Holmes Institute HA2032: Corporate and Financial Accounting Report

This report provides a comprehensive analysis of BHP Billiton's financial accounting practices. It begins with an executive summary and table of contents, followed by an introduction outlining the importance of financial accounting for corporations. The report delves into the statement of cash flow, identifying items related to the balance sheet, and analyzes BHP Billiton's performance based on Earnings Per Share (EPS), including calculations for the last two years and a discussion of its usefulness as a performance indicator. The report also examines material movements in the statement of changes in equity, items recorded as non-current liabilities, and potential advantages and disadvantages of different capital sources within the company's capital structure. Furthermore, the report researches and discusses the disclosure requirements for publicly listed companies compared to non-listed companies, culminating in a conclusion and references. The analysis covers key financial aspects such as cash flow, EPS, equity changes, and non-current liabilities, providing a detailed overview of BHP Billiton's financial health and strategic decision-making.

Corporate and
Financial accounting

EXECUTIVE SUMMARY
Present report is based upon the analysis of financial accounting for corporations such as
BHP Billiton. This assignment summarises different concepts such as elements of cash flow,
importance of EPS, movement in elements of statement of changes in equities, discussion of
non-current liabilities etc. The company is recommended to disclose its final accounts every year
so that it can meet expectation of internal as well as external stakeholders.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
Table of Contents.............................................................................................................................3
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
1. Discussion and analysis of the items of statement of cash flow and identification of the
items which are related to balance sheet......................................................................................1
2. Explanation of the company’s performance according to EPS and calculation of EPS for last
two years......................................................................................................................................2
3. Discussion of whether EPS is useful performance indicator for the company or not.............3
4. Explanation of the way in which material movement in the statement of changes in equity is
reflected and reported in the statement of cash flows..................................................................3
5. Discussion of the items which are recorded as non-current liabilities, including the related
notes and providing explanation of material movement of each item.........................................4
6. Discussion of potential advantages and disadvantages of each source of capital according to
the capital structure of the company............................................................................................5
PART B...........................................................................................................................................6
Research and discussion of the disclosure requirements for publicly listed companies in the
financial statements in comparison to other non-listed companies.............................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Financial accounting can be defined as the procedure which is followed by most of the
entities for the purpose of generating final accounts so that actual performance and market
position of business could be determined. Almost all the corporations are focused with it as it
guides them to formulate effective and strategic decisions for future so that desired targets could
be achieved successfully. If an enterprise is not able to make sure that are its financial statements
are not having accurate figures then it may leave negative impact upon execution of business as
it will affect interest of stakeholders in business (Caires, 2018). Main aim of this report is to
enhance understanding of financial accounting for companies so that they can meet the long-term
business goals. For this purpose, the entity which is selected for the assignment is BHP Billiton.
It is a mining, petroleum and metal company which is listed on Australian Stock Exchange. It is
having headquarter in Melbourne, Australia and founded in year 1885. This project covers
various topics such as discussion of items of cash flow statement, calculation of EPS and
discussion of its usefulness, analysis of material movement in cash flow and other items.
Additionally, research and discussion of disclosure requirements for publicly listed companies in
the financial statements in comparison to non-listed companies are also covered in this
assignment.
PART A
1. Discussion and analysis of the items of statement of cash flow and identification of the
items which are related to balance sheet
Cash flow statement is generated by all the companies on yearly basis so that they can
analyse the liquidity and liquid strength of business. Main purpose of generating it, is to analyse
that the organisation is having sufficient funds to meet long term business goals or not. From the
cash flow statement of BHP Billiton it has been identified that total cash generation from
operations for year was 23428, total cash flow from operating activities was 17871. Apart from
this, the total capital and exploration expenses were 7123 for the same year. Net cash inflow
from investing activities for the company is 2607 and for financing activities it is 20528 in
negative. At the end of the year there was a decrement of 10477 in the cash and cash equivalents
(Annual report of BHP Billiton, 2019).
1

From the cash flow of the company it has also been identified that there are various items
which are related to balance sheet. All of them are as follows:
 Purchase of property, plant and equipment: During the year 2019 the organisation
have purchased fixed assets of 6250.
 Investment and funding of equity accounted investments: In year 2019 the
organisation made investment and funding in equities which is around 630 dollars.
 Payment of interest-bearing liabilities: In 2019 BHP repaid some of the interest-
bearing liabilities and cost of it was 2514.
 Share buyback: In 2019 BHP Billiton bought its own shares of 5220 dollars and it was
recorded in the financing activities of year 2019.
All the above described items are shows in cash flow statement of the organisation but they
are related to balance sheet of the enterprise.
2. Explanation of the company’s performance according to EPS and calculation of EPS for
last two years
Earnings per share is to total earnings which are generated by an organisation on its all
the outstanding shares. When it is high then it shows that the company provides higher value to
the investors as higher interest will be paid to them on their investments (Cheng, Fleming and
Liu, 2017). In order to analyse performance of BHP Billiton on the basis of EPS following
calculation are made:
EPS: Net income / weighted average shares outstanding
For 2018 (Basic) = 3705 / 5323
= 0.70
For 2018 (Diluted) = 3705 / 5337
= 0.69
For 2019 (Basic) = 8306 / 5180
= 1.60
For 2019 (Diluted) = 8306 / 5193
= 1.60
From the above calculations it has been determined that performance of BHP Billiton is
improved for year 2019 as compared to 2018. Main reason of it is increment in the EPS for 2019.
For 2018 it was 0.70 for basic and 0.69 for diluted and for 2019 it was 1.60 for both the shares. It
2

shows that in 2019 the organisation will provide more value to the investors and they will get
higher returns on their investment as the profit for the year are very high. As the EPS for BHP is
increased for 2019 so it shows that company is a good condition and able to meet expectations of
all the stakeholders whether they are investors or shareholders (Chittenden, 2018).
3. Discussion of whether EPS is useful performance indicator for the company or not
Earnings per share can be defined as the monetary value of the earnings on all the
outstanding shares of the common stock of organisation. With the help of it, all the investors can
determine the company will be able to provide them higher returns for the investment or not. If it
is increased in current year as compared to the last year then it shows that higher returns will be
offered to investors as the profit of the enterprise are enhanced. On the other hand, if the EPS is
following the declining trend then potential investors will not show interest in the business
because there is huge risk for them because in this situation the entity may become insolvent. For
all the companies such as BHP Billiton it is very useful performance indicator as it helps to
analyse that the company is able to provide more value to the investors or not. It can also guide
the top-level executives of organisations to analyse that their business is progressive or not. It is
one of the main performance indicators which are used by enterprises to analyse performance of
business and formulate effective decisions for future. As it helps the managers to provide more
value to the investors so it is definitely a useful indicator for BHP Billiton (Guo, 2018).
4. Explanation of the way in which material movement in the statement of changes in equity
is reflected and reported in the statement of cash flows
From the statement of changes in equity of BHP Billiton it has been determined that
various changes have taken pace during year 2019. At the beginning of the year the enterprise
was having total equities of 60670 and the impact of adopting IFRS was (7), so the total opening
balance of it as on 1 July 2018 was 60663. At the end of the year the total equities for the
organisation were 51824 which shows that various changes are being made by the company in
the equities. Total comprehensive income for the year according to changes in equity statement
was 9160. Purchase of shares for the year was 188, accrued employee entitlement for the year
was 138 and dividends for the year were around 12507. The value of buyback shares according
to the statement is 5274 and divestment of subsidiaries is showing a negative balance of 168.
There are various changes are reflected in the cash flow statement. The shares purchased
by the enterprise by ESOP Trusts were shown as other financing activities. In Cash flow
3

statement the value of buy-back shares is 5220 but in statement of changes in equities it is
showing 5274. Apart from this total dividend paid which is reflected in the cash flow is 12593
(11395+1198) and in statement of equity it is showing 12507. Some of the values are changed
while reflecting in cash flow statement (Hubbard and Moore, 2017).
5. Discussion of the items which are recorded as non-current liabilities, including the related
notes and providing explanation of material movement of each item
Non-current liabilities are such obligation which are having more than one-year time
period to pay. From the balance sheet of BHP Billiton it has been analysed that different items
are shows as non-current liabilities. These are trade and other payables which were 3 for 2018
and increased up to 5 for 2019. From the note 9 it has been determined that total payables were
around 6722 and 5980 for 2019 and 2018 respectively and 6717 and 5977 were having current
nature so the balance is considered as non-current payables (Paynter, Halabi and Tuck, 2019).
Another item in the non-current liabilities of BHP is interest bearing liabilities. For 2018
it was 24069 and in 2019 it was decreased upon to 23167. From the note 19 which is related to it,
it has been determined that interest bearing liabilities include, bank loan, notes and debentures,
finance leases and other liabilities.
Other financial liabilities are also reflected in the balance sheet under non-current
liabilities of BHP Billiton. The value of it for 2018 was 1093 and for 2019 it was 896. In order to
understand the changes of it note 21 is generated which is mainly related to financial risk
management. As the financial liabilities may result in risks for business so all the adjustments of
them are made under this note. Non-current tax payable is also shown in the liabilities and the
values of it for 2018 and 2019 were 137 and 187 respectively. No notes are generated in context
to this element of the final accounts.
Deferred tax liabilities are also related to non-current liabilities of the company for 2018
it was 3472 and in 2019 the value of it was decreased up to 3234. From the note 13 it has been
analysed that the value of the tax covers number of various elements which are depreciation,
resource rent tax, deferred charges, investments that include foreign tax credits and other
liabilities. Some of the elements were deducted from the cost of all of them which are employee
benefit, closure and rehabilitation, other provisions, deferred income, foreign exchange gains etc.
Deferred incomes are also part of non-current liabilities and the total value of it for 2018
is 337 which is decreased up to 281 for 2019. There is no specific note generated for this element
4

of liabilities. The last non-current liability is provision and the value of it is increased up to 8928
in 2019. In 2018 its value was 8223. There are several notes are generated for this element which
are 4, 14, 18 and 24. From these notes, it has been determined that organisation create provision
for dealing with uncertainties in future (Paynter, Halabi and Tuck, 2019).
6. Discussion of potential advantages and disadvantages of each source of capital according
to the capital structure of the company
From the annual report of BHP Billiton it has been analysed that the capital structure of
the company is having various source of capital. All of them are as follows:
Share capital: Total share capital of the organisation for year 2019 is around 2168. It is
the combination of shares in BHP Group Limited and BHP Group Plc. It is the total funding of
shareholders which is used by the company to perform all the operations properly. The main
advantage of it for the organisation is that the management does not have to be worried about
the interest which is required to be paid on debts. Disadvantages of share capital are dividend
uncertainty, high level of risk, fluctuation in market price etc.
Reserves: Balance sheet of BHP Billiton is showing reserves of 2285 for 2019 and these
are kept by the organisations to deal with negative events that may take place in future. The main
advantage of it is that if the company is not able to generate good profits in a year then the
reserved amount could be used to meet all the monetary requirements (Shao, 2017).
Disadvantage of reserve is that, preparation of them may lead the organisation towards changes
in the supply of monetary resources.
Retained earnings: These are the funds which are retained by the organisation by
ignoring the dividends of shareholders. For 2019 total retained earnings were around 42819.
Advantage of it for a business is that it could be used to fund the future operations if the entity is
not having proper investments. Disadvantage of it for a business is lower engagement of
shareholders in business because the amount of it is the dividend of them for which they
provided funds to the organisation.
5

PART B
Research and discussion of the disclosure requirements for publicly listed companies in the
financial statements in comparison to other non-listed companies
According to SEC all the public listed companies are required to issue two different
disclosure related annual report. On of them is for SEC and another one of the shareholders. If
the company is not listed then there is no compulsion of releasing the disclosure reports as it
does not have to comply with the regulations of SEC (Stadler and Nobes, 2018).
The guidelines which are set by SEC for all the companies states that all the records that
will be presented in the disclosure report should be updated and have detailed as well as accurate
information. For listed companies it is compulsory as public invests their monetary resources in
businesses and they have right to analyse the performance of the entity in which they have
invested their money. If SEC finds any type of mistake in the report then legal action could be
taken against the business because it will be treated as legal offence. If the company is not listed
then it is not having any type of compulsion to disclose its annual report or any other type of
records as public is not investing money in it.
If an entity which is publicly listed is sharing its disclosure report with public,
shreaholders as well as SEC then it may acquire different types of benefits. Some of the are listed
below:
 When the company will disclose its reports for public then it may result in attraction of
new investors who will analyse the annual report and evaluate the interest rate which
could be acquired by them in future.
 By disclosing report, the entities will be able to facilitate the external users to make
effective decisions such as providing credit, supplying goods etc.
 When the records will be disclosed to shareholders then it will help the entity to retain
their interest in business as they will get satisfied with the performance if accurate results
will be shown to them (Trotman and Carson, 2018).
 If accurate reports will be disclosed to SEC then it can also benefit a business to establish
positive market image and ignore the legal actions.
6

CONCLUSION
From the above project report it has been concluded that financial accounting is a process
which is required to be followed by all the companies to create financial statements. There are
various types of items which are reflected in cash flow and related to balance sheet. These are
purchase of asset, repayment of loans etc. EPS is one of the main performance indicators which
can help to analyse performance of business. For all the public listed companies it is compulsory
to disclose the reports so that future activities could be performed properly.
7

REFERENCES
Books and Journals:
Caires, P. F. H., 2018. Equity research: BHP Billiton Ltd (Doctoral dissertation, Instituto
Superior de Economia e Gestão).
Cheng, Z., Fleming, G. and Liu, Z., 2017. Financial constraints and investment thirst in Chinese
reverse merger companies. Accounting & Finance. 57(5). pp.1315-1347.
Chittenden, R., 2018. An investigation into the ability of non-IFRS earnings measures' to predict
future operating cash flows for a sample of South African JSE listed
companies (Doctoral dissertation, University of Cape Town).
Guo, Q., 2018. Rhetoric in financial reporting: evaluation of ISA 720.
Hubbard, T. N. and Moore, M. J., 2017. Bhp billiton: Mining potash. Kellogg School of
Management Cases.
Paynter, M., Halabi, A. and Tuck, J., 2019. Storytelling and Corporate Social Responsibility
Reporting: A Review of BHP 1992–2017. In The Components of Sustainable
Development (pp. 205-230). Springer, Singapore.
Paynter, M., Halabi, A. and Tuck, J., 2019. Storytelling and Corporate Social Responsibility
Reporting: A Review. The Components of Sustainable Development: Engagement and
Partnership, p.205.
Shao, Y., 2017. Accounting for the Right to Water: The Great Artesian Basin and Olympic Dam
Mine.
Stadler, C. and Nobes, C. W., 2018. Accounting for government grants: Standard-setting and
accounting choice. Journal of Accounting and Public Policy. 37(2). pp.113-129.
Trotman, K. and Carson, E., 2018. Financial accounting: an integrated approach. Cengage AU.
Online
Annual report of BHP Billiton. 2019. [Online]. Available through:
<https://www.bhp.com/-/media/documents/investors/annual-reports/2019/
bhpannualreport2019.pdf>
8