HI5020 Corporate Accounting: Fund Sources, Liabilities, and Assets

This report, prepared for the HI5020 Corporate Accounting course at Holmes Institute, examines the fund sources, liabilities, and asset measurement practices of Caltex Australia Limited and Woolworths Group. The report begins by identifying and discussing the evolution of these companies' f...Read More

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

1CORPORATE ACCOUNTING
Abstract
Financial records are maintained by the accountants and are they can be specialized
in one or various and finance areas. Corporate accounting aims to communicate
about firm’s assets and liabilities to the users. It helps in offering full suite of the
services for accounting and finance functions on the higher-end offerings, which
drives maximum value all across enterprises. Hence, this report aims to discuss
different fund sources and its evolution, merits and demerits of various fund sources
used by Caltex Australia Limited and Woolworths Group. Further, discussion will be
on AASB 137, its reference to company, categories of assets recorded and its
measurement basis used by both the company. Therefore, this report concludes that
both of the companies have opted equity and debt as their fund sources and both of
them has not made reference to AASB 137, but they have fulfill the condition of this
accounting standard.

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Table of Contents
Introduction...................................................................................................................3
Background of Entity.................................................................................................3
Discussion.....................................................................................................................3
Fund Sources............................................................................................................3
Evolution of the Fund Sources..................................................................................4
Percentage of Internally and Externally Generated Funds.......................................4
Merits and Shortcomings of Fund Sources...............................................................5
Equity Fund Source...............................................................................................5
Debt Fund Source.................................................................................................6
Liabilities shown in Balance-Sheet...........................................................................6
Key Provisions under AASB 137..............................................................................6
AASB 137 Reference in Company’s Annual Report.................................................7
Recorded Assets Categories....................................................................................7
Basis of Measurement for Recorded Assets Class..................................................8
Conclusion....................................................................................................................9
Reference...................................................................................................................10

3CORPORATE ACCOUNTING
Introduction
Corporate accounting is the accounting process, which is dedicated towards
single company’s operations. The activity of corporate accounting is performed
normally for ascertaining operational and financial status of company. The investors
of company are interested especially in knowing about firm’s financial strength for
making investment. Corporate accounting is performed for ensuring that company’s
financial activities complies with regulations and laws stipulated by the oversight
bodies. It helps in ensuring that activities of business are in tune with the policies of
organization (Avdjiev, Chui and Shin 2014). Hence, this assignment aims to identify
various fund sources and its evolution of Caltex Australia Limited and Woolworths
Group. Further, discussion will be on percentage of internally and externally
generated fund sources, merits and shortcomings of each fund sources, different
types of liabilities shown in selected companies. Moreover, examination of key
provisions under AASB 137 and its reference to the selected company. Lastly,
identification and examination will be of different assets categories and the
measurement basis used by both the companies for each assets class.
Background of Entity
Caltex Australia Limited
Caltex Australia Limited is the Australian convenience retailer and the
transport fuel supplier company. It is engaged in purchases, refines, markets and
distributes products of petroleum in the Australia. The products of Australia are
consisting of motor oil, petroleum, diesel fuel, lubricants and jet fuel. It also operates
service stations, stores of fast food and convenience stores. Caltex Australia Limited
is publicly listed comany that derives revenue from wholesale, refinement and
petroleum retail. It employs approx. 6,600 employees that operates in Singapore,
Australia and New Zealand and is administered from Sydney head office (Caltex.
2020).
Woolworths Group Limited
Woolworths Group is the major listed company of Australia that offers retail
operations. This company is engaged in operating general merchandise
supermarkets and consumer goods as well as it is engaged in the products, liquor
and food procurement. The company also operates in the hotels that are consists of
food, pubs, gaming operations and accommodations. Woolworths Group serves its
customers in the countries of Australia and New Zealand (Woolworthsgroup.com.au.
2020).
Discussion
i)
Fund Sources
The sources of fund are referred to medium with the help of which entity
raises its working capital and long-term capital. The entity can select any fund
sources depending upon requirement and gestation period of project that has to be
financed. Fund is the lifeblood of any organization. There is no business that can live
without having funds. Business organization often require capital funding or external
funding for expanding their business into the new locations or markets for investing
in the research & development of fending off competition (Muritala 2018). Further,

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while entities aim for using profits from the ongoing operations of business for
funding projects, it is more favorable for seeking investors or external lenders.
Despite of differences among thousands of entities in world all across different
sectors of industry, there are only few funds sources available to the entities. In case
of Caltex Australia Limited, the fund sources used by company from year 2016-2018
includes equity and debt. Moreover, in case of Woolworths Group, the fund sources
used by the company from the year 2017-2019 includes equity and debt source of
financing (Talamati and Pangemanan 2015).
The company raises funds either by funding through debt or by the equity.
Equity is the cash paid into business operations, either own cash of owner or the
contribution of cash by one or more than one investor. The investments of equity are
certified by the help of issuing the shares in entity. The issuing of shares is in direct
proportional to investment amount. Further, fund obtained by incurring the debt is
second major funding sources. This is borrowed from the lender at fixed interest rate
and with the predetermined date of maturity. The principal amount is required to be
paid back in full by fixed stipulated date, however, periodic repayments of the
principal can be part of loan arrangement (Mahdaleta 2016). Following are the
sources and amount of fund sources used by both the entities:
Particulars
2018 2017 2016 2019 2018 2017
Total Equity 33,89,064.00 31,07,901.00 28,10,215.00 10,669.00 10,849.00 9,876.00
Total Debt 33,38,559.00 32,47,319.00 24,92,519.00 12,822.00 12,542.00 13,167.00
Total 67,27,623.00 63,55,220.00 53,02,734.00 23,491.00 23,391.00 23,043.00
Caltex Australia Limited Woolworths Group
ii)
Evolution of the Fund Sources
The evolution of the sources of fund are done by entity for their need to raise
external source of fund, investment in the research and development, capital funding
for the expansion or fending off the competition. The entities require to raise fund at
certain point of time for the development of products as well as expansion in the new
markets. In case of Caltex Australia Limited, the uses of long-term debt have been
increased over the years. The long-term debt was $990,063 in 2016, which reduced
to $888,650 in 2017 and again it increased to $1,144,365 in 2018. Moreover, the
equity of the company has been increased over years. The total equity of company
was $2,810,215 in 2016 that increased to $3,107,901 in 2017 and again it increased
to $3,389,064 (Barakat 2014).
In case of Woolworths Group, the long-term debt has been decreased then
increased across three years. The long-term debt of company was $4,215m in 2017
that reduced to $3,513m in 2018 and then it increased to $4,202m in 2019. Further,
the equity of company has been increased then decreased across three years. The
total equity of company was $9,876m in 2017 that increased to $10,849m in 2018
and lastly it reduced to $10,669 in 2019 (Murniati 2016).
iii)
Percentage of Internally and Externally Generated Funds
The funds of company can be generated either internally or externally. The
funds generated internally are realized by company’s efforts or by operations. These
are the funds that is not borrowed or realized by other external means. Equity

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financing is one of the most popular financing modes because capital is generated
internally by the business. Moreover, entities try to obtain external financing source
when they are not able to finance the expenditure with money generated from
operations (Vătavu 2015).
The percentage of internally generated funds of Caltex Australia Limited are
53% in 2016, 49% in 2017 and 50% in 2018. Further, percentage of externally
generated funds of Caltex Australia Limited are 47% in 2016, 51% in 2017 and 50%
in 2018 (Caltex. 2020). In addition, the percentage of internally generated funds of
Woolworths Group are 43% in 2017, 46% in 2018 and 45% in 2019. Moreover, the
percentage of externally generated funds of Woolworths Group are 57% in 2017,
54% in 2018 and 55% in 2019 (Woolworthsgroup.com.au. 2020).
Particulars
2018 2017 2016 2019 2018 2017
Total Equity 33,89,064.00 31,07,901.00 28,10,215.00 10,669.00 10,849.00 9,876.00
Total Debt 33,38,559.00 32,47,319.00 24,92,519.00 12,822.00 12,542.00 13,167.00
Total 67,27,623.00 63,55,220.00 53,02,734.00 23,491.00 23,391.00 23,043.00
% of Equity 50% 49% 53% 45% 46% 43%
% of Debt 50% 51% 47% 55% 54% 57%
Caltex Australia Limited Woolworths Group
Table: Percentage of Different Fund Sources
iv)
Merits and Shortcomings of Fund Sources
Equity Fund Source
Money raised by the equity sources fund have different advantages. Following
are some of the major benefits of equity source of funds:
Merits of Equity Source of Fund
 The source of financing through equity is committed towards intended projects
of business.
 The equity source of finance is permanent solution for entity’s financial
requirements.
 The financing through equity helps to provide leverage to management to
focus on continuous basis for fulfilling core objectives.
 This financing sources is risky compared to the other sources of fund
(Khadafi, Heikal and Ummah 2014).
Shortcomings of Equity Source Fund
 Financing through equity sources is time-consuming and costly affair. The
equity share investment is believed to be highly risky investment.
 The dividend distribution to the shareholders are not tax-deductible expense.
Further, interest expenses are the eligible expenses for tax benefit (Akeem et
al. 2014).
 The financing by equity is considered to be quite difficult way for getting funds
of entity. This does not require different statutory compliance. However, this is
consisting of different other costs, for instance brokerage expenses, fee of
broker and other costs.

6CORPORATE ACCOUNTING
 It consists of various legal as well as regulatory issues for the purpose of
compliance. Hence, this is quite hectic process.
 The funds raised through equity dilutes the existing shareholders control
(Rouf 2015).
Debt Fund Source
Merits of Debt Fund Source
 One of the major benefits of financing through debt is maintaining complete
ownership by the entity. The benefit of maintaining ownership is to have
complete control over the decisions made on the behalf of company (Enekwe,
Agu and Nnagbogu 2014).
 The next benefit of financing through debt is receiving deductions by the entity
for interest paid on debt.
 The uses of debt source of the financing by company raises capital in the
flexible manner in comparison to financing through equity. This financing
source is considered to be less complicated and expensive (Einiö 2014).
Shortcomings of Debt Fund Source
 Even though debt financing is having various benefits but it cannot be denied
that it is having serious shortcomings. The major shortcoming of debt
financing is that entity is obligated to pay back the borrowed principal along
with interest (de Almeida and Eid Jr 2014).
 The financing through debt affect the business credit rating. The business
organization is considered to be risky if it has greater amount of debt in
comparison to equity amount.
 The business that seeks debt source of finance are required to meet the
lender’s requirement of cash. This means that they require to have good
balance of cash (Dopson 2018).
v)
Liabilities shown in Balance-Sheet
In Caltex Australia Limited, total liabilities of company is classified into two
types, which includes “current liabilities” and “non-current liabilities”. Further, this is
classified into “interest bearing liabilities” and “non-interest-bearing liabilities”. The
“interest bearing liabilities” is comprised of short-term and the long-term “interest
bearing liabilities”. Moreover, “non-interest-bearing liabilities” includes “current tax
liabilities” and short-term and long-term ‘payables”, “employee benefits” and
“provisions” (Caltex. 2020).
In case of Woolworths Group, the total liabilities of entity is divided into two
categories, which includes “current liabilities” and “non-current liabilities”. The
“interest bearing liabilities” is comprised of short-term and the long-term
“borrowings”. Further, the “non-interest-bearing liabilities” includes short-term “trade
and other payables”, “current tax payable”, short-term and the long-term “other
financial liabilities”, short-term and the long-term “provisions” and “other non-current
liabilities” (Woolworthsgroup.com.au. 2020).
vi)

7CORPORATE ACCOUNTING
Key Provisions under AASB 137
The accounting standard provision of AASB 137 is having the objective for
ensuring suitable criteria of the recognition and bases of the measurement are
applied to the contingent assets, provisions and the contingent liabilities as well as
sufficient information level is disclosed in notes to enable the users to understand
nature, amount and timing. The companies are required for applying this standard in
the accounting for contingent assets, provisions and the contingent liabilities, except
for those, which results from executory contracts and also expect, in case of having
onerous contracts and those covered by other standard. Moreover, recognition of the
provision is required to done, when entity have present obligation that is result of
past events (Florina and Iulia 2015). This is probable that the outflow of resources
embodying the economic benefits will be needed to settle down obligations.
Moreover, reliable estimates are required to be done with the amount of obligations.
In case, if these conditions are not fulfilled then provision recognition will not be
done. At the end of each of the period of reporting, revision of provision is required to
be done and adjustment of this should reflect current best estimate. Further, in case
of no probability of requirement of the resource outflow embodying the economic
benefits for settling obligations, there should be reversal of provisions (Aasb.gov.au.
2020).
vii)
AASB 137 Reference in Company’s Annual Report
Both of the companies, Caltex Australia Limited and Woolworths Group has
not made any reference to the accounting standard AASB 137 but both of them have
fulfilled certain conditions of the accounting standard. In case of Caltex Australia
Limited, provision for the impairment loss is raised on the basis of risk matrix for the
expected losses of credit across categories of customer. The recognition of provision
is when there is present constructive or legal obligation as the past event result,
which can be reliably measured and there is probability that future sacrifice of the
economic benefits will be required for settle down obligations, amount or timing of
which is uncertain (Muritala 2018). Further, company discusses certain items that is
either not probable that the company will require making future payments or it will not
be possible to measure amounts of future payments such as legal and other claims,
bank guarantees and deed of the cross guarantee and the class order relief. Further,
in case of Woolworths Group, they define probability as recorded liability where there
includes uncertainty over amount or timing, which will be required to be paid but
expected amount of settlement can be estimated reliably by Group. The major
provisions held by company includes self-insured risks, employee benefits, onerous
contracts, self-insured risk and store exist costs. Moreover, company defines
contingent liabilities as potential future payments of cash but where payment
likelihood is not considered to be probable or cannot be reliably measured
(Woolworthsgroup.com.au. 2020).
viii)
Recorded Assets Categories
The assets categories of Caltex Australia Limited is classified in two major
parts, the first one is “current assets” and second one is “non-current assets”. The
“current assets” includes “cash and cash equivalents”, “receivables”, “inventories”
and “others”. Further, “non-current assets” includes “receivables”, “investment

8CORPORATE ACCOUNTING
accounted for using equity method”, “intangibles”, “plant, property and equipment”,
“deferred tax assets”, “employee benefits” and “others” (Caltex. 2020).
The assets categories of Woolworths Group are divided in two types, which
are “current assets” and “non-current assets”. The “current assets” is consists of
“cash and cash equivalents”, “trade and other receivables”, “inventories” and “other
financial assets”. Further, “non-current assets” is consists of “trade and other
receivables”, “other financial assets”, “plant, property and equipment”, “intangible
assets” and “deferred tax assets” (Woolworthsgroup.com.au. 2020).
ix)
Basis of Measurement for Recorded Assets Class
In case of Caltex Australia Limited, receivable is recognized at the fair value
and it is measured at the amortized cost less the losses of impairment. Measurement
of the inventories are at lower of cost and the net realizable value. The cost is based
on principle of FIFO and it is consisting of direct labor, direct material and suitable
proportion of the fixed and variable overhead expenditure incurred in inventories
acquisition and bringing them into the existing condition and location. Goodwill arises
on subsidiaries acquisition is stated at the cost less any accumulated loss of
impairment. Acquisition of the other intangible assets are done by Group is stated at
the cost less accumulated amortization and the losses of impairment (Maas,
Schaltegger and Crutzen 2016). The amortization is charged up with consolidated
P/L statement on the straight-line method over estimated useful lives of the
intangible assets. Further, measurement of plant, property and equipment are at the
cost less to impairment losses and the accumulated depreciation. The cost is
consisting of expenditure, which is directly attributable to asset’s acquisition. The
self-constructed asset’s costs include direct labor, material costs and appropriate
production overheads proportion. The recognition of deferred tax is by using method
of balance sheet liability, amount used for the purposes of taxation and assets and
the liabilities carrying amounts for the purposes of financial reporting (Watson 2015).
The provided deferred tax amount is based on the expected manner of the
settlement or realization of the assets and liabilities carrying amount by using
enacted tax rates or substantively enacted at date of balance sheet. Lastly, the
unrealized gains that arises from the transactions with the associates and the joint
ventures are being eliminated to the extent of interest of Group in entity. The
unrealized losses that arises from the transactions with the joint ventures and
associates are eliminated in the same way as unrealized gains, however, only to the
extent that there includes no impairment evidence (Caltex. 2020).
In Woolworths Group, the recognition of trade and the other receivables are at
the fair value and the measurement of it is at amortized cost by using effective
method of interest and loss allowance. Generally, they have the terms of thirty days.
The investment of Group in the listed equity securities are designated as the
financial assets and at the fair value by other comprehensive income. The
measurement of investment is at the fair value with any recognized changes in the
other comprehensive income (Al Ani and Al Amri 2015). Further, the initial
recognition off investment in associates are at the cost consisting of costs of
transaction and it is accounted with the help of using equity method and including
profit or loss share of Group and the other associate’s comprehensive income in
investment’s carrying amount until date on which the key influence ceases. The
measurement of plant, property and equipment of Group is done at the cost less

9CORPORATE ACCOUNTING
impairment losses, amortization and depreciation. The self-constructed asset’s cost
is consisting of materials costs, overheads proportion and direct labor. The
development properties cost is consisting of holding, borrowing and costs of
development until asset is complete (Woolworthsgroup.com.au. 2020). The
depreciation of assets is based on straight-line basis over their useful lives to the
residual values. When parts of plant, property and equipment’s item have various
useful live then they account for separate assets. The goodwill of company
represents excess of the cost of acquisition over fair value of share of acquired net
identifiable assets (Watson 2015). Its measurement is done at the cost less than
any accumulated losses of impairment. Further, the measurement of other intangible
assets is at cost less impairment losses and amortization. When acquired in the
business combination, the representation of cost is at the fair value at date of
acquisition (Javed, Younas and Imran 2014).
Conclusion
Therefore, the conclusion can be reached from the analysis that both entities
are using debt and equity as their fund sources. Moreover, the long-term debt and
equity of Caltex Australia Limited has been increased over the years. In case of
Woolworths Group, the long-term debt of company has been reduced and then it has
been increased and equity of company has increased and then reduced. Further,
Caltex Australia Limited percentage of internally generated funds are 53%, 49% and
50% from 2016-2018 and percentage of externally generated funds are 47%, 51%
and 50% from 2016-2018. In addition, Woolworths Group’s percentage of internally
generated funds are 43%, 46% and 45% from 2017-2019 and percentage of
externally generated funds are 57%, 54% and 55% from 2017-2019. Further, it has
been discussed that both the debt and equity fund sources have their own merits
and shortcomings. In addition, different assets and liabilities categories as well as
AASB 137 provisions has been discussed. Both of the companies have not made
reference to this accounting standard but they have fulfilled certain conditions of the
standard. The assets class of both of the companies includes short and long-term
assets. Lastly, measurement basis for each of the assets class used by both
companies has been discussed.

10CORPORATE ACCOUNTING
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Appendix
Particulars
2018 2017 2016 2019 2018 2017
Total Equity 33,89,064.00 31,07,901.00 28,10,215.00 10,669.00 10,849.00 9,876.00
Total Debt 33,38,559.00 32,47,319.00 24,92,519.00 12,822.00 12,542.00 13,167.00
Total 67,27,623.00 63,55,220.00 53,02,734.00 23,491.00 23,391.00 23,043.00
% of Equity 50% 49% 53% 45% 46% 43%
% of Debt 50% 51% 47% 55% 54% 57%
Caltex Australia Limited Woolworths Group