HI5020 Corporate Accounting Report: Funds, Liabilities, and Assets

This report provides a comprehensive analysis of corporate accounting practices, focusing on the sources of funds, liabilities, and assets of two transportation companies: Alliance Aviation Service Limited and Air New Zealand Limited. The report examines the evolution of these companies' funding sources over a three-year period, differentiating between internal and external funding, and evaluating the merits and demerits of each approach. The analysis includes a review of the types of liabilities found in the companies' balance sheets, with specific attention given to borrowings, deferred tax liabilities, and interest-bearing liabilities. Furthermore, the report delves into the key provisions of AASB 137 concerning provisions, contingent liabilities, and contingent assets, and assesses their implications for the selected companies. The classification of assets, including inventories and trade receivables, is also examined, along with the measurement bases used by the companies for various asset categories, such as cash, inventories, property, plant, and equipment. The report draws its conclusions from the financial statements of the companies, providing a detailed overview of their financial strategies and positions.

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

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Executive Summary
The aim of this paper to understand the different sources of funds used by Alliance Aviation
Service Limited and Air New Zealand. The paper discusses the evolution of the sources of
funds used by these companies over the last three financial years with specific focus on the
changes of different sources of funds. The paper will elaborate on the percentages of funds
that are generated internally and externally of each company. The merits and demerits of the
funds used by the companies will also be discussed based on their reports. Lastly, the paper
will conclude that all the sources of the funds relating to both the companies are discussed,
and different type of assets and liabilities are presented in their consolidated balance sheet.
The assignment will be prepared based on their financial statements.

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Table of Contents
Introduction................................................................................................................................4
1. Different Sources of Funds.................................................................................................4
Equity.....................................................................................................................................5
Retained Earnings..................................................................................................................6
Borrowings.............................................................................................................................6
2. Internal and external fund...................................................................................................7
Internal sources......................................................................................................................7
External sources.....................................................................................................................8
3. Merits and shortcomings of different sources of funds......................................................9
4. Types of Liabilities in Balance Sheet...............................................................................10
Borrowings...........................................................................................................................10
Deferred tax liability............................................................................................................11
Interest-bearing liabilities.....................................................................................................11
Non-interest bearing liabilities.............................................................................................11
5. Key provisions under the AASB 137...............................................................................12
Provisions.............................................................................................................................12
Contingent liabilities............................................................................................................13
Contingent assets..................................................................................................................13
6. Implication of AASB 137 in Air New Zealand Limited Alliance and Aviation services
limited......................................................................................................................................13

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7. Classification of assets......................................................................................................14
Inventories............................................................................................................................14
Trade and other receivables.................................................................................................14
8. Measurement basis of Air New Zealand and Alliance Aviation Services........................15
Cash and cash equivalent.....................................................................................................15
Inventories............................................................................................................................15
Other assets..........................................................................................................................15
Property, plant and equipment.............................................................................................16
Conclusion................................................................................................................................16
References................................................................................................................................17
Appendix..................................................................................................................................20

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Introduction
This paper focuses on two transportation companies that are Alliance Aviation
Service Limited and Air New Zealand Limited. These companies are two well-known
transportation firms, which provide multiple services to the public and companies. They have
a significant presence in Australia, and most of the services are found to be in that region
(Allianceairlines.com.au, 2020). They are accessible for their services at a national level more
than at international level. It is so because of the feasibility of the funds at their disposal. The
headquarter of Alliance Aviation service limited is at Brisbane, Australia while the
headquarters of Air New Zealand Limited is at Auckland, New Zealand Limited
(Airnewzealand.co.nz, 2020). These companies are listed under ASX companies
(Asx.com.au, 2020). This paper discusses these companies and their different sources of
funds over the last three financial years. Also, the percentages of funds that are generated
internally and externally over the previous three financial years can be observed. Lastly, from
this paper, it can be evaluated that the different types of assets that are recorded by these
companies over the last three years and have critically examined by the measurement basis
used by these companies.
1. Different Sources of Funds
The sources of funds of Alliance Aviation Service Limited are equity and preference
shareholdings, borrowing, and retained earnings. Alliance Aviation Services Limited
undertook these different sources during the year 2016-19 to carry out its operations.
The sources of funds of Air New Zealand Limited used for carrying its operations
from 2016-19 are equity and preference shareholdings, secured borrowings, unsecured bonds,

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retained profits provisions, and finance lease liabilities. The crown comprises the major
shareholdings of the company, while others can be purchased by the public.
From the two aviation services giants of New Zealand origin, it can be observed that
Alliance Aviation Service Limited uses more of undisturbed profits and reduce their
dependence on borrowings. Another distinguishing feature that can be noted is that in the
Alliance Aviation Service Limited, the government investment and participation role is much
more than in Air New Zealand Limited, where the crown contribution in abundance to its
sources of funds.
Equity
Equity includes any shares, reserves, and stocks. The owner is the fund of equity
capital.
Air New Zealand Limited
From the last three-year report of Air New Zealand, it has been found that there was a
significant change in the equity fund. The equity share capital and the reserve both are
decreased, reducing the total equity of about $87 million from the previous year. (Total
equity was $2089m in 2019 and $ 2176m in 2018). Based on the report of 2016 and 2017 the
total capital was $2108m and $1986m which shows that though there was a rise in total
equity of $122m, the previous year equity was decreased than that of 2018 which shows that
the companies fund is falling which is an alarm for the company (Air New Zealand annual
report 2018, 2020).
Alliance Aviation Services Limited
The 2017 report shows that the equities of this company amounted to
$181,035,000million, which was increased by $552,000 million from 2016 (Alliance

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Aviation Services Limited annual report 2017, 2020). In the year 2018 the equities were
$183,498,000 million and $187,648,000 in the year 2019. It can be observed that the equities
of this company are increasing significantly, which proves the profitability of the firm, which
mostly affects shareholders.
Retained Earnings
The leftover of the revenue that is absent after the firm pays off its liabilities and
dividend to its shareholders is called Retained Earnings.
Air New Zealand Limited
According to the last three year reports of this company, the company had $(50)
million in their retained earnings, which decreased to ($130) million in the current year 2019.
It can be mentioned that the company had a loss in its current year. The 2017 report also
shows that the retained earnings were at ($252) million, which was ($144) million in the year
2016.
Alliance Aviation Services Limited
The company had $75,660,000 million in their retained earnings in the year 2017,
which was increased to $87,016,000 million in 2018. From the 2019 report, it has been found
that the retained earnings were at $93,472,000 million, which helps the company to generate
more profit and revenue during the year.
Borrowings
Borrowing is a part of liability which the company needs to settle before the due date.
Air New Zealand Limited

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From the 2016 report, the non-current secured borrowing of the company was
increasing from $930 million to $1243 million, rising to $1563 million in 2018, which
increases the creditability of the company. The previous year's report shows that borrowing
has been decreased from $1563 million to $1459 million, which decreases liabilities for the
company and is profitable for the shareholders. The current secured loan was $132m in 2017,
increased to $165m in 2018 and fell in 2019 with $146 million.
Alliance Aviation Services Limited
The financial report of 2017 shows that there was $60,747,000 million in the short
term borrowing (Alliance Aviation Services Limited annual report 2017, 2020) and in 2018,
there was $61,913,000 million in the short term borrowing fund. In the year 2019, the
borrowing fund is decreased to $56,400,000, which, from a functional point of view, also
reduces the liability of the company.
2. Internal and external fund
The evaluation of the percentage of each internal and external fund of a company is
essential to ascertain its profit margin and revenue.
Internal sources
This includes any sources of the fund generated from within the business. These funds
include
Air New Zealand Limited
Retained Earnings of this company were calculated based on the difference between
EPS and dividend paid by the company, which was $2.42m in 2019 and $9.4m in 2018 per
share (Investopedia, 2020). Dividing that with total equity shares showing 0.001168% of

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earning in 2019, 2018 report showing 0.004319% and 2017 showing 0.006545% in earning
that states that the company is generating more earnings compared to the previous year (Air
New Zealand annual report 2017, 2020).
Borrowings of this company include fixed and floating interest rates (i.e.1%) on 31st
December 2018. In the current year (6.0185) % relating to the previous year, 2018 was
25.7441%. The report of 2017 shows 33.6559 % in borrowing funds. It informs that
borrowing fund of this company is decreased massively.
Alliance Aviation Services Limited
Retained earnings of this company were increased to 27.0891 % in 2017 from the
year 2016 (Alliance Aviation Services Limited annual report 2017, 2020). From the year
2018, an increase of 15.01 % can be observed from the year 2017. In the year 2019 7.42 %
increase in retained earning can be perceived.
Borrowings of this company was decreased (6.0687) % in the year 2017 based on
2016. From the 2018 statement, it can be observed that there is a decrease of (.1329) % in
borrowing based on 2017. In the year 2019 (7.97) % decrease can be viewed. From the
report, it can be stated that the liabilities of this company are decreasing and these decrease
helps to increase the revenue of the company.
External sources
Air New Zealand Limited
• Equity share is the external source of the fund. In the 2017 report, the company had a
decrease in (0.6217) % from 2016 in equity shares. The 2019 report, being decreased to
(.3144) %, the profit of the shareholders can be assumed.
Alliance Aviation Services Limited

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• The equity share of this company is the source of funds externally. Based on the 2017
report, it can be observed that there was (.3058) % change in equity share based on 2016
(Alliance Aviation Services Limited annual report 2017, 2020). The 2018 report shows an
increase of 1.3605% in the equity shares based on the previous year (Alliance Aviation
Services Limited annual report 2018, 2020). The 2019 report eventually shows an increase of
2.26 % of equity share capital.
3. Merits and shortcomings of different sources of funds
Alliance Aviation Service Limited: It can be observed that the firm over the last
three financial years has reduced its borrowings as compared to 2017 where the borrowings
[current $142,440,00) fixed , and $607,470,00 was decreased to current loans $365,00,00
fixed $564,000,00 which indicates a positive of the nature of the firms as they need pay high
rate of interest to the lenders and thereby reduces its liabilities to a certain extent (Alliance
Aviation Services Limited annual report 2017, 2020). In a similar way, the firm over its 3
financial years has increased its equity shareholdings. It can be observed that in 2017 equity
shareholding was $181,035,000, while in 2019, equity shareholding was $187,648,000. This
is also a positive step taken by the company as equity shareholdings are not overburdened of
repayment of dividend, which is mandatory to be paid to lenders of the company (Vo and
Nguyen, 2014). Therefore, it can increase its reserves and thereby its reinvestment
procedures. One thing that matters here is that more people or institutions are in equity
shareholdings, which implies more involvement in participation in management, which can
be positive as well as negatives.
Air New Zealand Limited: It can be observed carefully that, contrary to Alliance
Aviation Service Limited, its equity shareholding has incurred marginally while its
dependence on interest-bearing liabilities has invested a relatively higher margin. Like in

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2017, equity shareholding was $198,600,000, and in 2019, the equity shareholding is
$207,100,000 million. Similarly, interest-bearing liabilities are $219,700,000 in 2017, while
in 2019, it is $244,100,000 (Alliance Aviation Services Limited annual report 2019, 2020).
This indicates that on the positive side, its burden to pay interest has also increased to a great
extent, especially in the case of interest-bearing liabilities such as borrowing from lenders.
Now, if compared to both the companies, it can be understood that Alliance Aviation
Service Limited is better off from the viewpoint of funds availability and liability. As it is
less dependent on borrowing, which reduces its permanent burden of repayment of interest of
loans. In the same faction, it is better as it has more availability of payment capital due to its
increased equity shareholdings. A significant positive that Air New Zealand has is that “The
Crown” is the biggest shareholding of the company, which in itself provides stability and
financial assistance, which Alliance Aviation does not have. However, Alliance Aviation
Services Limited, through reinvestment, can counter the deficiency of the Crown and thereby,
it can increase its own equity shareholdings.
4. Types of Liabilities in Balance Sheet
Borrowings
The debt situation of the company determines the borrowing amount. Loans can
improve the credit position of the company. Specific financial restrictions and certain
covenants like different leverage ratios, debt service ratios, and many more have an impact on
working capital and even loan facility of the company. Initially, the recognition of
borrowings done at fair value that is the net worth of transaction cost aroused. Measurement
of borrowings done at amortized costs. The Consolidated Income Statement shows if there is
any distinction between the redemption value and the net worth of transaction costs incurred.

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Different effective methods of interest calculations used for borrowings over the entire period
time (Alderson, Bansal and Betker, 2014). Transaction costs include the fees paid on the
establishment of the loan facility. Only that portion of the amount taken into consideration for
which the facility can be used fully. In this scenario, the rest of the amount treated as a
deferred fee until full utilization.
Deferred tax liability
Deferred tax liability is a liability that the company needs to pay at a future period. It
can be classified as a provision made in the current year for some taxation purposes. Due to
the difference between the rules of financial accounting and tax accounting, deferred tax
liability commonly arises (Bauman and Shaw, 2016). For example, in the fiscal year, money
is due on a current receivable account, and due to this reason, it cannot be taxed; however,
sales done needs to be shown and recorded in the income statement. In the amalgamated
financial statement, deferred tax paid constructed on the variation occurring between the tax
bases of assets and liabilities and their carrying amount.
Interest-bearing liabilities
Different secured and unsecured borrowings bear interest. Different types of floating
charges are there for various bank credits and default services. Recognition of interest-
bearing liabilities done at fair value and measurement done at amortized costs (Claessens,
Coleman and Donnelly,2018). For Alliance Aviation Services Limited (2019 yearly report),
certain financial covenants are there, debt service cover ratio should exceed 1.25 times, 12-
month period leverage ratio of fewer than 2.50 times. For Air New Zealand Limited (2019
interim financial report), fixed interest rates fluctuate from 0.7% to 3.1% in six months to 31
December. 4.25% of fixed interest rates applied to unsecured bonds (Air New Zealand annual
report 2019, 2020).