Corporate Accounting Report: BHP Billiton Financial Analysis

This report provides a comprehensive analysis of BHP Billiton's corporate accounting practices. It begins with an executive summary and table of contents, followed by an introduction outlining the importance of financial statement analysis. The discussion section delves into the qualitative characteristics of financial reports, focusing on relevance and comparability, using BHP Billiton's financial statements as examples. It also examines BHP's environmental practices and disclosure reports, including climate change initiatives and energy consumption reporting. The report offers recommendations to BHP's management for strengthening disclosure compliance, emphasizing the need for clear data presentation and comparable environmental reports. Part B explores pre-acquisition entries, dividend considerations, and the differentiation between pre and post-acquisition dividends, alongside a discussion of goodwill calculation methods (partial and full). The report concludes by summarizing the key findings and insights into BHP Billiton's corporate accounting strategies.

Running head: CORPORATE ACCOUNTING
Name of the Student
Name of the University
Author note

1CORPORATE ACCOUNTING
Executive Summary:
The following report deals with the various kinds of disclosure reports and their
contents of BHP Billiton Company. It delves into the specific areas of the disclosure reports
of the company in order to portray a clearer understanding of the same. In this way, certain
important merits of the disclosure report of the company has also been mentioned and some
useful suggestions towards the management of the company for successful reporting in the
future has also been provided. Along with this the important aspects of amalgamation and the
relative adjustment entries in the case of pre and post-acquisition dividends have also been
mentioned in this report.

2CORPORATE ACCOUNTING
Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................3
Part A:....................................................................................................................................3
Part B:.....................................................................................................................................8
Conclusion:..............................................................................................................................11
References:...............................................................................................................................12

3CORPORATE ACCOUNTING
Introduction:
Analysis of the financial statements of any company plays a vital role in the arena of
corporate accounting. These financial statements serve as the performance report card of the
company’s annual performance. The importance of the consolidated balance sheet,
comprehensive income statement, cash flow statement and the statement showing equity
changes, cannot altogether be ignored, as they serve as the most important source of
information for the stakeholders of the company. With these things at the very core of this
report, it tends to provide examples of the various qualities of the financial statements, its
environmental practices, the various information disclosures and some recommendations to
the top management regarding the disclosure compliance. Along with this, acquisition related
adjustments have been discussed. All these things have been compiled and discussed in the
context of BHP, Billiton, which is the largest mining company in the world, in terms of the
market capitalisation (Finance.yahoo.com, 2018). The aim remains to enquire into the various
intricacies of corporate accounting with the help of a standard company, BHP.
Discussion:
Part A:
1) a The qualitative characteristics of any company’s financial reports is mainly
consists of reliability, comparability, understand ability and reliability. Here, only the
principles of comparability and relevance of the financial statements with reference to
BHP’s financial statements.
Relevance: The relevance feature of the financial statements states that the financial
reports and the statements must be relevant to the various kinds of needs of the different

4CORPORATE ACCOUNTING
stakeholders of the company. As these, statements play a vital role in the economic
decisions taken by the stakeholders, as a result of which the proper care must be taken in
the preparation of the financial statements. Therefore, this involves reporting of relevant
information whose omission could lead to vital repercussions. Dividend payment, total
income for the period, net cash flow at the end of the year are some of the most relevant
aspects of BHP’s financial statements, some of which have been listed below:
Dividend Payment for 2017:
(Source: BHP Billiton, 2018)
Cash flow at the end of 2017:
(Source: BHP Billiton, 2018)
Comparability: Comparability of the financial statements is the most significant aspect
with regards to the preparation of the financial statements. If the investors are not able to
gauge the returns from the different financial reports, then the preparation of the financial
reports would be worthless. Moreover, it is useful for identifying the trends in the
performance as well as the financial health of the company. Some of the most compared
items are net profit and the financial activities of the company, some of which of BHP
have been provided below:

5CORPORATE ACCOUNTING
Summary of the cash flow from financing activities:
(Source: BHP Billiton, 2018)
1)b NHP, being one of the largest mining company of the world, consider it their
foremost duty to protect the natural resources of the earth, in whatever way possible. The
company has a special portion in its annual report, which caters to the sustainability of the
company and the concern for the other natural resources and the overall people in general.
Health, safety, environment and the welfare of the community are integrated into the
daily activities of the company (BHP Billiton, 2018). The company has a separate section
under the sustainability portion of the annual report, dedicated to the disclosure of the
environmental reports. The company discloses the following portion under the head of
environmental disclosure in its annual report:
 The environmental head of the annual report provides innate information in the
report about vital economic and natural resources such as water, land and
biodiversity.
 The company finances the ongoing environmental projects which are concerned
with high biodiversity and ecosystem by way of setting specific targets. The
company also uses lower quality water as and when feasible.

6CORPORATE ACCOUNTING
 Climate change is another area, where BHP has been playing a major role. It has
joined hands with governments, other corporates and NGOs for protecting the
climate. The company has worked in its Carbon Disclosure Project, which has
resulted in significant reduction and improvement in the CDP scores since the
fiscal year of 2013. The climate related disclosures of BHP has been provided
below. It is aligned with the TCFD recommendations (Taskforce on Climate
Related Disclosures), and has comprehensively stated all the TCFD
recommendations, the disclosures in relation to them.
(Source: bhp.com, 2018)
2. BHP has made a comprehensive and a robust disclosure report, which has almost
touched almost all the important aspects of the company’s performance. Being a mining

7CORPORATE ACCOUNTING
company, it has, reportedly disclosed various important aspects of its mining and other
environmental related activities. The main heads of its disclosure reports are concerned
with the following:
 Climate change
 Tax and Transparency
 Accurate and comprehensive annual financial statements
 Environmental report
 Anti-competitive policy
 Anti-corruption
 Energy consumption report.
The company has provided a sufficient amount of information about each of the topic which
plays a vital role in its mining operations. Be it climate change or any other aspect of the
environment, where the company has a significant amount of influence due to its mining
operations. BHP has also been very efficient in the presentation of its energy consumption by
stating the greenhouse emissions of the company. Along with this, the company has also been
very vocal about the anti-corruption as well as the anti-competitive policy, with a view of
being an example to the other companies in and around the world. Thus, it can be said that
the company has become very vocal about all the important things associated with its
business, which can lead to the establishment of the fact that the company has provided
sufficient amount of items in its disclosure reports.
3. The two most important recommendations to the management of BHP for
strengthening its compliance with the disclosure reports of the company are as follows:
 One of the most important aspects of the disclosure reports of the company is the
accurate, friendly and adequate representation of all the important aspects of the

8CORPORATE ACCOUNTING
company. This requires the company, to provide a robust, pictorial presentation of all
the data associated with the company’s financial performance along with the
company’s environmental, biodiversity reports. Only when the users of the financial
information could understand the financial reports of the company, then only it will be
considered as successful. BHP must properly publication of pictorial presentation of
data more extensively.
 The company must also try to present the environmental impact and climate change
reports more quantitatively, by way of graphs and tables. This will help the users of
financial statements to have a better view of the reports. Along with this, the company
must provide more past information about the environmental and other significant
aspects of the sustainability report in order to provide a comparable report (Dobele, et
al., 2014). For example, the environmental disclosure as well as the climate change
report of the company for the year must be present in a tabular form with all the
impact and implications of the previous year, such as 2016. This will create a
comparable data, which will be more helpful in gauging the overall impact of the
company’s ecological exploits, while performing its mining related activities.
Part B:
1. There are various important considerations which work behind the purpose of pre-
acquisition entries in the preparation of the consolidated financial statements. Some of
the most important ones are:
 To prevent the double counting of the assets of the concerned company.
 It is also done in order to prevent the double counting the equities of the
concerned company.
 For the purpose of recognising any kind of gain or bargain purchase for the
company.

9CORPORATE ACCOUNTING
2. There are two main conditions which are to be taken care of when the case of
payment of dividend on the date of acquisition of the company is being done. The two
conditions are as follows:
 Payment of Cum dividend: If on the date of acquisition, dividend is paid by the
subsidiary company, in such a case, if it is found out that the dividend is
declared and is included with the final amount, then that dividend is to be
included and an entry must be passed in the books for it. Thus in the case of
cum dividend, even if it is paid as on the date of acquisition, it would be
considered and would be deducted from the total acquisition value of the
amalgamation. This signifies the acceptance of the dividend as on the date of
acquisition (Ljungvall and Patel, 2014). If during the middle of the year, if it
is again repeated, then the normal process of taking the dividend into account
is done by the company and is consequently adjusted in the consolidated
financial statements at the end of the year.
 Payment of ex-dividend: If the subsidiary company is paying ex-dividend on
the date of acquisition, then that dividend payment is not included and is
consequently not accounted for during the preparation of the financial
accounts.

10CORPORATE ACCOUNTING
3. The differentiation into the pre and post dividend portions are very significant from
the financial perspective of the company. When the dividend is declared from the pre-
acquisition profits and later on received by the buyer of the investment, then such
amount of investment is completely deducted from the total cost of the investment.
Therefore, dividend received from the pre-acquisition profit is known as pre
acquisition dividend. Post-acquisition dividend is credited to the profit and loss
account of the company, consequently, dividend received from the post-acquisition
profits is known as the post-acquisition dividend (Mall, C.P. and Singh, 2013). For
this purpose of differentiating their source of origination, these two dividends are
separated from the by the suffixes of pre and post.
4. In the process of acquisition analysis, the monetary consideration transferred is
compared to the different kinds of identifiable net assets of the subsidiary company
which have been acquired. In addition to this, any goodwill which is present in the
financial books of the subsidiary company does not qualify as an identifiable asset of
the company. In the books of accounts of the subsidiary company, the goodwill is not
at all considered, which has been recorded in the books of the subsidiary company.
In this case, there are two main methods of calculating goodwill which are the partial
goodwill method and the full goodwill method. In each of these cases, there are separate
treatment for the goodwill which is received from the subsidiary company on the date of
the company (Lombrano and Zanin, 2013). In the case of the partial goodwill method,
only the goodwill which is received from the transaction is recorded in the books of
accounts of the company. This does not happen in the case of the full goodwill method. In
the case of the full goodwill method, there are some reservations, in this case. The
company includes both the goodwill which is received from the subsidiary as well as the
one which is earned from the transaction of the company. The company ultimately

11CORPORATE ACCOUNTING
calculates the differences between the two, which is ultimately taken as the goodwill of
the parent company.
5. In the case, when the parent acquires a controlling interest in a subsidiary, the
carrying amounts of the subsidiary’s assets are not equal to fair value, which is a
common phenomenon, as there are certain adjustments which needs to be made in this
regard.
One of the most important factors behind the compulsion of all these adjustments is
the fact that there remains a net fair value of the assets which are actually acquired
during the entire; process of amalgamation or consolidation. When a particular
company acquires any kind of assets due to the process of amalgamation from the
group of assets of another company, then certain amount of adjustments becomes
necessary (Ina and Adriana., 2013). This is because, when the company acquires any
asset, during this process, the asset has some specific amount of fair value and a
specific amount of market value. Difference between the two exists, all the time, as a
result of this, to provide a true and fair view of the financial statements, the asset is
shown in the current net value, in the consolidated financial statements. Failing to do
so, would lead to payment of more taxes, if the market value or the book value has
been considered, ignoring the net present value. This would cause a loss to the
company.
Conclusion:
One of the most important aspects of corporate accounting is the presence of the
disclosure reports of the activities of the company. It is one of the most significant
performance measure of the company and deals with the important aspects of the various
kinds of operations conducted by it under the radar. A company which is presenting a vivid