investment and amount of cash inflow from operating activities has also gone
down by 22% as compared to last year data (Landoni, and Zeldes, 2018).
The expenditure made of the investing activities of company has been decline since over last
year data. The main reason behind the reduction in the expenditure was related to the last
year cash outflow for buying plants and machineries for the company.
Company invested its cash in several assets such as purchase of property, equipment, plants
and other asset to expand the busienss in long run (Appiagyei, Djajadikerta , and Xiang,
2016).
BHP has also invested its capital in buying and acquisition of the new assets in other units
which have resulted to high cash outflow from its business.

The net cash inflow of business has been to US$ 3510 million and US$ 3664 million in
financial year 2017 and 2016 respectively (Appiagyei, Djajadikerta , and Xiang, 2016).
ANSWER TO QUESTION NO- 3
ITEMS REPORTED IN OTHER COMPREHENSIVE INCOME STATEMENT
The below given table reflects the details shown in the comprehensive income statement
which has been recorded in the books of account of company. This data has been fetched
from the annual report of company for the last three years.
US$ in million 2016-2017 2015-16 2014-15
Profit/(Loss) for the period from both
continuing and discontinuing operations
6,222 (6,207) 2,878
Other comprehensive income
Items that may be reclassified to profit or
loss (net of tax)
(59) 60 (91)
Items that will not be reclassified to profit or
loss (net of tax)
10 (37) (45)
Other comprehensive income (net of tax) (49) 23 (136)
Total comprehensive income/(loss) for the
period
6,173 (6,184) 2,742
Total comprehensive income/(loss)
attributable to:
Equity holders of the parent entity 332 176 973

Non-controlling interests 5,841 (6,360) 1,769
TOTAL 6,173 (6,184) 2,742
These all the items have been recorded in the books of accounts shows that company has
increased the value of its busienss outcomes which reflects the positive outcomes for the
business. The non-controlling interest of company has been negative in 2016 which has also
been recorded in the comprehensive income statement of company.
ANSWER TO QUESTION NO- (iv)
UNDERSTANDING OF EACH ITEM REPORTED IN OTHER COMPREHENSIVE
INCOME STATEMENT
There are several financial information have been recorded in the comprehensive income
statement of Company. In the above give details, the table have shown the certain items
fewer than two specific categories which are classified into the income statement as per their
recording frameworks. This double entry system shows the recording of the transaction in the
two separate accounts.
The comprehensive income statement covers all the items which have direct and indirect
impact on the profitability of company such as exchange fluctuations on foreign transactions.
It also includes all the gain and loss which company needs to record in its books of account.
The tax expenses also computed on these items and recorded in the comprehensive income
statement of Company (Appiagyei, Djajadikerta , and Xiang, 2016).
It is analyzed that these figures are presented as being attributable to non-controlling interests
of the shareholders of BHP Billiton.
This figure is presented as being attributable to non-controlling interests and to the
shareholders of BHP Billiton.

ANSWER TO QUESTION NO- (v)
REASON OF NON-REPORTING OF THESE ITEMS IN STATEMENT OF PROFIT AND
LOSS
As discussed earlier, every entity needs to present financial information in a particular
manner. This presentation enables the managers and users to understand the statements in a
clear manner. The presentation answer to question no-s is guided by accounting standards in
every country. In Australia the Australian Accounting Standard Board set up the accounting
standards for this purpose. These standards set up guidelines that are required in presentation
of financial information and in formulating judgement for inclusion or exclusion of certain
information in the financial statements (Demirel, and Ero, 2016).
The IFRS rules and regulations have been used to record the entries in the books of accounts.
As per the accounting rules and standards, there are several items which are recorded in the
books of account of company such as provision for doubtful debts and depreciation amount is
charged amount in the profit and loss account. On the other hand, cash flow statement covers
only those data which are having cash impact on the business. The cash flow of money also
get impacted by the certain reserves like foreign currency translation, cash flow hedging
reserve and other items (Baki, Uthman, and Sanni, 2014).
ANSWER TO QUESTION NO- (vi)
TAX EXPENSE OF BHP BILLITON
Tax is the amount of expenses which is paid by the corporates to government as their
corporate responsibilities. The computation of the tax amount is done by following the AASB
112 income tax rules and regulations (Miller, and Skinner, 2012).
Company has been paying tax amount US$ 4100 million,
US$ IN MILLION 2016-
17
2015-16
Total taxation expense/(benefit) comprises:

Current tax expense 4288 2456
Deferred tax (benefit)/expense (188) (3508)
4100 (1052)
Income tax paid 2084 1645
ANSWER TO QUESTION NO- (vii)
IS THE FIGURE OF TAX EXPENSE SAME AS ACCOUNTING INCOME MULTIPLIED
BY BHP BILLITON’S EFFECTIVE TAX RATE?
After analysing the annual report of company, it could be inferred that the figure of income
tax expenses is computed by using the income tax rules and regulation shown as per the
AASB 112. On the other hand, accounting income computation and manual tax computation
on the accounting income is done by following proper accounting rules and regulation. The
figure of income tax shown in the books of account of company is US $ 3097 which is high
as compared to the income tax computed by using the normal tax rate on the accounting
income (Billah, 2015).
US$ IN MILLION 2016-
17
2015-
16
Income tax expense differs to the standard rate of corporation tax as
follows:
Profit/(loss) before taxation 10322 (7259)

Tax on profit/(loss) at Australian prima facie tax rate of 30 per cent 3097 (2178)
Tax on remitted and unremitted foreign earnings 478 (376)
Non-tax effected operating losses and capital gains 259 671
Amounts under/(over) provided in prior years 199 (28)
Foreign exchange adjustments 88 125
Tax rate changes 25 14
Investment and development allowance (53) (36)
Tax effect of profit/(loss) from equity accounted investments, related
impairments and expenses
(82) 631
Recognition of previously unrecognised tax assets (106) (36)
Impact of tax rates applicable outside of Australia (189) (620)
Other 217 536
Income tax expense/(benefit) 3933 (1297)
Royalty-related taxation (net of income tax benefit) 167 245
Total taxation expense/(benefit) 4100 (1052)

Reason
It is observed that the recording of the bad debts, provision for the income tax and donation
are recorded differently as per the accounting rules and income tax rules and regulation of
AASB 112.
Difference between the accounting rules and regulation and income tax regulations result to
different accounting income and profit computed as per the taxation rules.
ANSWER TO QUESTION NO- (viii)
COMMENT ON DEFERRED TAX ASSET OR LIABILITY
As mentioned in Answer to question no- (vii), it is considered that the taxable income is the
amount of tax computed for the tax expenses for an entity. The recording of the tax assets
and liabilities in the books of account is done by following the proper steps (Lourenço, and
Branco, 2015).
When the tax amount paid by the company is higher than the tax computed as per the taxation
rules and regulation then in this case, BHP Billiton Company will record the deferred tax
Assets (Svitlík, and Poutník, 2016).
When the tax amount paid by the company is lower than the tax computed as per the taxation
rules and regulation then in this case, BHP Billiton Company will record the deferred tax
liabilities (BHP Billiton, 2017).
In the present case, BHP Billiton Company has recorded US$ 5788 million and US$ 6147
million in its books of accounts which shows that company has paid higher tax to
government as compared to the tax computed as per the accounting rules
ANSWER TO QUESTION NO- (ix)
IS CURRENT TAX ASSET SAME AS INCOME TAX EXPENSE?
US$ IN MILLION 2016-17 2015-16

Current tax asset 195 567
Income tax expense/(benefit) 4100 (1052)
The income tax expenses recorded in the profit and loss account of company is not same with
the income tax payable by company in its balance sheet (Argenti, 2016).
The main reason behind this is related to the recording of both amount and its nature.
The income tax payable is the amount of tax payable by company for all the years’
cumulatively.
The income tax expenses are the amount of tax charged on the profit and loss account in the
present year (Oxner, Oxner, and Phillips, 2018).
ANSWER TO QUESTION NO- (x)
IS THE INCOME TAX EXPENSE SAME AS INCOME TAX PAID?
The income tax expenses shown in the profit and loss accounts is the amount of tax charged
on the profit earned by company in the present year. On the other hand, the income tax
payment made or shown in the cash flow statement is too high.
It includes all the tax payment made by company in the present year irrespective of the fact
that whether it belongs to the present year or not (Graham, Bedard, and Dutta, 2018).
ANSWER TO QUESTION NO- (xi)
Interesting thing
The most interesting thing about the tax recording of BHP Billiton Company is related to the
disclosure requirement. Company has complied with the all the rules and regulations of the
AASB 112 to determine the tax payment.

Confusing
The main confusing thing arises when BHP Billiton has to record its assets and liabilities as
per the accounting rules and regulation.
Difficulty
BHP Billiton’s most interesting thing reflected from the financial statements is the provision
for all kind of disclosures in a thoughtful manner (Kangari,, Farid, and Elgharib, 2012).
Surprising
The main surprising thing is that we cannot record deferred tax assets and deferred tax
libiliteis its books of account.
Conclusion
As per the accounting rules, these standards set up guidelines that are required in presentation
of financial information and in formulating judgement for inclusion or exclusion of certain
information in the financial statements. Now in the end, it could be inferred that if proper
accounting rules and regulations are followed then it will increase the overall outcomes of the
company.

References
Appiagyei, K., Djajadikerta , H. and Xiang, E.(2016) Integrated Reporting and Firm
Performance: A Research Framework [online] Available from:
https://www.researchgate.net/publication/320163713_Integrated_Reporting_and_Firm_Perfo
rmance_A_Research_Framework [Accessed 21st May, 2018].
Baki, Z.A., Uthman, A.B. and Sanni, M.(2014) Financial ratios as performance measure: A
comparison of IFRS and Nigerian GAAP. Accounting and Management Information
Systems,13(1),pp. 82-97.
BHP Billiton, 2017 .) Nolans[online] Available from: https://www.bhp.com/media-and-
insights/reports-and-presentations?q0_r=category%3DAnnual%2BReports., [Accessed 21st May,
2018]
Billah, N.M.(2015) Liquidity Analysis of Selected Public-Listed Companies in Malaysia.
International Economics and Business,1(1),pp. 1-20.
Demirel, B. and Ero, I.(2016) Investigation of Integrated Reporting As a New Approach of
Corporate Reporting. International Journal of Business and Social Research,6(10),pp. 32-46.
Landoni, M. and Zeldes, S.P., 2018. Internet Appendix to'Should the Government Be Paying
Investment Fees on $3 Trillion of Tax-Deferred Retirement Assets?'.
Lourenço, I.M.E.C. and Branco, M.E.M.D.A.D.C.(2015) Main Consequences of IFRS
Adoption: Analysis of Existing Literature and Suggestions for Further Research [online]
Available from: http://www.scielo.br/pdf/rcf/2015nahead/1519-7077-rcf-201500090.pdf
[Accessed 21st May, 2018].
Miller, G.S. and Skinner, D.J., 2012. Determinants of the valuation allowance for deferred
tax assets under SFAS No. 109. Accounting Review, pp.213-233.
Oxner, K.M., Oxner, T.H. and Phillips, A.D., 2018. Impact of the Tax Cuts and Jobs Act on
Accounting for Deferred Income Taxes. Journal of Corporate Accounting & Finance, 29(2),
pp.12-21.
Svitlík, J. and Poutník, L.(2016) Relationship between Liquidity and Profitability: Empirical
Study from the Czech Republic. European Financial and Accounting Journal,11(3),pp. 7-24.

Appendix
BHP BILLITON LTD ADR (BHP) Statement of CASH FLOW
Fiscal year ends in June. USD in millions
except per share data.
2013
-06
2014
-06
2015
-06
2016
-06
2017
-06
TT
M
Cash Flows From Operating Activities
Depreciation & amortization 6945 8701 9158 8661 7719
795
6
Investment/asset impairment charges 311 797 828 210 188 373
Inventory -47 -54 151 527 -679 -445
Other working capital -472 205 -338 -320 327 563
Other non-cash items
1151
5
1571
5 9497 1547 9249
800
3
Net cash provided by operating activities
1825
2
2536
4
1929
6
1062
5
1680
4
164
50
Cash Flows From Investing Activities
Investments in property, plant, and
equipment
-
2157
3
-
1599
3
-
1194
7
-
6946
-
4252
-
437
7
Property, plant, and equipment reductions 2338 114 66
Acquisitions, net 2202 768 185 206 -48 202
Purchases of investments -338
-
1193 -15
Sales/Maturities of investments 204 956 445
Purchases of intangibles -400 -192 -98
Sales of intangibles 8
Other investing activities -304 -294
-
1212 -505 139 -510
Net cash used for investing activities
-
1787
1
-
1583
4
-
1256
8
-
7245
-
4161
-
468
5
Cash Flows From Financing Activities
Debt issued 9975 6288 3440 7395 1613 913
Debt repayment
-
2580
-
7198
-
4168
-
2788
-
7120
-
915
7
Common stock issued 21 14 9
Repurchases of treasury stock -445 -368 -355 -106 -108 -136
Cash dividends paid
-
6167
-
6387
-
6498
-
4130
-
2921
-
444
9
Other financing activities 18 1183 -704 -87 -597
-
123
9
Net cash provided by (used for) financing
activities 822
-
6468
-
8276 284
-
9133
-
140
68

Effect of exchange rate changes -34 23 -5 -1 322 652
Net change in cash 1169 3085
-
1553 3663 3832
-
165
1
Cash at beginning of period 4881 5667 8752 6613
1027
6
139
28
Cash at end of period 6050 8752 7199
1027
6
1410
8
122
77
Free Cash Flow
Operating cash flow
1825
2
2536
4
1929
6
1062
5
1680
4
164
50
Capital expenditure
-
2197
3
-
1618
5
-
1204
5
-
6946
-
4252
-
437
7
Free cash flow
-
3721 9179 7251 3679
1255
2
120
73