Corporate Accounting Report: Sources of Funds for ASX Listed Companies

This report analyzes the sources of funds for Evolution Mining and Incitec Pivot over a three-year period, examining their issued capital, reserves, retained earnings, and liabilities. It explores the merits and demerits of each funding source, including trade payables, interest-bearing liabilities, and issued capital, and assesses how each company utilizes these sources. The report details the companies' liability structures, including current and non-current liabilities, and their compliance with AASB 137 regarding provisions, contingent liabilities, and assets. It also identifies the categories of assets used by each company and their respective measurement bases, such as cash and cash equivalents, receivables, inventories, and property, plant, and equipment, providing a comprehensive overview of their financial strategies and accounting practices. The analysis is based on the companies' annual reports, offering insights into their financial health and operational decisions.

CORPORATE ACCOUNTING
EVOLUTION MINING GROUP &
INCITEC PIVOT LIMITED

SOURCES OF FUNDS
Evolution Mining: Issued capital, reserves, retained earnings, trade and other
payables and interest bearing liabilities (evolutionmining.com.au 2020).
Incitec Pivot: Trade and other payables, interest bearing liabilities, issued
capital, reserves and retained earnings (investors.incitecpivot.com.au
2020).

SOURCES OF FUND EVOLUTION
Evolution Mining: Trade and other payables have decreased from 2017 to 2018 and have
increased in 2019. Current interest bearing liabilities have registered an increasing trend
from 2017 to 2019 while the non-current interest bearing liabilities have continuously
decreased from 2017 to 2019. There has not been any change in the issued capital from 2017
to 2019. However, the company has continuously increased its reserves from 2017 to 2019.
In 2017, the company reported accumulated losses of $94,270,000 instead of retained
earnings. However, improvement in this situation can be seen in 2018 when the company
reported retained earnings of $59,260,000 (evolutionmining.com.au 2020).
Incitec Pivot: There has been a continuous increase in the trade and other payable of the
company from 2017 to 2019. The company has reported a huge increase in the current
interest bearing liabilities from 2017 to 2019. There has been a continuous decrease in the
non-current interest bearing liabilities of the company from 2017 to 2019. The same trend
can be seen in the issued capital of Incitec Pivot. The presence of negative reserves can be
seen in 2017 to 2019 which denotes the presence of accurate losses. However, Incitec Pivot
has been able in reducing this loss significantly from 2017 to 2019. Retained earnings of
Incitec Pivot have increased from 2017 to 2019 continuously. On the overall, increase in the
company’s funds can be seen over the last three years (investors.incitecpivot.com.au 2020).

PERCENTAGE OF FUNDS
Evolution Mining
Particulars 2019 ($000) % 2018 ($000) % 2017 ($000) %
Externally Generated Funds
Trade and other Payables 156828 5.49% 152367 5.39% 156627 5.76%
Interest bearing Liabilities (Current and non-current) 293433 10.27% 385966 13.65% 436124 16.03%
Issued capital 2183727 76.44% 2183727 77.25% 2183727 80.25%
Total 2633988 92.20% 2722060 96.30% 2776478 102.04%
Internally Generated Funds
Reserves 72379 2.53% 45407 1.61% 38795 1.43%
Retained Earnings 150372 5.26% 59260 2.10% -94270 -3.46%
Total 222751 7.80% 104667 3.70% -55475 -2.04%
Total Funds 2856739 100.00% 2826727 100.00% 2721003 100.00%
Incitec Pivot
Particulars 2019 ($mill) % 2018 ($mill) % 2017 ($mill) %
Externally Generated Funds
Trade and Other Payable (Current and non-current) 1169.4 13.74% 1058.6 12.96% 1058.6 13.17%
Interest bearing Liabilities (Current and non-current) 2656.4 31.20% 2374.8 29.06% 2224.1 27.68%
Issued capital 3136.8 36.84% 3226.5 39.49% 3436.8 42.77%
Total 6962.6 81.78% 6659.9 81.51% 6719.5 83.62%
Internally Generated Funds
Reserves -19.9 -0.23% -55.4 -0.68% -197.9 -2.46%
Retained Earnings 1570.9 18.45% 1566.6 19.17% 1514.2 18.84%
Total 1551 18.22% 1511.2 18.49% 1316.3 16.38%
Total Funds 8513.6 100.00% 8171.1 100.00% 8035.8 100.00%

MERITS AND DEMERITS OF SOURCES
OF FUNDS
Trade and Other Payable
Merit
• It is an easy and automatic source of short-term funds.
• It assists the businesses in focusing on the core activities.
• There is no need of formal agreement or negotiation in this (Bastos and Pindado 2013).
Demerit
• Only companies with good track record of repayment can avail the opportunity of trade and other payable.
• It can be very expenses in case payment is not made in due date (Desai, Foley and Hines Jr 2016).
Interest Bearing Liabilities
Merits
• It helps the companies in retaining the ownership of the business.
• Tax deductions facility can be availed on the payment of interest.
• Businesses get more freedom and flexibility by using interest bearing liabilities (Jackson and Victor 2015).
Demerits
• It puts the obligation on the companies repay the principal amount with interest.
• This affects the credit rating of the businesses.
• Companies need to consider the cash requirement of the lender (Claessens, Coleman and Donnelly 2018).

MERITS AND DEMERITS OF SOURCES
OF FUNDS
Issued Capital
Merits
• This does not have any repayment requirements unlike interest bearing liabilities.
• Lower risk of insolvency is involved in the use of issued capital.
• This brings in new partners who share the business risks (Fatoki 2014).
Demerits
• Dilution of ownership of business is a main disadvantage of this which means loss of control over the business.
• Despite of the absence of any interest payment, it has higher overall costs as compared to debt financing
(Bhattacharya and Londhe 2014).
Reserves
Merits
• It plays a crucial role in supplying the additional working capital.
• This can be used for meeting unknown and unforeseen crisis.
• This strengthens the companies’ financial position (Caglayan and Demir 2014).
Demerits
• Due to the development of reserves, shareholders cannot get fair amount of dividend.
• It is difficult to ascertain reserve funds.
• This does not reflect on the companies’ real profit.
• It is not possible for all companies to make reserves (Osei-Assibey 2013).

MERITS AND DEMERITS OF SOURCES
OF FUNDS
Retained Earnings
Merits
• It provides financial stability to the companies by strengthen the financial position.
• This provides the shareholders stable dividend even in the absence of adequate profit.
• This helps in increasing the market value of the companies (Christensen, Cottrell and Baker
2013).
Demerits
• This can contribute to sloppy utilization of funds unless used for proper purpose.
• This can lead to over-capitalization in the presence of conservative dividend policy.
• Shareholders cannot avail the full benefit of the company’s actual earnings in the presence of
retained earnings that may develop dissatisfaction among the shareholders (Allen, Qian and
Xie 2019).

LIABILITY TYPES
• It can be observed from the annual reports of 2017, 2018 and 2019 of Evolution Mining and Incitec Pivot that
both these companies have followed the current/non-current presentation format for presenting the
consolidated balance sheet (evolutionmining.com.au 2020).
• These two companies have segregated their liabilities into two parts that are current liabilities and non-current
liabilities (investors.incitecpivot.com.au 2020). Current liabilities are the short-term business obligations of
these companies that are due and payable within 12 months of reporting date; and non-current liabilities are
the long-term obligations of these companies that are due after 12 months or more after the reporting date.
• Current liabilities of these companies include trade and other payable, interest bearing liabilities, current tax
liabilities, provisions, other current liabilities (Bobryshev et al. 2014).
• Non-current liabilities of these two companies include trade and other payables, interest bearing liabilities,
other financial liabilities, provisions, deferred tax liabilities and retirement benefit obligations (Carpenter et
al. 2013).
• Interest bearing liabilities are the debts that cost money to the companies for holding. This includes the
financial debts on which the companies have to pay interests on periodic basis. In Evolution Mining, the
interest bearing liability is the bank loans. In case of Incitec Pivot, the interest bearing liabilities are other
loans, loans from joint ventures and fixed interest rate bonds. It is the obligation on these two companies to
make interest payments on these interest bearing liabilities. However, trade and other payables can also be
considered as interest bearing liabilities when they are being paid after several months of the due date as this
requires payment of interests.

KEY PROVISIONS OF AASB 137
• Para 14 states that an entity needs to recognize a provision by having a present obligation because of any
past event that requires probable future outflow of resources in the presence of a reliable estimation
(aasb.gov.au 2020).
• Para 27 states that there is no need to recognize a contingent liability.
• Para 28 states that an entity needs to disclose the contingent liability unless there is remote possibility of
the outflow of resources representing economic benefit.
• Para 31 states that there is no need for recognizing a contingent asset.
• Para 34 states that an entity discloses a provision when there is a probable outflow of economic benefit
(aasb.gov.au 2020).
• Para 36 states that the amount that an entity has recognized as provision shall be the best estimate of the
expenditure needed for settling the present obligation at the end of the reporting period.
• As per Para 42, in order to reach to the best estimate of a provision, the risks and uncertainties that
unavoidably encircle many events and situations need to be taken into consideration (aasb.gov.au 2020).
• Para 84 states that disclosure of provision includes its carrying amount, additional provision made, amount
used, unused amount and increase during the period.
• Para 85 states that an entity needs to disclose certain aspects on each class of provision; they are brief
description on its nature and obligation, an indication of uncertainty and the amount of any unexpected
reimbursement (aasb.gov.au 2020).

REFERENCE RELATED TO AASB 137
The analysis of the annual reports of Revolution Mining and Incitec Pivot crearly indicates towards the fact that
both of these companies have referred to the provisions of AASB 137 in order to account for provisions,
contingent asses and contingent liabilities. These are discussed below:
• Both Evolution Mining and Incitec Pivot have recognized provisions that are employee benefits and
rehabilitation for Evolution Mining and employee entitlements, restructuring and relationship,
environmental, asset retirement obligation and legal and others for Incitec Pivot as these are the past events
for which these companies have present obligations; and both these companies have provided appropriate
estimation of the amounts. The estimations and judgments have been disclosed by both of these
companies. In the notes related to provision, both of these companies have disclosed the class of each
provision along with the necessary description and obligations (evolutionmining.com.au 2020).
• These companies have disclosed the carrying amount value provision along with provision made during
the year, used provision, unused provision and others. All these indicate towards the compliance with
AASB 137 by these companies (investors.incitecpivot.com.au 2020).
• In line with the provisions of AASB 137 for contingent assets and contingent liabilities, contingent
liabilities and contingent assets have not been recognized by these companies in the financial statements.
However, the managements of these companies have disclosed the required information associated with
these substances in the associated notes in the presence of remote possibility of outflow of economic
benefits.

CATEGORIES OF ASSETS
Evolution Mining
Assets under current asset include cash and cash equivalents, trade and other receivables,
inventories and current tax receivables. Assets under non-current assets of this company include
inventories, Equity investments at fair value through other comprehensive income, Property, plant
and equipment, Mine development and exploration, Deferred tax assets and Other non-current
assets (evolutionmining.com.au 2020).
Incitec Pivot
Current assets include cash and cash equivalents, trade and other receivables, inventories, other
assets and other financial assets. The assets under non-current assets of the company are trade and
other receivables, other assets, other financial assets, equity accounted investments, property, plant
and equipment, intangible assets and deferred tax assets (investors.incitecpivot.com.au 2020).

MEASUREMENT BASIS
Evolution Mining
• Cash and Cash Equivalent – Both cash at bank and cash in hand are recognized under cash
and cash equivalent. These are current assets due to the original maturity of three months.
• Trade and Other Receivable – Evolution Mining recognizes the trade and other receivable
initially at fair value and the subsequent measurement is done at amortized cost through the
use of effective interest methoD (evolutionmining.com.au 2020).
• Inventories – Inventories include ore stockpiles, gold dore, metal in transit, metal in circuit,
refined gold bullion and others that are measured at the lower of cost or net realizable value.
This accounting treatment is in line with AASB 102 Inventories(aasb.gov.au 2020).
• FVOCI – There has been changes in the accounting for FVOIC due to the adoption of AASB
9 Financial Instruments in the place of AASB 138 Financial Instruments. These are
recognized at fair value and they are not for the purpose of trading (evolutionmining.com.au
2020).
• Property, Plant and Equipment – In line with AASB 116, property, plant and equipment is
measured at cost less accumulated depreciation and impairment. These are subjected to
deprecation at straight line.