Corporate Accounting and Financial Analysis of AGL Energy Limited

This report provides a detailed corporate accounting analysis of AGL Energy Limited, an ASX-listed public company. It examines the company's cash flow statement, dissecting operating, investing, and financing activities, and analyzes changes in these areas over three years (2015-2017). The report also covers other comprehensive income statement items such as gains/losses on defined benefit plans and cash flow hedges. Furthermore, it delves into the accounting for corporate income tax, including tax expenses, benefits, deferred tax assets, and liabilities. The analysis includes insights into the company's financial strategies, such as share buybacks and dividend payments, and their impact on cash flow and shareholder value.

Running head: CORPORATE ACCOUNTING FOR AGL ENERGY LIMITED
Corporate Accounting for AGL Enrergy Limited
Name of the University:
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1CORPORATE ACCOUNTING FOR AGL ENERGY LIMITED
Table of Contents
Cash Flow Statement.........................................................................................................2
Requirement (i):...............................................................................................................2
Requirement (ii):..............................................................................................................4
Other Comprehensive Income Statement:...........................................................................5
Requirement (iii):.............................................................................................................5
Requirement (iv):.............................................................................................................5
Requirement (v):..............................................................................................................6
Accounting for Corporate Income Tax:..........................................................................6
Requirement (vi):.............................................................................................................6
Requirement (vii):............................................................................................................6
Requirement (viii):...........................................................................................................7
Requirement ix.................................................................................................................7
Requirement x..................................................................................................................8
Requirement xi.................................................................................................................8
References..........................................................................................................................10

2CORPORATE ACCOUNTING FOR AGL ENERGY LIMITED
Cash Flow Statement
Requirement (i):
AGL Energy Limited is the organization that has been selected for this assignment. AGL
Energy Limited is one of the major power suppliers in Australian and is a public company which
is listed on the Australian Securities Exchange (ASX) with a ticker symbol of AGL
(AGLEnergyLimited.com. 2018). The cash flow statement of an organization is the statement
which reflects the cash generating capacity of an organization through three different activities.
The cash flow statement of this organization is differentiated into three sections of activities that
are operational activities, investing activities and financial activities. The line item of the cash
flow statement and their segregation as per the activities are as follows:
Cash Flow from Operating Activities:
The line items within this section of the cash flow statement are mostly the direct
expenses or income associated to the operations (Balakrishnan, Watts and Zuo 2016). The items
which are included in the cash flow from operations are payment to the employees or the
suppliers, finance income, receipts from customers, any operational costs paid and other payment
or receipts during normal operation of the organization. The receipts from the customer are the
amount that is gained from credit sales. AGL Energy limited has $13,552 million of due from
customers in 2017 against $11,903 million in 2016 (Reid and Myddelton 2017). The payment to
the suppliers and the employees of the organization are its obligation against credit purchase and
salaries paid to employees. AGL Energy Limited observed a hike in the payment to suppliers and
employees as it implies further purchase and recruiting more people to its team. Finance income
on the other hand, is the amount which is repaid on demand within a specific timeline. The

3CORPORATE ACCOUNTING FOR AGL ENERGY LIMITED
finance income of the company remained stable in 2017 in contrast to 2016. Finance cost on the
other hand is the liability of the organization which has increased for AGL Energy Limited in
2017. The dividend received by the company has also increased in 2017 against 2016.
Cash Flow from Investing Activities:
The line items under this section of the cash flow statement are generally the payment as
well as proceeds from property, plants & equipment, payment for investment in associates and
joint ventures, payment for other assets (Warren and Jones 2018). Such assets are the symbol of
the economic situation of the organization which provides the organization with economic
benefit. It is clearly seen that AGL Energy Limited has used a lot of cash in the investing
activities which implies that the company has been investing in plant, property and equipment
which is the sign of expansion. In case of this organization, the activities from investments have
both sale as well as purchase of plant and property but the purchase is much higher than the sale.
Other than this, the company has invested in other assets, associates and joint ventures and even
purchased some financial assets. The government grants received in 2017 is lower than that of
2016 (Watson 2015).
Cash Flow from Financial Activities:
The line items under this section are the payment of or the proceedings from the
borrowings, equity distributions as well as some other items. The line item ‘borrowing’ could be
defined as the amount paid to a borrower in the term of lending under the loan agreement. The
AGL Energy Limited clearly signifies that both the proceeding from as well as repayment of
borrowing has been increased significantly on the yearly basis (Brown, Preiato and Tarca 2014).
The company has paid a huge amount for buying back its own shares. This could be considered

4CORPORATE ACCOUNTING FOR AGL ENERGY LIMITED
as a strategic move of the organization wherein the company avoids some other party to interfere
with their internal matter through their power of holding the company’s share. Moreover, the
company also paid a massive amount as dividend to keep the loyalty and trust of its shareholders.
Requirement (ii):
As per the financial statement of AGL Energy Limited, the three sections of the cash flow
statement which is comprised of cash from operating activities, investing activities and financing
activities. The comparative statement of all the section for three years is as follows:
2015 2016 2017
-2500
-2000
-1500
-1000
-500
0
500
1000
1500
Main Item of CashFlow Statement of AGL Energy
Limited
Net Cash From Operating Activities Net Cash From Investing Activities
Net Cash From Financing Activities
Amount in Millions AUD
In the above-mentioned figure, it can be clearly seen that the cash flow from operating
expenses has declined in 2017 though it increased a little in 2016 against 2015. This signifies
that the company has been unable to generate much from its operating expenses due to higher
cash payment to the suppliers and the employees. On the other hand, cash from investing
activities have gone to negative in 2017. Though the same has witnessed a massive change in
2016 against what it was in 2015 but again it went down. This signifies that the company has

5CORPORATE ACCOUNTING FOR AGL ENERGY LIMITED
been investing highly in purchase so as to expand its business and improve its operations further.
Finally, the cash from the financing activities also saw a huge decline in 2017. The same has
been negative consecutively from three years from 2015 to 2017 but the same has decreased in
comparison to the 2016 (Schaltegger and Burritt 2017). Hence, in 2017, AGL Energy Limited
saw decline cash from operating activities, negative cash flow from investing activities and
financing activities.
Other Comprehensive Income Statement:
Requirement (iii):
The line items within the comprehensive income statement of GL Energy Limited
comprises of gain or loss on the defined benefit plans, income tax benefit or expense, cash flow
hedges reserve (Chen, Ding and Xu 2014).
Requirement (iv):
The gain or loss on the defined benefit plans in other terms known as the actuarial gain or
loss. It could be considered as the actual evaluation of the value of the organization’s defied
obligation which might include pension plan (Nejad and Ahmad 2017). Such value is highly
influenced by the discount rate of the benefit payment’s present value or its rate of return. As this
is an actual assumption, hence the gains or losses from the same are amortized through the
comprehensive income statement in the annual reports. Moreover, the cash flow hedge that is
present in the statement is the step to contain the risk exposure due to parity in assets and
liabilities in cash flow (Christensen, Lee, Walker and Zeng 2015).

6CORPORATE ACCOUNTING FOR AGL ENERGY LIMITED
Requirement (v):
The comprehensive income statement could be considered as the expansion to the net
income. AGL Energy Limited provides this statement in order to reflect the detailed information
about the aforementioned items and their appropriate values. The primary reason of listing such
items to the comprehensive statement is that such items provide a holistic overview of the factors
that influences the operations of the business (De Simone 2016). However, being comprehensive
and holistic in nature, these items are not included in the income statement.
Accounting for Corporate Income Tax:
Requirement (vi):
Tax expense of an organization could be considered as one of the most important
obligation as it is directly concerned to the government of the country in which the organization
is operating in. AGL Energy had incurred tax expense in 2017 but it had tax benefit in 2016
which adjusted its tax obligation during the period. In 2017, the company had a tax expense of
$225 million while it had a tax benefit of $67 million in 2016 (Graham and Lin 2018).
Requirement (vii):
As per the financial statement of AGL Energy Limited in 2017, the organization
witnessed a profit in 2017 but incurred a loss before the computation of income tax in 2016. It
can be easily identified from the financial statement of the energy supplying firm that it charged
30% corporate tax rate on its profit before tax. Hence, it can be seen that the organization had a
profit of $764 million in 2017 and a corporate tax rate charged on it will get a tax expense of
$225 million. However, in case of the same in 2016, the organization incurred a loss of $474
million but had a tax benefit of $67 million (Marchini and D'Este 2015).

7CORPORATE ACCOUNTING FOR AGL ENERGY LIMITED
Requirement (viii):
The tax is generally calculated on the basis of the income generated by the organization
in a specific time period. The country in which the company is operating charges a certain
amount of corporate tax on the income generated. However, the government of the country
calculates the tax for a certain period and it might happen that it is different from the period
which the company considered for its annual reports (Kim and Zhang 2016). This might create a
difference in the taxable profit and hence the tax amount is influenced. In case the company’s tax
amount is higher than that calculated by the income tax and the company pays the same, the
extra amount is considered as tax assets and is adjusted in next year but if the case is opposite,
then the amount becomes a tax liability and company is obliged to pay the same. In case of AGL
Energy limited, the deferred tax asset in 2017 was $792 million against $953 million in 2016.
However, the deferred tax liability was measured at $13 million in 2017 against $102 million in
2016.
Requirement ix
The payable income tax along with the recent tax asset is a vital asset for the Australian
companies such as AGL Energy Limited. Focused on the yearly statement of this selected
company, it has been gathered that the recent tax assets include certain anticipated payable as
well as receivable tax on the income that is taxable or los for a definite time period. The gain or
loss on the defined benefit plans in other terms known as the actuarial gain or loss. It could be
considered as the actual evaluation of the value of the organization’s defied obligation which
might include pension plan (Nejad and Ahmad 2017). They are also measured with facilitation o
the rates of tax along with laws related with tax enacted at the end of the reporting year. In
contrast, in case of AGL Energy Limited it has been observed that the company has attained

8CORPORATE ACCOUNTING FOR AGL ENERGY LIMITED
income tax advantage of around $201.9 million in the year 2016 and $103.8 million in the year
2017. Moreover, these amounts are also observed to be reflected within the reconciliation of net
loss segment to the cash flow attained from business operations within the annual report. The
major cause for which such aspects indicate the identical values is that no increased tax expenses
are experienced on the behalf of the company in both the two years.
Requirement x
After evaluating the yearly financial statements report disclosed by AGL Energy Limited
it has been gathered that for the year 2017, this company has not indicated to experience ant
expenses related with income tax for the two years from 2016 to 2017. The cash flow statement
of an organization is the statement which reflects the cash generating capacity of an organization
through three different activities. In addition, it has also earned exemptions on income tax in
both these years for this is the vital reason because of which income tax is paid and is not
encompassed within an item mentioned in the company’s statement of cash flows (Khan,
Serafeim and Yoon 2016).
Requirement xi
After carrying out detailed assessment of the tax treatment of AGL Energy Limited
Company, a surprising aspect that has been noticed is that the company has dealt with extreme
loss before experiencing the expense for income tax in the two years such as 2016 and 2017.
This is because of which the company has attained a huge income tax exemptions. For this
reason, it has turned out to be difficult to associate the real paid tax expense with the existing rate
of tax within the country that is Australia (Henderson et al. 2015). Conversely, as there is no
expenses related to income tax that has been paid by the company, there is no disclosure of
taxable income within the AGL Energy Limited Company statement of cash flows. Additionally,

9CORPORATE ACCOUNTING FOR AGL ENERGY LIMITED
the company has also made important disclosures concerning the benefits of taxable income
attained along with it has facilitated in attaining knowledge related with tax treatment of this
Australian organization.

10CORPORATE ACCOUNTING FOR AGL ENERGY LIMITED
References
AGLEnergyLimited.com. 2018. Retrieved from https://www.
AGLEnergyLimited.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/2017-
annual-report.pdf
Balakrishnan, K., Watts, R. and Zuo, L., 2016. The effect of accounting conservatism on
corporate investment during the global financial crisis. Journal of Business Finance &
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11CORPORATE ACCOUNTING FOR AGL ENERGY LIMITED
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