HI5020 Corporate Accounting: BHP Billiton Financial Statement Report

This report provides a comprehensive analysis of BHP Billiton's financial statements, focusing primarily on the cash flow statement. It begins by dissecting each item reported in the cash flow statement, providing an understanding of its significance. The analysis then extends to a comparative review of BHP Billiton's financial activities over the past three years, examining trends in operating, investing, and financing activities. The report further discusses the concept of comprehensive income and its components, including gains and losses, and explores the implications of translating subsidiary financial statements and foreign equity investments. Finally, the report delves into corporate income tax, analyzing the company's tax expenses, effective tax rate, deferred tax liabilities, and current tax expenses, all based on the company's financial reports from the specified years. This assignment solution is available on Desklib, a platform offering study tools and resources for students.

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Corporate accounting

BHP Billiton
BHP Billiton is the chosen company for the following discussion. It is a public limited
company listed on the Australian Stock Exchange. BHP Billiton is an enormous multinational
mining and minerals and metal company. It operates worldwide. BHP Billiton has reported
profits of around USD 6222 million for the year ending 30 June, 2017. The financial
statements of BHP Billiton is analyzed below-
Cash flow statements
i) As per the Income statement of the company for the current year, the Net Income
comprises of numerous notional expenses and income that forms a part of the company’s
balance sheet. Considering the need of the scenario it is desirable to add back or reduce all
the non-cash items. After making above adjustments to the net income it is required to
account alterations in asset books that impact the financial position of the organization.
The net income derived from the profit and loss statement of BHP Billiton is further added
with non-cash items like dividends derived from equity accounted unit so as to evaluate the
operational cash flows. The financial position of operating assets is affected by certain
accounting transactions that are to adjusted later (BHP Billiton, 2017). Operating Income is
reduced by deducting the amount of interest paid from it. BHP Billiton’s non- controlling
interest are the equity portion of the capital of the organization keeping aside its subsidiary
portion (Brealey et. al, 2011). Therefore, operating expenses and income should be reduced
by the dividends paid by the company to shareholders of non-controlling interest in
subsidiaries.
It is observed that the interest rates have fallen down in 2017 yet the tax amount paid by the
company has increased. The sales graph shows that the sales have also progressed rapidly and
increased enormously due to the considerate increase in the amount of interest.
The company has a net cash of total USD 16804 million generating from its operating
activities (BHP Billiton, 2017).
All the revenues and losses arising from the cash flows from the investing activities of BHP
Billiton is adjusted by the cash flows from investing activities. The company has employed a
lot of investments in purchasing plants and machinery, equipments, property and intangible
assets. The company has reportedly made an investment around 4252 million USD in the

BHP Billiton
year 2017 into purchasing such properties, plants, machinery, equipments and intangible
assets (BHP Billiton, 2017). In the year 2017, a lot of prior investments of joint ventures,
subsidiaries and associates were enormously disposed off. The proceeds from the sale of such
investments were around 648 million USD. Financial assets worth 234 million USD were
also invested in by BHP Billiton (BHP Billiton, 2017). Investment in such assets
acknowledges the availability of liquidity fund in the organization. The market has been very
strange as there was not much sales as it could have been or as it was expected to be in
comparison to the enormous investments in purchases of financial assets. In 2017, the total
sales were around 186 million USD. 648 million USD was earned from the sale proceeds of
properties, plants and machinery, equipments and intangible assets (BHP Billiton, 2017). The
company has made a very less value of investments in its mutual funds. No investments have
been observed in the acquisition of shares of subsidiaries, joint ventures or associates. USD
153 million was noticed as investments in miscellaneous assets.
BHP Billiton has employed net cash of around USD 4161 million in its investing activities.
The company’s primary source of fund is its financing activities. These financing activities
are ones that allows the organization to arrange funds so as to conduct its day to day business
operations (BHP Billiton, 2017).
The shareholders of the organization are also given share in its high sales and high revenues.
The dividends distributed to the shareholders for the year has been around USD 2921 million.
Considering the numbers it is noticed that the borrowings for the year is almost negligible in
the organization. There was a borrowing of USD 7395 million in the year 2016 while in the
current year the company had a borrowing of USD 1613 million (BHP Billiton, 2017).
ii) In order to evaluate how BHP Billiton is performing and where are the finances
heading, it is required to draw a comparison between the results of all the activities for the
past 3 years. Adjustments of non-cash and non-operating expenses, incomes, profits and
gains to the NI from the income statement so as to yield cash flows from operating income
resulting cash flows from consolidated operations. In 2015, the cash flows from operating
income was around USD 19296 million, and in 2016 it was around 10625 million USD while
in 2017 it was around USD 16804 million. The interest expense reduced as there were less
borrowing in 2017 (BHP Billiton, 2017). Also, the mutual funds yielded more dividend this
year. The profit generated in the year 2017 was enormous as compared with the profits

BHP Billiton
derived in the past 2 years. Therefore, this allowed enormous net cash flows from operations
in 2017.
For the purpose of mobilising the available funds in the organization certain activities are
undertaken. These activities are termed as investing activities. These activities also help the
company in earning operating income. Investments and financials are backed up by the
operating income as it lays the foundation for the same. Investments are financials are closely
associated with one another.
Considering the financing activities it is seen that BHP Billiton has an outflow of around
USD 11502 million in 2015, USD 7245 million in 2016 and USD 4161 million in 2017. It is
observed that in 2017, there have been huge investments in the purchases of property, plants,
equipments and intangible assets which has been set off by the disposal of investments in
joint ventures, subsidiaries and the like (BHP Billiton, 2017).
Considering the financing activities it is seen that BHP Billiton has an outflow of around
USD 8276 million in 2015, USD 284 million in 2016 and USD 9133 million in 2017. As
compared to the previous years the shareholders are also allowed high dividends in 2017. The
additional borrowing for the year is also less as compared to the last 2 years. The repayment
of borrowings is also less as compared to last 2 years. It is noticed that BHP Billiton had
forbidden a lot of short term borrowings this year unlike previous years. Disinvestment of
shares is also noticed as the organization has bought back its shares from the shareholders
and also purchased the non-controlling interests from subsidiaries.
iii. Comprehensive income is the types of revenue, expenses, gains and losses that are said to
be excluded from the total income which has been stated in the income statement of IFRS.
This also states that the income that is made by the firm is only listed after the reduction of all
expenses and losses. The comprehensive Income is said to prevail in the income statement if
they haven't been realized in the valuation of the IFRS statement of income. Something that
said to realise if the transactions of the company have been completed. The companies also
state that they prepare financial statements on the basis of accrual concept of accounting
which is clearly stated in the Generally Accepted Accounting Principles that should be
followed by preparation of accounts. This also means that the financial effect which has been
shown in the accounts is recorded at the time when the transaction offers and not when the

BHP Billiton
cash or the credit value is being paid (Lapsley, 2012). Thus, it is different from the
transactions that are related to receiving and paying of the cash. Also, an example that can
help us to understand it in a better manner is to analyze a hypothetical company like A
limited. A limited is a mining company which is set to contract in selling iron ore and will
only recognize sales as revenue when the customer will take delivery of the earth does
making it clear that all the risk factors and have now been transferred to the customer as per
the stated statements of the contract. The cash may not be given by the customer at the same
moment but it should be given until the end of the financial year. Thus the sales are very
important part of the comprehensive income of a year and thus it will also help the company
to gain a higher financial position (Bodie et. al, 2014). Also, there is no change observed in
the cash statement of the firm which will not be treated as cash flows until the next year.
iv. The actual types of gains and losses that are being taken up by the companies comprises of
different type of payments made by the pensions that actually are made by the employer and
the expected amount. Also, many more problems said to be present in the financial statements
of the form if the amount paid is less than the expected pay. Also, the losses that have been
incurred by the firm in the financial year also search to make changes in the accounts.
Therefore it is very necessary to have the expected pension amount so that the factors of the
employee tenure and the rate of pay increases while the calculation of the pension amount.
Actuarial assumptions can also lead to adjustments which may arise from the gains and losses
of the firm. It has been observed that postretirement benefit plans not exist in the books of the
accounts of the firm we are assessing (Melville, 2013).
v. There may be changes observed in the balance sheet of the form that may result from the
translating subsidiary of the financial statements and the foreign equity investments that are
being made by the firm in the foreigner well currency which has been reported after the
payment of the taxes (Arnold, 2010). If the default currency that is being used by a functional
form is foreign currency then the translation of the adjustments that have made in the account
should be made in the currency which has been stated to be the default currency. There may
be gains or losses on the conversion of the foreign currency towards the fulfilment of the
payment of contracts (Arnold, 2010).
Corporate income tax
vi. After the clear analysis of all the financial statements, it was analyzed that the expenses
that were incurred by the firm during the year were stated to be US dollars 4100 million. This

BHP Billiton
was also showing an increase of Two and a Half times more of what has been paid in the last
year.
vii. The figure is said to be not the exact rate at which the accounting income has been
derived. The tax rate is 19 times of the company’s profit and also there are some of the
adjustments that need to be made before any of the taxable transactions are being made by the
organization.
viii. The deferred tax liability that the form was needed to pay in the year 2017 was
estimated to be around US dollars 3765 million. The deferred tax is nothing but the difference
between the taxation rules and the accounting that has been made because of the difference in
accounting transactions. The farmer said to report the total deferred tax asset of US dollar
5788 million and also there are certain expenses that are to be charged as a profit and losses
from the amount that has been allowed for the current year because of the taxation rules that
are applicable on the company (BHP Billiton, 2017).
ix. The current taxes that have been recorded by the firm are similar to the deferred tax.
Also, the expense of the tax that was recorded as a taxation liability was amounting to US
dollars 4100 million (BHP Billiton, 2017). The income tax that is to be paid by the firm as tax
expense is not always the same the reason behind which can be the deferred taxes areas and
advances that are to be adjusted from the income tax payable at the time of payment of the
expenses.
x. The amount of tag that is to be provided by the company is also depicted in the profit
and loss statement of the organization. Where the cash flow statement shows the tax outflow
that was to be accrued by the firm. The final payment is being made after deduction of all the
TDS, advanced taxes and dues from the last year. And there is a difference which is observed
between the financial statements of the two years.
xi. The disclosure of the taxation is very different from what the company has used in its
financial accounting systems. The tax components of both the subsidiaries and parents have
been depicted in the financial statement separately. Thus, providing the user a very detailed
and intrigued presentation.

BHP Billiton
References
Arnold, G. (2010) The Financial Times Guide to Investing. Prentice Hall.
BHP Billiton. (2017). BHP 2017 Annual report and accounts [online]. Available from:
https://www.bhp.com/media-and-insights/reports-and-presentations [Accessed 21 May 2018]
Bodie, Z, Kane, A. and Marcus, A. J. (2014) Investments. McGraw Hill
Brealey, R., Myers, S. and Allen, F. (2011) Principles of corporate finance. New York:
McGraw-Hill/Irwin.
Lapsley, I. (2012) Commentary: Financial Accountability & Management. Qualitative
Research in Accounting & Management. [online]. 9(3), p. 291-292. DOI:
https://doi.org/10.1111/1468-0408.00081
Melville, A. (2013) International Financial Reporting – A Practical Guide. 4th edition.