Financial Statements of Rio Tinto

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Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author Note

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CORPORATE ACCOUNTING
Table of Contents
Introduction......................................................................................................................................2
Cash Flow Statement.......................................................................................................................3
Other Comprehensive Income Statement........................................................................................7
Accounting for Income tax:.............................................................................................................9
Conclusion:....................................................................................................................................10
References:....................................................................................................................................11
Appendix........................................................................................................................................13
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Introduction
The present report is centred on the analysis of the financial statements of a specific
chosen company. The purpose of conducting the analysis of the financial statement will be to
determine whether the reports that are being prepared and presented by the company for the
consideration of the stakeholders, are showing the true and fair view of the entity or not. The
various elements or constituents of the financial statements are to be analysed which includes the
company’s cash flow statement, the income statement and the balance sheet.
Rio Tinto is the company that has been chosen for the given purpose. The main activities
of the entity include mining and metals. By making use of its whole range of subsidiaries, the
company conducts its own mining operations. 2015, 2016 and 2017 are the three years over the
period of which the financial statements of the company will be analysed with respect to the
performance recorded by it and its financial position (Gordon et al. 2017). The position of the
company and the performance of the company over the years will be analysed over the period of
these three years.
.
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Cash Flow Statement
Figure: Cash Flow Statement
For the preparation of the cash flow statement, the entity is using the direct method of
preparation. The first item of the cash flow statement is the cash flow that is generated by the
company from its revenue. This establishes the fact that direct method has been used for its
preparation. A clear distinction has been made in respect of the cash flow from the investing

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activities, operating activities and the financing activities. The operating activities of the
company refers to the amount of cash flow that is being generated by the company form the core
business operations that are being conducted by it (Miao et al. 2016). The cash flow from
investing activities refer to the cash flow that is being generated in the favour of the company by
the sale and purchase of the fixed assets of the company and the various other investments that
are being made by the company. the cash flow generated or the outflow incurred by the company
under the head financing activities refer to the various payments that are being made by the
entity in respect of the interest payment and other obligatory payments that are incurred by the
entity in respect fo the various sources of finance that are arranged by the company. Like interest
payments in respect of the borrowings, dividend from the shares of the company and fixed rate
of payments that are being made to the preference shares (Reid and Myddelton 2017). The
various individual components of the cash flow statements of the entity are as follows:
a) Receipt from consolidate operations- this item represents that cash flow that has been
generated from the principle revenue generating activities of the entity.
b) Dividends from equity oriented units- this item represents the amount that has been
received by the company in the form of dividend from the various other companies in
which the company has made investment.
c) Net interest paid- this item represents the net interest that is received by the company.
The net interest is computed by deducting the interest expense incurred by the company
from the interest revenue that is being generated by the company (Grant 2016).
d) Interest paid to holders of non-controlling interest in the subsidiaries- this item represents
the amount that is paid to the shareholders of the subsidiary companies of the group who
hold a non-controlling interest in the company.
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e) Taxes paid – this item comprises of the total amount that is being paid by the company
towards taxes.
f) Purchase of property, plant and equipment and intangible assets by the company- this
represents that amount that is incurred by the company for acquiring the essential
property, plant and equipment that are going to be used by the company or the production
of its products and the generation of the revenue (Penman and Yehuda 2015).
g) Disposals of subsidiaries, joint ventures and associates- this item represents the amount
that is being realised by the company in respect of the sale of the subsidiaries, joint
ventures and the associates that are held by the company.
h) Purchase and sale of financial assets- this item represents the net amount that is realised
by the company in respect of the sale of the fixed financial assets of the company and the
reduction to be made from it in respect of the purchase of the fixed financial assets by the
company (Robinson et al. 2015).
i) Sale of property, plant, equipment and intangibles- this item represents the amount that
the company has generated from the sale of the property, plant, equipment and the
intangibles of the company.
j) Equity dividends paid to owner of the Rio Tinto- this item represents that the
shareholders of the company have received from it as dividend.
k) Proceeds from additional borrowings- this item represents the amount that the company
has collected from the various third parties and the financial institutions in the form of
debt.
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l) Proceeds from the issue of equity to non-controlling interests- this item represents the
amount that has been contributed to the company by the shareholders who hold a non-
controlling interest in the company by way of subscribing the shares of the company.
m) Own shares purchased from the owners of the Rio Tinto- this item represents the amount
that the company has paid to shareholders of the company in respect of buying back the
equity shares that were previously being allocated to them (Harris 2016).
Over the period of three years, the revenue that has been generated from the operating activities
of the company has increased significantly. This has occurred because FO the fact that the
revenue of the company has increased significantly during these three years. The amount that
was received by the company from the primary revenue generating activities of the company for
the ear 2015 and 2017 amounted to US$ 12102 and US$ 16670 respectively (Lin et al. 2015).
This demonstrates the significant rise that has occurred in the revenue of the entity. Lot of
fluctuations have occurred in the investing activities of the company. The amount of the outflows
of the cash from the investing activities of the company amounted to (US 4600) and (US 2104)
respectively for the year 2015 and 2016 respectively. The purchase made by the company in
respect of the property, plant and equipment of the company has reduced significantly over the
years. This has resulted in the cash outflow from the investing activities of the company being
reduced over this period (Banker et al. 2016). The reduction of the flow from the investing
activates was further pushed by the increase in the sale of the financial assets of the company.
The decrease in the cash flow of the company can be because FO the fact that the company has
incurred no amount in respect of purchasing the issued shares of the company back from the
shareholders of the company. The company had also taken up huge borrowings from outsiders in
the year 2016 and this has increased the cash inflow of the company. In the year, 2016 and 2017

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the cash outflow of the entity amounted to (7491) and (9141) respectively. The company had
paid a huge amount of dividend to its shareholders in the year 2017 and this has resulted in the
increase in the cash outflow of the company. The effect of the changes in the activities of the
company that involve cash can be felt in the changing balance of the cash and cash equivalent of
the company. For the closing date of the year, 2015, 2016 and 2017 the amount of cash and cash
equivalent of the company amounted to (30146), (1165) and 2358 respectively. The core
business of the entity has contributed significantly to the increase in the cash and cash
equivalents of the company. one of the other most significant reasons for the increase in the
balance of the cash and cash equivalent of the company can be attributed to the fact that the
amount recovered by the company from the sale of its subsidiaries, joint ventures and various
associated increased significantly over the years. One of the other major reasons for the increase
in the cash and cash equivalent balance of the company can be attributed to the fact that the
amount that is recovered by way of subscription of shares by the shareholders that do not hold
controlling interest in the entity have increased significantly over the period of time (Jeppson et
al. 2016).
Other Comprehensive Income Statement
The components of the comprehensive income statement that has been included in the
financial report of the company are as follows:
a) Actuarial losses/ income in respect of post retirement benefit plans- this itme in the other
comprehensive incoem statemetn represents the amount that has been realised by the
company in respect of the gains that have accrued towards it by way of the actuarial
estimate made by the company of the amount of post retirement beenfit plans of the
company (Gitman et al. 2015).
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b) The tax component of the items that have been recorded by the company in the other
comprehensive income statement of the financial statements of the company.
c) The changes that have occurred in the amount of the deferred tax assets and the liabilities
of the company due to the change in the tax rate of the country.
The reason for the non-recording of these items in the financial statement of the company is
that these items have a very low probability of repeating themselves in the near future. The
prime revenue generating activities of the entity have not resulted in the incurring of these
items (Li et al. 2015). In addition to this any significant or ancillary information regarding
these items are not expected to significantly affect the economic decision of the stakeholders
of the company.
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Accounting for Income tax:
For the year 2017, the amount that has been recorded in the financial statements of the entity
amounted to US 3965. The amount that had been recorded in respect of the deferred tax and
liabilities amounted to US 3395 and US 3628 respectively (Campbell 2015). The reason for
which the recording of the deferred tax and the deferred liabilities was conducted by the
company can be attributed to the following reasons:
a) The deferred tax assets that have been recorded by the company for the year 2017 and the
amount corresponding to it is US$432m is in respect of the loss that has been incurred by
the company in Mongolia. The same will expire if the company is unable to utilise them.
As per the terms that are being stated in the agreement of Oyo Togo Investment and

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Mongolian Laws, has guided the company towards the calculation of the tax losses
(Louis et al. 2014). The same has been recorded as an asset by the company because it is
going to be realised by the company only after the year 2023 if no unforeseen changes
occur in the business environment of the company. Near about US$777 m amount in the
financial statements of the company have been recorded in respect of the realised and the
unrealised capital losses that are being encountered by the company. Only if any future
capital gain in respect of the company happens this amount will be recovered (Lei et al.
2018).
Conclusion:
A detailed analysis was being conducted in respect of the financial statements of the
company that are constituted by the cash flow statement of the company, other comprehensive
income statement and other elements of the profit and loss statement of the company that were
related to the tax treatment of the company. After the analysis, the results suggest that the
financial statements of the company have been prepared as per the applicable rules and
regulations. In addition to that, the analysis revealed that the revenue of the company has
increased significantly over the period of three years and the same is being reflected in increased
cash balance of the company. It is seen that the cash and cash equivalent balance of the company
has increased significantly over the period of three years. The reason for this increase can be
attributed to many significant reasons. These reasons include the significant rise in the income
that is being generated by the company from its core business activities has increased
significantly over the period of three years, the amount that is realised by the company from the
sale of its various associates, joint ventures and the assets have increased substantially over the
period of time.
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References:
Banker, R.D., Basu, S. and Byzalov, D., 2016. Implications of Impairment Decisions and Assets'
Cash-Flow Horizons for Conservatism Research. The Accounting Review, 92(2), pp.41-67.
Campbell, J.L., 2015. The fair value of cash flow hedges, future profitability, and stock
returns. Contemporary Accounting Research, 32(1), pp.243-279.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Gordon, E.A., Henry, E., Jorgensen, B.N. and Linthicum, C.L., 2017. Flexibility in cash-flow
classification under IFRS: determinants and consequences. Review of Accounting Studies, 22(2),
pp.839-872.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Harris, P., 2016. A case study of the cash flow statement: US GAAP conversion to
IFRS. Journal of Business Case Studies (Online), 12(1), p.1.
Jeppson, N.H., Ruddy, J.A. and Salerno, D.F., 2016. The Statement of Cash Flows and the Direct
Method of Presentation. Management Accounting Quarterly, 17(3), p.1.
Lee, T.A. ed., 2014. Cash Flow Reporting (RLE Accounting): A Recent History of an Accounting
Practice. Routledge.
Lei, J., Qiu, J. and Wan, C., 2018. Asset tangibility, cash holdings, and financial
development. Journal of Corporate Finance, 50, pp.223-242.
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Li, Y., Moutinho, L., Opong, K.K. and Pang, Y., 2015. Cash flow forecast for South African
firms. Review of Development Finance, 5(1), pp.24-33.
Lin, C.C., Chiu, A.A., Huang, S.Y. and Yen, D.C., 2015. Detecting the financial statement fraud:
The analysis of the differences between data mining techniques and experts’
judgments. Knowledge-Based Systems, 89, pp.459-470.
Louis, H., Lys, T.Z. and Sun, A.X., 2014. Conservatism, analyst ability, and forecast error:
evidence on financial statement users' ability to account for conservatism.
Miao, B., Teoh, S.H. and Zhu, Z., 2016. Limited attention, statement of cash flow disclosure, and
the valuation of accruals. Review of Accounting Studies, 21(2), pp.473-515.
Muritala, T.A., 2018. An empirical analysis of capital structure on firms’ performance in
Nigeria. IJAME.
Namazi, M., Shokrolahi, A. and Maharluie, M.S., 2016. Detecting and ranking cash flow risk
factors via artificial neural networks technique. Journal of Business Research, 69(5), pp.1801-
1806.
Penman, S.H. and Yehuda, N., 2015. A matter of principle: Accounting reports convey both
cash-flow news and discount-rate news.
Reid, W. and Myddelton, D.R., 2017. The meaning of company accounts. Routledge.
Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial
statement analysis. John Wiley & Sons.

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Appendix
Statement of Cash flow ($ million)
Particulars 2013 2014 2015 2016 2017
Cash Flows From Operating Activities
Investments losses (gains) 600 563 253 817
Deferred income taxes 2426 1567 3965
Inventory -330 937 526 292 -482
Other working capital 887 582 678 -565 283
Other non-cash items 11495
1220
4 8179 6918 9301
Net cash provided by operating activities 15078
1428
6 9383 8465
1388
4
Cash Flows From Investing Activities
Investments in property, plant, and equipment
-
13001 -8162 -4685
-
3012 -4482
Property, plant, and equipment reductions 354 138
Acquisitions, net 1812 887 -41 761 2675
Purchases of investments -75 -24 -49 -801 -723
Sales/Maturities of investments 224 172 65 582 37
Other investing activities 94 624 110 12 -18
Net cash used for investing activities
-
10946 -6503 -4600
-
2104 -2373
Cash Flows From Financing Activities
Debt issued 3954 442 1837 4413 18
Debt repayment -1832 -3476 -3518
-
9361 -2795
Repurchases of treasury stock -2028 -2083
Cash dividends paid -3322 -3710 -4076
-
2725 -4250
Other financing activities 266 1308 115 182 -31
Net cash provided by (used for) financing
activities -934 -5436 -7670
-
7491 -9141
Effect of exchange rate changes -261 -156 -159 -35 -12
Net change in cash 2937 2191 -3046
-
1165 2358
Cash at beginning of period 7272 1020 1240 9354 8189
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9 0
Cash at end of period 10209
1240
0 9354 8189
1054
7
Free Cash Flow
Operating cash flow 15078
1428
6 9383 8465
1388
4
Capital expenditure
-
13001 -8162 -4685
-
3012 -4482
Free cash flow 2077 6124 4698 5453 9402
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