Financial Accounting Report: Analysis of Equity and Liabilities (2023)

This report provides a detailed analysis of corporate and financial accounting, focusing on the equity and liabilities of BHP Billiton and South32. It examines the components of owner's equity, including share capital, treasury shares, retained earnings, and reserves, and analyzes their movements over time. The report also explores the liability section, detailing interest-bearing liabilities, tax payables, trade payables, and provisions, along with the changes in these items. Furthermore, it discusses the merits and demerits of various funding sources, such as equity and borrowings, and classifies companies based on size. The report also touches upon compliance and reporting requirements, offering a comprehensive overview of the financial aspects of the companies under consideration.

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Corporate and financial accounting

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Executive summary
The report has been prepared for the consideration of the equity and all the elements which are
involved in it. The liabilities which are covered in the company and various aspects of the same
have been taken into consideration. The full description has been provided and by that, an
understanding has been obtained. The changes which are taking place in the values of them have
been calculated and by that, the increase and decrease are taken into account. The reasons for this
have been ascertained and there is the proper discussion made on that. The advantages and
disadvantages which will be faced in relation to the various sources will be identified. There is
the concept which is involved and according to that the categorization of the companies among
the small and large proprietary company is made which will be also be identified. After the
determination of the same, there will be the application of some compliance requirements for
reporting which will also be discussed.

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Table of Contents
Executive summary.........................................................................................................................2
Introduction......................................................................................................................................4
Part A...............................................................................................................................................4
i) Items under owners’ equity......................................................................................................4
ii) Movement in each item of equity............................................................................................5
iii) Items under the liability section.............................................................................................6
iv) Changes in items involved in liabilities.................................................................................7
v) Merits and demerits of various sources...................................................................................7
Part B...............................................................................................................................................8
Various company related concepts..............................................................................................8
Compliance and reporting requirements......................................................................................9
Conclusion.......................................................................................................................................9
References......................................................................................................................................11

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Introduction
The report is presented in respect of the BHP Billiton and south32 limited and in that various
aspects in relation to the company have been taken into consideration. In this, there are various
elements which will be covered and in that equity and liabilities will be covered. There will be
the determination of the various elements which are involved in this and proper understanding of
them will be gained. The company will be making various changes in them and due to them, the
value will be changing. The modifications will be identified and in that the cause of the change
will be determined. All of the sources which are involved will be considered and their merits and
demerits will be identified. The companies are classified as small and large and for that, all of the
concepts related to the same will be identified. The manner in which the same will be affecting
the requirements in relation to the compliance will also be taken into consideration.
Part A
i) Items under owners’ equity
The owner of the company brings the amount in the business and that is identified as the equity.
This will be considered as the capital of the business which will be used to carry the operations
in an effective manner. In this amount, there is the inclusion of various elements and it is
required that proper understanding of them shall be obtained which will be helping the company
in making of the relevant decisions.
Share capital: All the companies have shares which are to be issued to the public. In return for
the same, there is an amount which is collected by the company and is considered as the share
capital (Amini, Keasey and Hudson, 2012). The company will be using this for the carrying out
of all the operations in the business and this will be helping it to grow the business in an effective
manner.
Treasury share: In the business, there is the outstanding stock and the same is repurchased by the
company which is identified as the treasury share. This will also be taken into account so that the
correct balance of the equity can be identified.
Retained earnings: There are various circumstances which arise in the business and in which the

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amount will be required by the company. To deal with such situations in an effective manner it is
required that the company retains some amount from the earnings which are made by it and they
are identified as the retained earnings. This will be part of the profits which are made and by that
the company will have the security to deal with urgent situations.
Reserves: The Company performs various activities and in which there are certain tasks on
which amount will be required in the coming period. For that, there is the creation of the reserves
in which an amount which will be required in future is secured in the current period with the help
of the making of the reserves (Dong, Hirshleifer and Teoh, S.H. (012). It will be kept separately
and there will be no use which will be made from the same. The company will be using this for
the purpose it was made and this way all the operations will be carried without making of any
default.
ii) Movement in each item of equity
BHP Billiton
There is a decline which is made in the total amount of the equity which is represented. The
balance was $62726 in 2017 and it declined to $60670 in 2018 and then the final decline was
made and reached to $51824. There are various changes which are taking place in the amount
and they are because of the declines which are made in them (BHP Billiton, 2019). The retained
earnings of the company have declined and this is leading to the overall decline in the total
balance of the equity. The company will be required to take that into consideration and make the
required change by which the required amount can be retained.
South32 Limited
The equity of the company which is maintained has been analyzed and it is identified there are
various fluctuations which are taking place in the same. In 2018 there is an increase which is
made from $10235 to $10709. After this, the company has faced the decline and that made the
total equity to reach at $10168. The change which is taking place is because of the change in the
amount of the accumulated losses of the company (South32 limited, 2018). The company is
having the losses and its amount has increased which led to the decline in the balance of the
equity. The share capital of the company has also been affected and that is also making an

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adverse impact on the equity balance which is maintained.
iii) Items under the liability section
In addition to the internal sources, there are various external sources also which are used for the
collection of the funds and they are considered as the liabilities for the company. In this also
there are various options which can be taken into account and the ones which will be most
beneficial will be chosen. For this, the proper knowledge of them shall be gained which is
provided below.
Interest-bearing liabilities: This is the main source which is used by the company for the
attainment of the required funds. This is the source which is used mostly and by this, the amount
which is required will be collected in any amount (Bugg-Levine, Kogut and Kulatilaka, 2012).
The huge amount will be collected with the help of that. The company will be required to pay
this amount back and on this, there will be an interest which will be charged and will have to be
paid by the company regularly.
Tax payable: There is the amount of the income which is made and on that, there are various
legal requirements which need to be fulfilled by the company. There is the application of the
taxation laws and according to that, the tax will be required to be paid on the income which is
earned at the specified rate. There is a fixed time at which the payment is required to be made
and it is needed to be followed by the company in a compulsory manner.
Trade payable: the company does not have sufficient balance by which all of the purchase can be
made on the cash. For this, there is the need to make the purchases on credit and the amount will
be paid when it becomes due. The other party which is involved in this is identified as the trade
creditor and company will be treating it as the liability (Schich and Lindh, 2012). This is the
temporary source with which the requirements of the business can be fulfilled.
Provisions: The liabilities which are existing in the business are termed as the provision. There
are certain risks and uncertainties which are involved in the business and in relation to them the
provisions are created. By this, the risk will be covered and there will be security which will be
created. The payments will be met when they will become due.

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iv) Changes in items involved in liabilities
There are various items which are involved in them and with the fluctuation, in them the
complete position of the company is affected. In order to make adequate actions for them all of
the changes which are taking place will be required to be identified and analyzed. There are
various deviations and proper recording of them is important and in that the reasons for the
change will also be taken into account.
In the case of the BHP Billiton, there has been a decline which has been noticed for the total
balance of the liabilities. The balance has declined from $54280 in 2017 to $51323 in 2018. The
decline further continued in 2019 and the balance reached $49037 (BHP Billiton, 2018). The
evaluation of all the items is made and it is identified that there is a reduction in the interest-
bearing liabilities and because of the same, the complete amount of the liabilities has declined.
The company will be gaining from this as the amount of the interest which is required to be paid
will be reduced which will be increasing the earnings of the company.
The liabilities in south32 limited are changing with a slight amount. There are changes which are
taking place and in them the total amount of the liabilities is reducing in 2018 and then an
increase are made in 2019 (South32 limited, 2019). The balance which is recorded in the books
shows the amount of $4498 in 2017 and then little decline is made making the amount to be
$4424 in 2018. After this, an increase is faced which made the liabilities to be $4547. There is an
increase in the balance of the trade payables and provisions and by that the increase in the
balance of the liabilities has been faced.
v) Merits and demerits of various sources
The company is required to maintain the required balance for the funds and for that it suing
various sources which have been identified in the above section. It is ascertained that the main
sources are the borrowings and equity balance. For them, there will be need to consider the
benefits and disadvantages which will be faced in their respect. The consideration will be given
to all the aspects which are involved in their relation. The capital will be the internal source as it
is brought by the owner (Chiu et al., 2012). As this is the internal source so there will be no
additional cost which the company will be required to incur on the same. They will be brought

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and used and no addition liability will be created for them. The thing which is required to be kept
in mind in this is the ownership which will be divided among all. The issue of the shares will be
providing the investors with the rights and that will be distributing the ownership of the
company. This aspect will have to be considered and a specific amount shall be raised with this
source which will not be creating the risk of ownership.
The amount which can be collected with the help of borrowings can be of any amount as there is
no limit which is specified in this respect. Company will be using this and it will be obtaining the
required amount from the outside lenders (Yazdanfar and Öhman, 2015). This is an external
source and due to that, there will be the creation of the additional liability in relation to this. The
amount which will be borrowed will be on some rate and that will have to be paid by the
company as interest. In this, there will be a time limit which would have been specified and the
company will be required to comply with the same. Therefore all of these facts will have to be
considered before making any decision in relation to the source of funding.
Part B
Various company-related concepts
The company will be required to take into consideration various concepts which have been
specified as per law. With the help of them, the categorization will be made and it will be
identified that which category is specified for the related company. This will be undertaken with
the help of proper knowledge of the concepts and to deal with this all of them have been
provided below which will be required to be undertaken by a large proprietary company:
Before 1 July 2019
 The revenue of the business will be equal to or more than $25 million.
 The employee count of the company will be 50 or higher (ASIC, 2019).
 The amount of the total assets which shall be maintained is $12.5 million or greater than this.
After 1 July 2019
 The total revenue of the company should be either $50 million or more.
 The employees who are employed by the company shall be 100 or more in total.

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 The total assets which are maintained shall be $25 million or higher.
The requirements which are identified will be considered and then on the basis of them, further
evaluation will be made in which the company will be identifying the category in which they lie.
This will help them in making the correct decision and to maintain their position accordingly.
With the help of that, all of the requirements which need to be followed will also be identified
that will help in undertaking the correct process.
Compliance and reporting requirements
The identification of the concepts has been made and with the help of that, there is the
ascertainment of the category which is applicable for the business. On the basis of that, there are
various requirements which are specified and will have to be complied with by the company. The
regulatory requirements and reporting needs are there which will have to be fulfilled in an
appropriate manner. The reporting is the basic need of any business and for that, there are
various laws which are specified and the requirements of them will have to be fulfilled. The
company which is categorized as the large proprietary will be needed to make the reports
mandatorily and also will be required to file them according to the procedure. In this, there will
be the inclusion of the directors as well as other financial reports (Fu, Carson and Simnett, 2015).
They will be using that to ascertain the position of the company. They shall be prepared in a true
manner and to ensure this there is a need for the undertaking of the audit procedure. The audit
will be carried and in that testing will be made for all the reports and accounts which are
prepared.
This is a compulsory requirement for all the large companies and they will be required to fulfill
them in a compulsory manner. The compliance requirements which are specified will be optional
for the small proprietary companies and it depends on them whether to undertake them or not. It
will be good if they follow them as proper records will be kept but it is not mandatory.
Conclusion
The report has been prepared and in this consideration of the information about two companies is
made which is BHP Billiton and South32 limited. The information in relation to them has been
collected and with that, the elements of the equity and liability have been ascertained. In that,

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there is the proper explanation which is provided by which an understanding of the items has
been developed. There is the consideration of the changes which are involved and have been
incorporated in the report also. The ascertainment of the reasons is also made due to which the
following changes have been faced by the company. The identification of the concepts for the
small and large proprietary company is made and that has been provided with the compliance
needs which are to be considered by the companies.

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References
Amini, S., Keasey, K. and Hudson, R. (2012) The equity funding of smaller growing companies
and regional stock exchanges. International Small Business Journal, 30(8), pp.832-849.
ASIC. (2019) Are you a large or small proprietary company. [Online] Available at:
https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-financial-
reports/are-you-a-large-or-small-proprietary-company/ [Accessed 27 September 2019]
BHP Billiton. (2018) annual report. [Online] Available at:
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf?la=en [Accessed 27 September 2019]
BHP Billiton. (2019) annual report. [Online] Available at:
https://www.bhp.com/-/media/documents/investors/annual-reports/2019/
bhpannualreport2019.pdf?la=en [Accessed 27 September 2019]
Bugg-Levine, A., Kogut, B. and Kulatilaka, N. (2012) A new approach to funding social
enterprises. Harvard business review, 90(1/2), pp.118-123.
Chiu, J., Chung, H., Ho, K.Y. and Wang, G.H. (2012) Funding liquidity and equity liquidity in
the subprime crisis period: Evidence from the ETF market. Journal of Banking &
Finance, 36(9), pp.2660-2671.
Dong, M., Hirshleifer, D. and Teoh, S.H. (2012) Overvalued equity and financing decisions. The
Review of Financial Studies, 25(12), pp.3645-3683.
Fu, Y., Carson, E. and Simnett, R. (2015) Transparency report disclosure by Australian audit
firms and opportunities for research. Managerial Auditing Journal, 30(8/9), pp.870-910.
Schich, S. and Lindh, S. (2012) Implicit guarantees for bank debt. OECD Journal: Financial
Market Trends, 2012(1), pp.45-63.Vanstraelen, A. and Schelleman, C. (2017) Auditing private
companies: what do we know?. Accounting and Business Research, 47(5), pp.565-584.
South32 limited. (2018) annual report. [Online] Available at:

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https://www.south32.net/docs/default-source/all-financial-results/2018-annual-reporting-suite/
annual-report-2018_web2.pdf?sfvrsn=d96082d3_4 [Accessed 27 September 2019]
South32 limited. (2019) annual report. [Online] Available at:
https://www.south32.net/docs/default-source/all-financial-results/2019-annual-reporting-suite/
annual-report-2019---print-version.pdf?sfvrsn=a78791a4_2 [Accessed 27 September 2019]
Yazdanfar, D. and Öhman, P. (2015) Debt financing and firm performance: an empirical study
based on Swedish data. The Journal of Risk Finance, 16(1), pp.102-118.