Corporate Accounting: Raising Funds, Liabilities, and Asset Valuation

This report analyzes the corporate accounting practices of BHP Limited and Tungsten Mining NL, focusing on their sources of funding, including equity shares and retained earnings, and their evolution over three years. It explores the merits and demerits of different funding sources, such as internal and external funds, and their impact on the companies' financial health. The report also examines the companies' liabilities, particularly trade payables and deferred tax liabilities, and how they are handled. Furthermore, it delves into the implications of AASB 137, covering provisions, contingent assets, and contingent liabilities, and how these standards are applied by BHP and Tungsten Mining. The report identifies different classes of assets for both companies and analyzes their measurement bases, providing a comprehensive overview of their financial reporting practices.

Running Head: CORPORATE ACCOUNTING
Corporate accounting
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Executive summary
In this report it is discussed about the different source of fund that has been used by the
BHP limited and Tungsten mining of Australia. Then how the source of funds has been
evaluated in recent three years. Then merit and demerit of different source of fund
available for the companies has been explained. Lastly this report has been prepared
according to the data of the annual report.

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Table of Contents
Introduction.............................................................................................................3
Source of fund.........................................................................................................3
Internal and external fund.......................................................................................5
Merits and shortcomings of different source of funds.............................................6
Liabilities in the Balance sheet...............................................................................7
Provisions under the Accounting Standard 137.....................................................7
Implication of AASB 137 in the BHP and the tungsten mining...............................9
Identification of all different classes of assets of the two companies...................10
Measurement basis of BHP and the tungsten mining..........................................12
Conclusion............................................................................................................13
Reference list........................................................................................................14

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Introduction
The two companies that has been chosen for this report is BHP limited and
Tungsten Mining limited. BHP limited is an Australian mining company for metals and
petroleum. They are ranked as the world largest mining company based on the market
share. They are dual listed company in two separate stock exchange which are
Australian BHP Billiton Limited and the British BHP Billiton plc. Both the business are
conducted by the same board of directors and single management structure (BHP
2020). They have many mining operation in Australia, North America and petroleum
operation in Australia and US. They are mainly engaged in the mining operation of coal,
petroleum, copper and iron ore.
Whereas Tungsten Mining Limited is an Australian based resource extracting
company which has main function of exploration and development of tungsten in
Australia. This company key project is to extract the tungsten deposits in Australia. They
are the world leading producer of low cost tungsten. The reason for leading in the
market is due to the extraction and development of quality deposit.
Source of fund
Different source of funds are used in the business like equity, debt, retained
earnings, term loans, capital loans and may others. This source of fund is used
according to the need of the companies. This fund are classified on the basis of time
period, ownership, control and source of generation. There are many alternative source
of fund that a company can choose. But choosing the right source and mix of fund is the
important part for every company (Ahmed, Higgs and Delaney 2018). This process of
selecting the right source of fund requires in depth analysis of every fund available in

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the market. The sources of fund that the BHP Company used to fund themselves are
equity shares, retained earnings and preference shares. While the Tungsten Mining NL
uses equity shares and retained earnings.
Equity share: Equity shares are those shares who can be declared as the real owner of
the company. They have the voting rights in the meeting and carries power to control
the company operations. This capital remains with the business until the winding up of
the company.
BHP Limited – In the last three year BHP limited has made different type of changes in
issuing their equity share by examining their needs. Equity shares are kept on reducing
with the time as per the requirement of the company. Like in 2018 $1186 million, which
is reduced to $1111 million in 2019 which shows the decrease in the companies funding
and it could be alarming if it keep on decreasing in the future (Al‐Hadi et al., 2017).
Tungsten Mining NL – In the last three year Tungsten mining company equity shares
are kept on increasing. Like in 2018 it was $ 74,199,814 and in 2019 it was $
80,533,512 which shows that the company is not going to face problem of funding. They
are getting their funding requirement accordingly which is kept on increasing and
providing benefit to the company.
Retained earnings: It is the portion of the business profit which are not distributed
among the shareholders instead it is reserved for the purpose reinvestment. Usually this
fund is used for working capital and purchasing the fixed assets. The purpose of
retaining the income is varied according to the company. If the company does not want

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to retain profit then they can distribute those earnings to shareholders as dividend (Ali
2016).
BHP Limited – This is the savings of the company which is kept aside after paying off
the dividends. According to the recent three year report retained earnings is decreasing
like in 2018 it was $ 51064 and in 2019 it was $ 42819 which shows that their retention
from the profit is decreasing. Low retention of money shows that the company has
increased their expenses or profit has been decreased.
Tungsten Mining NL – It consist of the amount which is kept aside by deducting a fixed
percentage of the net profit earned. According to the three year report their retained
earnings is kept on increasing like in 2018 it was $ 802,426 which was increased to $
7,851,717 (Biswas, Mansi and Pandey 2018).
Internal and external fund
Internal source of fund are those funds which a company generates from within
the business with their existing assets and activities. It includes sale of stocks, sale of
fixed assets and debt collections. They are of low cost as their no need of interest
paying. BHP limited has retained earning as their only internal source of fund which can
be calculated by making difference between EPS and dividend paid. In 2018 it was
$51064 which is 0.16 % of the earning and in 2019 it was $ 42819 which is 0.43 % of
the net earnings. Tungsten Mining Limited has retained earning as their only source of
internal funding which is 0.45 % of the net earnings of 2019 and 0.35 % of the 2018 net
earnings (Christ and Burritt 2017).

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Whereas the external source of fund are those funds which are obtained from
outside the business. It consist of the funds like loan from the financial institution, public
deposits, lease financing and many others. They are of high cost as it required to keep
mortgage and paying interest on the amount borrowed. BHP has equity shares, loans
and preference share as their only source of external fund. According to the annual
report their equity share has been decreased to 0.70 % in 2019 as compared to the
2018. While the 2018 report shows increase in equity shares by 0.46 % as compared to
the 2017 report. Whereas the Tungsten mining company equity shares has been seen
increased to 1.45 % in 2019 as compared to the 2018 (Dumay et al., 2018).
Merits and shortcomings of different source of funds
Merits of different sources of fund are as follows:
 Equity shares – It is the most easy and fastest way to get access of the large
amount of cash just by selling the shares and this amount is never need to be
paid back to the shareholders directly.
 Internal source of fund – It helps to finance business from within the business
which is risk free source of fund.
 Bank loan – Bank don’t take any active part in the business and once the bank
loan is paid off there is no obligation on the business (Islam 2017).
 Cash at bank – It is highly liquid source of fund that is available with the
company.
Limitation of different source of fund are as follows:

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 Bank loan - Sometime it is difficult to pay off the bank loan with huge amount of
interest and business does not get the enough fund from the banks.
 Cash at bank – Using cash at bank will led to the decrease of the spending
power of the company.
 Equity shares – By using equity share company loss their ownership over the
company.
 Retained profit – Over using of the retained profit can lead to the over
capitalization as this fund could help in business growth.
Liabilities in the Balance sheet
 Trade payable – Trade payable is the credit amount which is liable to be paid by
the company to its supplier. This account consist of the amount which is
remaining to be paid by the company. This account is classified as current
liability as they are going to be paid off within a year.
 Deferred tax liability – It is the tax liability which is remaining to be paid in the
current year but still not paid. It is calculated by creating difference between the
book tax and the actual tax. It is difficult to analyze the deferred tax liability
(Jones 2016).
Provisions under the Accounting Standard 137
In the Accounting Standard AASB 137, the standards that has been implemented
by the Australian Accounting Standard Board (AASB) are the provisions, contingent
assets and contingent liabilities which is being stated in the corporation act 2001, under
the section 334 on July 2004. The main objective of the AASB 137 is to assure that the
three accounts that are selected are being done upon then basis of measurement and

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the details have been provided on the section of notes that have been provided, to get a
better understanding about the time, amount and nature (Schaltegger,Burritt and
Petersen 2017).
Contingent assets
The Contingent assets are the assets that has been recorded in the
financial statement, upon the occurrence and non-occurrence of any event and also
ensuring the occurrence in the power of the organization. The term contingent assets
are not included in the financial statement as the identification of this account cannot be
realized as the income. Organization gets the economic benefit upon which is uncertain
and the assets are not recognized as contingent. The assets that can bring cash inflow
to the organization from the occurrence of any future events. As per the provisions of
the AASB 137 in the financial statements the contingent assets are not recorded as the
contingent assets depends on the happening or non-happening of any future events
(Jones, Johnstone and Wilson 2017).
Contingent Liabilities
The contingent liabilities can be termed as a contingent that usually comes from
the past event, though it cannot be able to recognize as the amount cannot be
measured with the accuracy. As per the Australian Accounting Standard Board (AASB),
the liabilities which are not identified are stated as contingent. There is disclosure for the
contingent liability as the liability cannot be predicted as it not measured reliably.

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Contingent liability may be created by following the process which is not expected at the
initial stage. So, these liabilities will be continuously evaluated to determine the fact that
whether such liability can bring economic benefit to the organization. If it became certain
that the outflow of the future economic benefits can be generated from such contingent
liability then a provision can be made in the financial statement against such contingent
liability.
Provisions
The provision has been treated as the liabilities of amount that has been
uncertain and that is being related to the revenue recognition. There is possibility of
accruals that is being consisted in the trade payables. Thus, the provisions are
separated from that. The provisions are treated as contingent for that timing as the
amount is bit
Implication of AASB 137 in the BHP and the tungsten mining
According to the provisions of the AASB 137 BHP limited has created references
for provisions against the liabilities that may occur in the future. From their annual report
it can be observed that the BHP group like to set aside almost $1.3 billion against the
expenses that may occur in the future (Kabir and Rahman 2016). The company used to
set such a big amount as in the mining industry the possibility of occurrence of any
uncertain future event is very high. The company follows several assumptions and
judgments for setting the provision amount. As a result of this the future actual
expenditures may vary from the amounts that are presently provided and the variations

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to the key assumption and estimations that may result in a material impact on the
provisions in the reporting periods in future.
 Contingent liability - This Company has also made provisions against the
contingent liability. The occurrence of the contingent liability is very often in the
mining industry for that reason BHP has shown contingent liability separately in
the financial statements. The contingent liability is associated with the lease
agreement of the company as all the provisions of the contingent liability is stated
in the note 31 and note 32 of the financial statements.
 Contingent assets - This Company does not have any contingent assets shown
separately in the annual report of the company. The company does not have any
provisions for the contingent assets.
Tungsten mining
Unlike the other mining industry, the company has also made provisions in their
financial statements. There is provision for annual review and adjustment on the basis
on consumer price indices. The company has made agreement to make provision of the
executive administrative and technical services. A total provision of $7616621 has been
made against the remuneration of the employees. Provisions are also made against the
transactions with the related parties and on the share and option-based payments.
 Contingent liability - Company maintains a separate provision for the contingent
liability that may occur due to the happening of some future events. The
company has shown these separately in the notes to accounts of the financial
statements.

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 Contingent assets - There is no provision separately created for the contingent
assets and in the annual report also there is no such separate notes are given for
recording the value of the contingent assets (Richardson, Taylor and Lanis
2016).
Identification of all different classes of assets of the two companies
BHP Limited
 Inventories - Inventories are valued on the cost or net realizable value whichever
is lower. BHP limited generally follows the FIFO system of inventory
management as it is the best method to give the accurate value of the inventory.
In the mining industry valuation of inventory is very complex so the company
taken all necessary means they are useful for making a correct assessment of
the inventory value. The company used to follow inventory audit on regular basis
to avoid the occurrence of any manipulation in the inventory value.
 Trade receivables - The trade and other receivable indicate the amount that is
yet to be collected from the debtors of the company. There is huge amount of
balance remained in the accounts receivable account of the company. The BHP
limited used to make a provision against the amount of accounts receivable.
Since the occurrence of any bad debt of such receivable amount is very high so
the company usually make a provision against the trade receivables.
Tungsten mining
 Inventory - The Company used to follow FIFO basis in maintaining its inventory.
Like other mining companies’ tungsten mining also used to give more importance