Analysis Of Cash Flow Statement, Income Statement, And Deferred Tax Of BHP Billiton Company

Analysing Information Present In Cash Flow Statement

With the changes in economic conditions each and every organization needs to comply with the IFRS rules and accounting standards.  In this report, BHP Billiton Company has been selected which reflects all the key points and tax compliance program of company. This report focuses on the cash flow statement analysis, income statement analysis and recording of the deferred tax in the books of account of Company. In this report, analysing information present in cash flow statement and its comparison with the recording of the income statement has been done. After that, recording of the deferred tax assets and income tax payment will be analyzed as per the AASB 112 and accounting rules and regulations.

It is analyzed that cash flow statement is the document which is accompanied he reason of preparing the cash flow statement is to understand the cash movements prevailing in the business, as the income statement is prepared on accrual basis. So, it becomes difficult to understand that whether the incomes that are reported have been actually received or not, and whether the expenses shown are actually paid or not. Cash flow statement shows the movement of cash without giving any regards to the year of accrual. Any transaction that reported cash inflow or outflow is reported.  The cash flow statement of the BHP Billiton Company has shown high cash outflow from eh investing activities and payment of dividend to shareholders (Appiagyei, Djajadikerta , and Xiang, 2016).

It has been observed that that dividend paid recorded in the cash flow statement of the company in 2017 is US $ US$ 636 million which is 100% higher as compared to the 2016 data i.e. US $ 301 million.

The expenditure of BHP Billiton has been reduced to US$ 6946 million in financial year 2016 to US$ 4252 in financial year 2017 (Miller, and Skinner, 2012).

US$ IN MILLION Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2016-17	2015-16	2014-15
Net cash provided or used by operating activities	16,804	10,625	19,296
Net cash provided or used in investing activities	(4,161)	(7,245)	(13,154)
Net cash provided or used in financing activities	(9,133)	284	(8,276)

It is analyzed that the net operating cash flow from its busienss has been up and resulted to US$ 16804 million in 2017 which is 20% higher as compared to last year data.

The receipt investment and amount of cash inflow from operating activities has also gone down by 22% as compared to last year data (Landoni, and Zeldes, 2018).

The expenditure made of the investing activities of company has been decline since over last year data. The main reason behind the reduction in the expenditure was related to the last year cash outflow for buying plants and machineries for the company.

Operating, Investing and Financing Activities: a Summarised Explanation

Company invested its cash in several assets such as purchase of property, equipment, plants and other asset to expand the busienss in long run (Appiagyei, Djajadikerta , and Xiang, 2016).

BHP has also invested its capital in buying and acquisition of the new assets in other units which have resulted to high cash outflow from its business.

The net cash inflow of business has been to US$ 3510 million and US$ 3664 million in financial year 2017 and 2016 respectively (Appiagyei, Djajadikerta , and Xiang,

The below given table reflects the details shown in the comprehensive income statement which has been recorded in the books of account of company. This data has been fetched from the annual report of company for the last three years.

US$ in million	2016-2017	2015-16	2014-15
Profit/(Loss) for the period from both continuing and discontinuing operations	6,222	(6,207)	2,878
Other comprehensive income
Items that may be reclassified to profit or loss (net of tax)	(59)	60	(91)
Items that will not be reclassified to profit or loss (net of tax)	10	(37)	(45)
Other comprehensive income (net of tax)	(49)	23	(136)
Total comprehensive income/(loss) for the period	6,173	(6,184)	2,742
Total comprehensive income/(loss) attributable to:
Equity holders of the parent entity	332	176	973
Non-controlling interests	5,841	(6,360)	1,769
TOTAL	6,173	(6,184)	2,742

These all the items have been recorded in the books of accounts shows that company has increased the value of its busienss outcomes which reflects the positive outcomes for the business.  The non-controlling interest of company has been negative in 2016 which has also been recorded in the comprehensive income statement of company.

There are several financial information have been recorded in the comprehensive income statement of Company.  In the above give details, the table have shown the certain items fewer than two specific categories which are classified into the income statement as per their recording frameworks. This double entry system shows the recording of the transaction in the two separate accounts.

The comprehensive income statement covers all the items which have direct and indirect impact on the profitability of company such as exchange fluctuations on foreign transactions. It also includes all the gain and loss which company needs to record in its books of account.  

The tax expenses also computed on these items and recorded in the comprehensive income statement of Company (Appiagyei, Djajadikerta , and Xiang, 2016).

It is analyzed that these figures are presented as being attributable to non-controlling interests of the shareholders of BHP Billiton.

 This figure is presented as being attributable to non-controlling interests and to the shareholders of BHP Billiton.

As discussed earlier, every entity needs to present financial information in a particular manner. This presentation enables the managers and users to understand the statements in a clear manner. The presentation answer to question no-s is guided by accounting standards in every country. In Australia the Australian Accounting Standard Board set up the accounting standards for this purpose. These standards set up guidelines that are required in presentation of financial information and in formulating judgement for inclusion or exclusion of certain information in the financial statements (Demirel, and Ero, 2016).

Items Reported In Other Comprehensive Income Statement

The IFRS rules and regulations have been used to record the entries in the books of accounts.

 As per the accounting rules and standards, there are several items which are recorded in the books of account of company such as provision for doubtful debts and depreciation amount is charged amount in the profit and loss account. On the other hand, cash flow statement covers only those data which are having cash impact on the business. The cash flow of money also get impacted by the certain reserves like foreign currency translation, cash flow hedging reserve and other items (Baki, Uthman, and Sanni, 2014).

Tax is the amount of expenses which is paid by the corporates to government as their corporate responsibilities. The computation of the tax amount is done by following the AASB 112 income tax rules and regulations (Miller, and Skinner, 2012).

Company has been paying tax amount US$ 4100 million,

US$ IN MILLION	2016-17	2015-16
Total taxation expense/(benefit) comprises:
Current tax expense	4288	2456
Deferred tax (benefit)/expense	(188)	(3508)
	4100	(1052)
Income tax paid	2084	1645

After analysing the annual report of company, it could be inferred that the figure of income tax expenses is computed by using the income tax rules and regulation shown as per the AASB 112. On the other hand, accounting income computation and manual tax computation on the accounting income is done by following proper accounting rules and regulation. The figure of income tax shown in the books of account of company is US $ 3097 which is high as compared to the income tax computed by using the normal tax rate on the accounting income (Billah, 2015).

US$ IN MILLION	2016-17	2015-16
Income tax expense differs to the standard rate of corporation tax as follows:
Profit/(loss) before taxation	10322	(7259)
Tax on profit/(loss) at Australian prima facie tax rate of 30 per cent	3097	(2178)
Tax on remitted and unremitted foreign earnings	478	(376)
Non-tax effected operating losses and capital gains	259	671
Amounts under/(over) provided in prior years	199	(28)
Foreign exchange adjustments	88	125
Tax rate changes	25	14
Investment and development allowance	(53)	(36)
Tax effect of profit/(loss) from equity accounted investments, related impairments and expenses	(82)	631
Recognition of previously unrecognised tax assets	(106)	(36)
Impact of tax rates applicable outside of Australia	(189)	(620)
Other	217	536
Income tax expense/(benefit)	3933	(1297)
Royalty-related taxation (net of income tax benefit)	167	245
Total taxation expense/(benefit)	4100	(1052)

It is observed that the recording of the bad debts, provision for the income tax and donation are recorded differently as per the accounting rules and income tax rules and regulation of AASB 112.

Difference between the accounting rules and regulation and income tax regulations result to different accounting income and profit computed as per the taxation rules.

As mentioned in Answer to question no- (vii), it is considered that the taxable income is the amount of tax computed for the tax expenses for an entity.  The recording of the tax assets and liabilities in the books of account is done by following the proper steps (Lourenço, and Branco, 2015).

When the tax amount paid by the company is higher than the tax computed as per the taxation rules and regulation then in this case, BHP Billiton Company will record the deferred tax Assets (Svitlík, and Poutník, 2016).

When the tax amount paid by the company is lower than the tax computed as per the taxation rules and regulation then in this case, BHP Billiton Company will record the deferred tax liabilities (BHP Billiton, 2017).

Understanding of Each Item Reported In Other Comprehensive Income Statement

In the present case, BHP Billiton Company has recorded US$ 5788 million and US$ 6147  million in its books of accounts which shows that company has paid higher tax to government as compared to the tax computed as per the accounting rules

US$ IN MILLION	2016-17	2015-16
Current tax asset	195	567
Income tax expense/(benefit)	4100	(1052)

The income tax expenses recorded in the profit and loss account of company is not same with the income tax payable by company in its balance sheet (Argenti, 2016).

The main reason behind this is related to the recording of both amount and its nature.

The income tax payable is the amount of tax payable by company for all the years’ cumulatively.

The income tax expenses are the amount of tax charged on the profit and loss account in the present year (Oxner, Oxner, and Phillips, 2018).

The income tax expenses shown in the profit and loss accounts is the amount of tax charged on the profit earned by company in the present year. On the other hand, the income tax payment made or shown in the cash flow statement is too high.

It includes all the tax payment made by company in the present year irrespective of the fact that whether it belongs to the present year or not (Graham, Bedard,  and Dutta, 2018).

The most interesting thing about the tax recording of BHP Billiton Company is related to the disclosure requirement. Company has complied with the all the rules and regulations of the AASB 112 to determine the tax payment.

Confusing

The main confusing thing arises when BHP Billiton has to record its assets and liabilities as per the accounting rules and regulation.

Difficulty

BHP Billiton’s most interesting thing reflected from the financial statements is the provision for all kind of disclosures in a thoughtful manner (Kangari,, Farid, and Elgharib, 2012).

Surprising

The main surprising thing is that we cannot record deferred tax assets and deferred tax libiliteis its books of account.

Conclusion

As per the accounting rules, these standards set up guidelines that are required in presentation of financial information and in formulating judgement for inclusion or exclusion of certain information in the financial statements. Now in the end, it could be inferred that if proper accounting rules and regulations are followed then it will increase the overall outcomes of the company.

References

Appiagyei, K., Djajadikerta , H. and Xiang, E.(2016) Integrated Reporting and Firm Performance: A Research Framework [online] Available from:      https://www.researchgate.net/publication/320163713_Integrated_Reporting_and_Firm_Performance_A_Research_Framework [Accessed 21^st May, 2018].

Baki, Z.A., Uthman, A.B. and Sanni, M.(2014) Financial ratios as performance measure: A comparison of IFRS and Nigerian GAAP. Accounting and Management Information Systems,13(1),pp. 82-97.

BHP Billiton, 2017 .) Nolans[online] Available from:     https://www.bhp.com/media-and-insights/reports-and-presentations?q0_r=category%3DAnnual%2BReports.,  [Accessed 21^st May, 2018]

Billah, N.M.(2015) Liquidity Analysis of Selected Public-Listed Companies in Malaysia. International Economics and Business,1(1),pp. 1-20.

Demirel, B. and Ero, I.(2016) Investigation of Integrated Reporting As a New Approach of Corporate Reporting. International Journal of Business and Social Research,6(10),pp. 32-46.

Landoni, M. and Zeldes, S.P., 2018. Internet Appendix to’Should the Government Be Paying Investment Fees on $3 Trillion of Tax-Deferred Retirement Assets?’.

Lourenço, I.M.E.C. and Branco, M.E.M.D.A.D.C.(2015) Main Consequences of IFRS Adoption: Analysis of Existing Literature and Suggestions for Further Research [online] Available from:   https://www.scielo.br/pdf/rcf/2015nahead/1519-7077-rcf-201500090.pdf    [Accessed 21^st May, 2018].

Miller, G.S. and Skinner, D.J., 2012. Determinants of the valuation allowance for deferred tax assets under SFAS No. 109. Accounting Review, pp.213-233.

Oxner, K.M., Oxner, T.H. and Phillips, A.D., 2018. Impact of the Tax Cuts and Jobs Act on Accounting for Deferred Income Taxes. Journal of Corporate Accounting & Finance, 29(2), pp.12-21.

Svitlík, J. and Poutník, L.(2016) Relationship between Liquidity and Profitability: Empirical Study from the Czech Republic. European Financial and Accounting Journal,11(3),pp. 7-24.