Corporate Accounting: Funds, Liabilities, and Asset Measurement

This report provides a comprehensive analysis of corporate accounting practices, focusing on the financial reporting of BHP Billiton Ltd and Boral Ltd, both operating in the mining and material extraction industry. The assessment scrutinizes the companies' sources of funds (equity and debt), their capital structures over a three-year period, and the advantages and disadvantages associated with each funding source. Furthermore, it examines how the businesses report liabilities, provisions, contingent liabilities, and contingent assets, with a specific focus on the application of AASB 137 'Provisions, Contingent Liabilities and Contingent Assets'. The report also covers the classification of assets and the recognition criteria employed by the companies. The analysis includes an examination of the companies' annual reports, providing insights into their financial strategies and compliance with accounting standards.

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

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Abstract
The focus of the assessment is to comment on the reporting process which is followed
by two companies which belong to the same industry. The companies which are
selected are BHP Billiton ltd and Boral Ltd. The assessment compares the sources of
capital which is used by the businesses and relative advantages and disadvantages
associated with the same. The analysis also presents reporting process which is
followed by the management of the company for reporting assets and liabilities of the
businesses. The assessment also shows if the business has appropriately presented
the contingent liabilities and provisions for the business.
Table of Contents

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Introduction........................................................................................................................3
Discussion..........................................................................................................................3
Sources of Funds...........................................................................................................3
Changes in the Sources of Funds..................................................................................4
Different Sources of Funds (Percentage)......................................................................5
Advantages and Disadvantages of Different Funds......................................................5
Liabilities of the Businesses...........................................................................................6
Provisions, Contingent Liabilities and Contingent Assets..............................................6
Reporting for AASB 137.................................................................................................7
Classification of Assets..................................................................................................9
Recognition Criteria........................................................................................................9
Conclusion.........................................................................................................................9
Reference........................................................................................................................11

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Introduction
The assessment considers the businesses of BHP Billiton Ltd and Boral Ltd
which are engaged in mining and material extraction operations and both the
companies belong to the same industry (Bhp.com. 2020). The assessment would be
reviewing the reporting of key items such as assets, liabilities and equities which the
companies have presented in their respective annual reports. For the purpose of
consideration, the most recent annual report for both the companies are considered.
Furthermore, the analysis would also be identifying if there have been any changes in
the capital structure for both the companies over a period of three years and the
reasons which are three for the same. The reporting framework which is used by the
entities for showing provisions would be reviewed and ascertained if the same is
consistent with the provisions which are stated under AASB 137 ‘Provisions, Contingent
Liabilities and Contingent Assets.
Discussion
Sources of Funds
The capital structure which is used by a business comprises of two main sources
of funds which are the equity and debt sources. These types of funds are used by
businesses for effectively making investments in different activities of the business. The
annual report for BHP Billiton Ltd for the year 2019 reveals that the company is more
dependent on debt capital as the same is used in more proportion in comparison to
equity capital. The debt capital for the business is shown to be $ 23,167 million for the
year. The equity capital on the other hand which is used by the business is made up of
shares, retained earnings, reserves and treasury shares. An extract from the annual
report for 2019 is presented below:
Source: (Bhp.com. 2020)
For the business of Boral Ltd, the annual report for 2019 reveals that the
company prefers more equity-based capital sources in comparison to debt. This
approach reveals that the company does not want to take unwilling risks with excessive
debt capital in the business. The equity capital comprises of issued shares, reserves
and retained earnings and the total of all these figures is shown to be $ 5858.9 million
for 2019 while the debt capital figure is reflected to be 2060.8 million (Boral.com. 2020).

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This shows that the management of the company is trying to maintain an appropriate
balance for the purpose of managing the risks of the business.
Source: (Boral.com. 2020)
Changes in the Sources of Funds
The sources of funds which are used by a company often changes with the
change in strategy of the business or changes in the objectives which is followed by a
business. In the case of BHP Billiton Ltd, the annual report of 2017 shows that the debt
which was used by the business is $ 29,233 million and the same is $ 23,167 million in
2019 which shows that there has been some decline in the debt capital which is used by
the business. Furthermore, there has also been a decline in the equity capital for the
business during the period. This reflects that the management of the company is trying
to reduce the overall capital which is being used considering the current level of
operations of the business (Southern 2016). The overall reserves for the business has
increased over the years which shows that the management of the company is working
on its internal strengths more for maintaining efficiency in the operations of the
business. Over the years, the business has tried to reduce the debt capital which is
mainly for managing the risks which is related to the business.
In the case of Boral Ltd, the annual report for 2017 is also considered for the
purpose of estimating the trend which is there for managing the capital structure of the
business. The management has managed to increase the equity capital of the business
while at the same time reducing the usage of debt capital in the operations of the entity
(Halling, Yu and Zechner 2016). This shows that there has been a shift in the capital
structure which is mainly aimed to control the risks which are related to the capital
structure of the business. The management of Boral Ltd has made positive changes to
the capital structure of the business which is effectively shown in the financial reports
which is formulated by the business.

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Different Sources of Funds (Percentage)
Figure 1: (Percentage of Funds which is used)
Source: (Created by the Author)
The above table shows the percentage of funds which is utilized by the
businesses of BHP Billiton Ltd and Boral Ltd. The percentage of funds which is used by
has changed for both the entities. In the case of BHP Billiton ltd, maximum changes can
be noticed in the capital structure of the business which makes it evident that the capital
structure has been altered (Baker and Wurgler 2015). The changes which have made in
the capital structure are minor slightly which shows that the management of the
company can make more improvements in future period.
Advantages and Disadvantages of Different Funds
The capital fund which is used by a business have their own advantages and
disadvantages associated with them. Both the business of BHP Billiton and Boral Ltd
have used mostly similar funds and the advantages and disadvantages associated with
the same are explained below:
Equity Share Capital
Advantages
 The use of equity share capital does not require the management to pay fixed
dividends and the same depends on the profit or loss situation of the business.
 This option of financing is considered to be permanent in nature as there is no
requirement of repayment unless the company has decided to close off the
business (Christensen et al. 2014).
Disadvantages
 The equity capital does not provide the leverage effect or causes any tax benefits
for the business and therefore can be regarded as a costly source of fund.
 There is segregation of ownership as the shareholders are also regarded to be
owners of the company and therefore this hampers the decision-making process
of the business.
Debt Capital
Advantages

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 The usage of debt capital allows a business to take advantage of leverage effect
as well as also enjoy tax deductions which are associated with the interest
payments which is made by the business (Akeem et al. 2014).
 There is no change in the ownership in case of debt capital and no segregation
of the same which is the case of equity capital which ensures that decisions are
taken swiftly.
Disadvantages
 The business needs to bear regular interest payments irrespective of whether the
business has generated profits or not. This creates a burden on the management
of the business.
 The availability of debt capital is difficult as the same depends on the credit
ratings which is associated with a business.
Retained earnings and Reserves
Advantages
 These sources are savings which are kept aside by the management of the
company for reinvestment purposes and the same displays internal strength of
the business.
Disadvantage
 The application of such form of capital impacts the cash position of the business
and also depletes savings of the business.
Liabilities of the Businesses
The liabilities of a business are shown in the balance sheet of the company and
are formatted as per the integrated reporting framework. The annual report of BHP
Billiton ltd is efficiently presented showing the liabilities under the heads of current and
non-current liabilities. One of the main items which is shown in current liabilities is trade
payables which is shown to be $ 6717 million and the business also has taken a short-
term loan from bank which is shown. In addition to this, the balance sheet also shows
deferred income, current tax payables and other current liabilities. On the other hand,
the non-current liabilities show the long-term debt which the business has taken along
with other financial liabilities of the business (Dichev 2017). The business has also
maintained provisions of long term nature for any anticipated liabilities which is related
to the business.
The financial report for Boral Ltd for the year 2019 shows that the business has
also classified the liabilities in an appropriate manner. The business shows trade
payables and short-term loans which are represented at the values of $ 832.6 million
and $ 339.7 million. There are also employee benefit liabilities which is presented in the
current liabilities side and also shows provisions which is maintained by the business for
meeting short term obligations (Duijm and Wierts 2016). The non-current liabilities
reveal long-term loans and tax liabilities associated with the business. The liabilities for
the business of Boral Ltd has shown to have increased slightly over the years which
may be due to the expansion process which the business is following.
Provisions, Contingent Liabilities and Contingent Assets
As per the outline which is provided by AASB 137 “Provisions, Contingent
Liabilities and Contingent Assets”, contingent assets, liabilities and provisions are to
be recognised in the annual statements following a framework. The reporting should be
accompanied with appropriate disclosures which is associated with the same. It is to be

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noted that provisions are created by the management of the company to recognise any
future losses which is most probable such as contingent liabilities. The standard
requires businesses to disclose any probable losses and make provisions for the same
in the annual report so that some transparency is maintained in the reporting framework
of the business.
Reporting for AASB 137
The annual report for 2019 of both the companies BHP Billiton and Boral Ltd
shows that the management has made provisions in both the cases. These provisions
are made for some anticipated losses which the business might be facing in future. The
annual report for BHP Billiton reveals that the business has recognised contingent
liabilities and provisions in the annual reports for Samarco Dam project which has failed
and for which the company is facing legal suits. The business has reported provisions
for such an aspect and an extract for the same is presented below:

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The above extracts show the extensive disclosures which is provided by the
business in the notes to account section. This shows that the management of the
company has appropriately followed the reporting standard of AASB 137 and provided
all information in the annual report of the company thereby providing full disclosures.
In the case if Boral Ltd, the annual report for the company is considered for 2019
for ascertaining the disclosures which is shown by the management (Kulikova,
Grigoryeva and Gubaidullina 2014). The business has made a provision of $ 23.8
million for a restoration project of a limestone quarry and in addition to this, the
company has also made provisions for different losses which the management of the
company anticipates during the period. An extract of the disclosures is provided in the
annual report of the company and the same is presented below:
The annual report of the company also shows presence of contingent liabilities
which is generally for the clean-up requirements for areas where there was prior
activities of the business and anticipated losses associated with the same are shown as
disclosures (Sayari and Mugan 2013). An extract for the same is presented below:

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Classification of Assets
The assets of the business are appropriately presented in the annual report of
the company and both the companies has systematically presented the assets of the
business in the annual report. The annual report of BHP billion effectively presents the
assets in the form of assets of non-current nature and assets of current nature. The
assets of current nature include trade receivables, cash and inventories of the business
which are the most important items in the balance sheet (Warren, Reeve and Duchac
2013). The non-current assets for the business includes fixed assets such as property
plants and equipment for the business along with intangible assets which are
associated with the business. The assets of the business are showing improvements
from previous year’s estimates which is a positive factor for the management of the
company.
In the case of Boral Ltd, the management has made similar presentation of the
assets of the business and portrayed them efficiently as per the integrated reporting
framework. The current assets and non-current assets includes all the similar items and
the same are efficiently presented along with proper disclosures associated with the
same.
Recognition Criteria
The items which are presented in the financial statements have been recognized
following a certain criterion and the same is prescribed by accounting principles and
framework. Fixed assets for both the companies, are measured at cost less
accumulated depreciation and impairment losses. In the similar manner, the intangible
assets also have been recognized after deducting amortization and impairment costs. In
case of certain items such as deferred tax assets and liabilities, estimation and
judgements are used by the management of the company (Barker and Schulte 2017).
The recognition criteria which is followed by both the companies are disclosed in the
draft notes in an appropriate manner.
Conclusion
The above assessment reveals the process of reporting of accounting

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information for BHP Billiton Ltd and Boral Ltd for the year 2019. The discussion firsts
covers the types of capital which is used by both the companies and if any changes
have been made to the capital structure of the business considering the nature of
capital. Furthermore, the discussion further reveals the trend for the past three years
and if changes have been made to the capital structure or not. The analysis further
reveals information regarding different assets and liabilities associated with the
business and how the same are presented in the financial statements.

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