Corporate Accounting Analysis of Rio Tinto and BHP Group: 2016-2018

This report provides a comparative analysis of the corporate accounting practices of Rio Tinto and BHP Group, focusing on their financial performance from 2016 to 2018. The analysis begins with an examination of the owner's equity sections of their balance sheets, detailing the components such as share capital, share premium, reserves, and retained earnings. The report highlights the movements in these components over the three-year period, noting trends such as declining share capital in Rio Tinto and the impact of treasury stock in BHP. The report then delves into the liabilities side of the balance sheets, identifying key items like trade payables, dividend payables, and deferred income, and discusses their movements. The report compares the financial health of both companies by evaluating the changes in liabilities, providing insights into their financial positions and potential future challenges. Finally, the report discusses the advantages and disadvantages of equity capital as a source of funding for companies, including the impact on company control, the time-consuming nature of fundraising, and the costs associated with dividends. The report references the annual reports of both companies, offering a detailed understanding of their financial structures and strategies.

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

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Part A
Rio Tinto Owner’s Equity
After analysing the owner’s equity part of the balance sheet in the annual report of 2018,
2017 and 2016, it can be observed that the owner’s equity contains share capital, share premium
account, other reserves and retained earnings (Riotinto.com. 2019).
BHP Group
After analysing the owner’s equity part of the balance sheet in the annual report of 2018,
2017 and 2016, it can be observed that the owner’s equity contain share capital, treasury shares,
reserves and the retained earnings.
Share Capital
The amount raised by the company from the market in exchange of the ownership rights
are termed as share capital. The shares are distinguished as either common stock or preferred
share. The shares, which are released by the company, can change depending on the financial
structure of the company and the strategy formulated by the management of the company.
Share Premium
Share premium is the amount, which the shareholders assure to pay against the buying of
shares. The share premiums are always higher than the cost of the share. The amounts are mainly
used for cost underwriting or for issuing bonus share.
Reserve
The reserve is a fund that the company maintains to meet the future obligations, which
arises unexpectedly. The fund mainly contains either cash or highly liquid assets.

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Treasury Stock
Treasury stock is the percentage of shares that the company holds in its treasury. The
share is mainly accumulated from the float or from outstanding of shares. In some instances, the
company hold the share in its treasury, which are never issued in the public.
Retained Earnings
Retained Earnings is the net income, which the company gains after paying the dividends
to their shareholders. The retained earnings can be positive or negative. If the amount is positive
then the company has made profits, and if the amount is negative then the company incurred
losses.
Rio Tinto’s Owner’s Equity Movement
After analysing the annual report of 2018, 2017 and 2016, it can be observed that the
company’s share capital is declining. In 2016, the company’s share capital was US $224m, but
the amount decreased to US $220m in 2017. The share capital of the company further declined in
2018. The declining share capital reflects the shareholder’s phycology. As it can be determined
that the shareholders’ did not able to keep faith on the company. Thus, the share price of the
company may also be decline in future. On the other hand, the share premium of the company
has increased. Though, the growth is negligible, but the company’s share premium has increased.
The reserves of the company have also increased in last three years (Riotinto.com. 2019). This
proves that the company’s investment ability will increase. After analysing the annual report of
the company it can be observed that the retained earnings of the company have increased in last
three years. The increase in the retained earnings assists the company not only to invest in the
project but it also helps to increase the liquidity of the company.

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BHP Group Owner’s Equity Movement
After analysing the annual report of BHP Group of 2018, 2017 and 2016 it can be
observed that the share capital of the company remained same all throughout the three years. The
treasury stock of the company decreases from 33m shares to 3m shares in 2017 and in next year
it increases by 2m. The reserves and the retained earnings of the company have also increased in
last three years (Bhp.com. 2019). The increase in the retained earnings and the reserves indicates
that the company’s ability of investment increases and hence, will help the company to establish
a better future.
Rio Tinto’s Liabilities
After analysing the annual report of Rio Tinto in 2018, 2017 and 2016, it can be observed
that the liabilities side of the company mainly comprised of trade and other payables, dividends
payables and other financial liabilities.
BHP Group
The liabilities side of BHP Group’s annual report of 2018, 2017 and 2016 comprised of
Trade and other payables, interest bearing liabilities, liabilities held for sale, current tax payable,
provisions, deferred income and non-current tax payables (Bhp.com. 2019).
Trade and other Payables
It is the obligation of the company to pay-off the short term debt to the suppliers of the
company or the creditors of the company. It acts as one of the most important part for the
payment department of the company.

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Dividends Payables
Dividend payable is the amount of money, which the company promises to pay to its
shareholders. The amount of dividend is mainly decided by the management of the company
depending on the financial health of the company. It is mainly issued by shares or bonds or by
cash.
Deferred Income
Deferred income also known as deferred revenue is the amount, which company bares for
the products or services that are not received yet. When the products or services are being
realized then differed income is taken as revenue in financial statement.
Current Tax Payable
Current tax payable or the income tax payable is the amount, which the company need to
bear. The amount paid as the income tax due to the government in a single period.
Non-Current Tax Liability
The non-current tax liability is the tax, which is kept aside for paying in future.
Movement of Liabilities
As per the analysis of the annual report of 2018, 2017 and 2016 of Rio Tinto, the trade
and other payables have increased from US $12,388m in 2017 to US $12,697m in 2018. These
explains that the company is in a good position but may face some problem in future due to the
increase in liabilities than the last year (Bhp.com. 2019). The dividends payable of the company
is also decreases than previous year. These factor may affect in the market as the investors may
not get attract to the company.

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As per the analysis of BHP Group annual report of the company of 2018, 2017 and 2016,
it can be observed that the trade and other payables has increased from US $5,389m to US
$5,551. Company’s deffered income also increases from US $278m in 2017 to US $360m in
2018. The increase in the deferred income helps the company to be realising more revenue in
next year and hence the future of the company may sits in the safe hand. The company’s deferred
tax liabilities have decreased from US $4,324m to US $3,765m. These will help the company to
deal with the tax obligations in the next year.
Advantages and Disadvantages of Source of Funds
Equity Capital
The funding from the investors are committed to the business and intended to use the
capital for the new projects or for the development of the company. The only cost the company
need to bare is the dividend (Asante et al 2016). The dividend also paid by the company
depending on the financial health and performance of the company in a single period. The
investments also assist the company to explore new ideas, which in turn help to increase the
sustainability and profitability of the company. The fund raising process from the equity funding
is time consuming. The process, which the company needs to follow for raising funds divert the
management’s focus from the core value, thus effecting the business operations (Gbandi and
Amissah 2014). The company also sacrifices considerable amount of power while realising
shares in the market, which affects the company’s going concern. The management needs to
invest considerable amount of time for monitoring the investing procedure (Wilson and Testoni
2014).

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Reference
Asante, A., Price, J., Hayen, A., Jan, S. and Wiseman, V., 2016. Equity in health care financing
in low-and middle-income countries: a systematic review of evidence from studies using benefit
and financing incidence analyses. PloS one, 11(4), p.e0152866.
Gbandi, E.C. and Amissah, G., 2014. Financing options for small and medium enterprises
(SMEs) in Nigeria. European Scientific Journal, 10(1).
Riotinto.com. 2019. [online] Available
at: http://www.riotinto.com/documents/RT_2018_annual_report.pdf [Accessed 30 Sep. 2019].
Riotinto.com. 2019. [online] Available
at: https://www.riotinto.com/documents/RT_2017_Annual_Report.pdf [Accessed 30 Sep. 2019].
Bhp.com. 2019. [online] Available
at: https://www.bhp.com/-/media/documents/investors/annual-reports/2017/
bhpannualreport2017.pdf [Accessed 30 Sep. 2019].
BHP. 2019. BHP | Annual Report 2018. [online] Available at: https://www.bhp.com/investor-
centre/annual-report-2018/annual-report-2018 [Accessed 30 Sep. 2019].
Wilson, K.E. and Testoni, M., 2014. Improving the role of equity crowdfunding in Europe's
capital markets. Available at SSRN 2502280.

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