The success of an organisation depends on its financial working. The picture of the financial working is important to be shown to the public and is to be viewed by the management. Management is responsible for improving the efficiency of company’s financial strength. For this the managers are required to have a complete insight of the company’s accounts, so that the company can achieve the organisational goals. Only gathering of financial accounts is not necessary, the management needs to analyse the different financial information in order to trace conclusions and formulate steps towards achievement of goals.
The company used in this report for breaking down the financial information and analysing the information is BHP Billiton, having its headquarters in Melbourne, Australia. This company is into the business of natural resources (iron, steel, copper, silver, aluminium etc.) and is one of the world’s largest mining companies. Along with it have interests in engineering and transportation (Gao, Givoly, and Laux, 2015).
ANSWER TO QUESTION NO- 1 ANALYSING INFORMATION PRESENT IN CASH FLOW STATEMENT
The 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 (Wang, Butterfield, and Campbell, 2016).
From the cash flow statement available of BHP Billiton, the operations of the entity seem to be at boom. The cash generated from operations have raised together with the dividends received. Along with the receipt part the expenses like net interest, net taxation etc. have taken an ascending side too. The dividends received had been US$ 636 million in financial year 2017 as compared to US $ 301 million in financial year 2016. The company has reduced its expenditure in property plant and equipment from US$ 6946 million in financial year 2016 to US$ 4252 in financial year 2017. The number of dividends paid has also been reduced from US$ 4130 in financial year 2017 to US$ 2921 in financial year 2016 (Ladas, Negkakis, and Samara, 2017).
ANSWER TO QUESTION NO- 2 OPERATING, INVESTING AND FINANCING ACTIVITIES: A SUMMARISED EXPLAINATION
|
US$ IN MILLION |
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) |
Source: BHP Billiton Company, 2018).
Net operating cash flows has increased to US$ 16804 million in financial year 2017 over financial year 2016 due to increase in the number of dividends received and revenue generated from operations basically. However there had been a decline in the same figure in financial year 2016 over financial year 2015 due to the decreased level of operational revenues and dividend receipts on investments made (Sözbilir, Kula, and Baykut, 2015).
The expenditure made on investing activities stands on a forever decline since financial year 2015 till financial year 2017. The possible reasons could be lower amount of expenditure made on purchase of property, plant and equipment. Under the financing activities, the company was generating cash in financial year 2016, but there had been utilization of cash in financial year 2017 as well as 2015. The reason is repayment of proceeds from interest generating liabilities and payment of higher number of dividends to non-controlling interests (Gao, Givoly, and Laux, 2015).
The net increase in cash or cash equivalents from continuing operations has been US$ 3510 million and US$ 3664 million in financial year 2017 and 2016 respectively. But financial year 2015 had shown a net decrease of US$ 1781 million (Johnston, and Kutcher, 2015).
ANSWER TO QUESTION NO- 3 ITEMS REPORTED IN OTHER COMPREHENSIVE INCOME STATEMENT
The following table has been formulated on the basis of information available on company’s website from the annual report of financial year 2017.
|
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 |
Source: BHP Billiton Company, 2018).
ANSWER TO QUESTION NO- (iv) UNDERSTANDING OF EACH ITEM REPORTED IN OTHER COMPREHENSIVE INCOME STATEMENT
As per the latest financial reporting Answer to question no-s, there are certain items that are required to be highlighted in the other comprehensive income statement. The items are under two specific categories, namely items that can be subsequently reclassified to the income statement and the items that cannot be subsequently reclassified into income statement. These both classifications are presented net of tax (Morris, 2017).
The items that can be subsequently reclassified to the income statement includes, exchange fluctuations on translation of foreign operations that are taken to equity or are transferred to income statement. Gains and losses on cash flow hedges and tax recognised on these transactions are also inclusive (Kim, 2017).
For the items that cannot be subsequently reclassified to income statement consists of remeasurement gains or losses on pension and medical schemes. The tax expense on these items is also considered. The sum total of these two items commutes the total other comprehensive income or loss. This figure is presented as being attributable to non-controlling interests and to the shareholders of BHP Billiton (Okenwa, Francis, and Abiahu, 2017). Therefore, it could be inferred that the there are several items that could not be reclassified in the books of accounts due to its changing factors and recording system of the transaction in the books of accounts.
ANSWER TO QUESTION NO- (v) REASON OF NON-REPORTING OF THESE ITEMS IN STATEMENT OF PROFIT AND LOSS
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 are guided by accounting standards in every country. In Australia the Australian Accounting Standard Board set up the accounting standards for this purpose (Miller, and Skinner, 2012). 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 (Oxner, Oxner, and Phillips, 2018).
Further International Financial Reporting Standards (IFRS), are required to be kept in mind while formulating any accounting standards. These require the presentation of the income statement either in two parts when a single statement is made, or two different statements are required to be made separately. There are certain items that are required to be presented in a statement other than the income statement and cannot be mixed with other items of income and expenses. These items include certain reserves like foreign currency translation reserves, cash flow hedging reserves etc. that’s why the BHP Billiton has separately presented these items (Gao, Givoly, and Laux, 2015).
ANSWER TO QUESTION NO- (vi) TAX EXPENSE OF BHP BILLITON
Tax expense of a concern refers to the expected tax that the company calculates on the taxable income based on the effective tax rates of company. It is affected by the laws enacted or subsequently enacted at the reporting date. The tax expense for financial year 2017 is US$ 4100 million; whereas it had been tax benefit i.e. US$ 1052 million in financial year 2016.
|
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 |
Source: BHP Billiton Company, 2018).
This amount of detail shows that income tax payment made in the cash flow statement is accompanied with the all the cash payment made by company for the tax irrespective the fact that whether it relates to the present year or last year. It shows that company needs to comply with the IFRS 112 rules and standards while determining the tax payment. Therefore, it could be inferred that the main differences in tax payment shown in the profit and loss account and tax payable in the books of account is its recording frameworks in the different books of account.
ANSWER TO QUESTION NO- (vii) IS THE FIGURE OF TAX EXPENSE SAME AS ACCOUNTING INCOME MULTIPLIED BY BHP BILLITON’S EFFECTIVE TAX RATE?
The figure of tax expense is calculated on the taxable income of company and not on accounting income. Accounting income is computed by following the accounting standards and accounting policies, whereas the taxable income is computed by following the income tax rules. The taxable income is multiplied by the effective tax rate to compute the tax expense. Alternatively, the tax expense computed by multiplying the accounting income with effective tax rate is adjusted with the tax effects of temporary adjustments as shown below (Rubinstein, & Vettori, 2018).
|
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) |
Source: BHP Billiton Company. 2018).
Therefore, it could be inferred that the tax payment recorded in the profit and loss account of the company is done by following the proper AASB 112 and the income tax computation with the manual accounting income and tax rate is done by following the accounting rules and regulation.
ANSWER TO QUESTION NO- (viii) COMMENT ON DEFERRED TAX ASSET OR LIABILITY
As mentioned in Answer to question no- (vii), the taxable income is used as a base for computing the tax expense for an entity. As two different amounts of tax are computed, there is bound to be some difference in both of them. When the tax computed on taxable income exceeds the one calculated on accounting income, the company bears a high burden than required. In this case the excess leads to the generation of deferred tax asset. While, when the company pays an amount of tax lower than computed on the accounting income, the relief results in generation of deferred tax liability (Sansing, 2018).
In case of BHP Billiton, the company has successfully managed to maintain the balance of deferred tax assets in both the financial year 2017 and 2016 being US$ 5788 million and US$ 6147 million respectively (Watson, 2018).
The company has recorded the deferred tax liabilities in the books of account of company. It is observed that company has paid higher tax to the government as compare to the tax amount of the accounting rules and regulation. It will be shown in the assets side of company and will be carried forward to its extent to which it is set off with other payment.
ANSWER TO QUESTION NO- (ix) IS CURRENT TAX ASSET SAME AS INCOME TAX EXPENSE?
|
US$ IN MILLION |
2016-17 |
2015-16 |
|
Current tax asset |
195 |
567 |
|
Income tax expense/(benefit) |
4100 |
(1052) |
Source : BHP Billiton Company., 2018).
As evident from the table above, the current tax asset is being reported by the company in balance sheet and it is not similar to the amount of income tax expense. The reason is the different nature of both the accounts and transactions (BHP Billiton Company. 2018).
ANSWER TO QUESTION NO- (x) IS THE INCOME TAX EXPENSE SAME AS INCOME TAX PAID?
The income tax paid is the amount of tax actually paid by the company. This amount is representing the outflow on part of a concern and is shown in the cash flow statement. It may relate to any financial year. However, the income tax expense is the figure of tax amount that relates to current financial year and is reflected in the income statement. This is the reason that company’s tax expense is different from the income tax paid by the company. It may be seen from the table mentioned in Answer to question no- (vi) (Chen, et al. 2018).
ANSWER TO QUESTION NO- (xi)
BHP Billiton’s most interesting thing reflected from the financial statements is the provision for all kind of disclosures in a thoughtful manner. The disclosures are given even for the Samarco Dam Failure. There is full transparency and accountability being reflected from the annual report. The best part is the comparative statements given for three consecutive financial years. There is not much confusion or difficulty in understanding the same (De Franco, Kothari, and Verdi, 2011).
Conclusion
After analysing all the detail and compliance program of the BHP Billiton it could be inferred that company has established harmonization in its international and domestic reporting framework in determined approach. THE AASB 112 will override the accounting rules and regulation if it contradicts the accounting rules and regulation while preparing the accounting financial statements. It is observe that the cash flow statement is to understand the cash movements prevailing in the business in the particular year. If company has differences in the items shown in the profit and loss account and cash flow statement then it has occurred due to recording framework and organization value.
It is considered that BHP Billiton Company needs to follow proper international Financial Reporting Standards (IFRS),> these are required to be kept in mind while formulating any accounting standards. These require the presentation of the income statement either in two parts when a single statement is made, or two different statements are required to be made separately.
References
BHP Billiton Company. (2018). Annual report.
Chen, C.W., Collins, D.W., Kravet, T.D. and Mergenthaler, R.D., 2018. Financial statement comparability and the efficiency of acquisition decisions. Contemporary Accounting Research, 35(1), pp.164-202.
De Franco, G., Kothari, S.P. and Verdi, R.S., 2011. The benefits of financial statement comparability. Journal of Accounting Research, 49(4), pp.895-931.
Gao, Z., Givoly, D. and Laux, R., 2015. Assessing the Relation between Taxes and Stock Returns: The Critical Role of Choosing the Tax Variable.
Johnston, D. and Kutcher, L., 2015. Do stock-based compensation deferred tax assets provide incremental information about future tax payments?. The Journal of the American Taxation Association, 38(1), pp.79-102.
Kim, J.H., 2017. What Really Determines the Information Content of Tax Expense and Deferred Tax?. ?????, 42(2), pp.1-44.
Ladas, A.C., Negkakis, C.I. and Samara, A.D., 2017. Accounting quality deferred tax and risk in the banking industry. International Journal of Banking, Accounting and Finance, 8(1), pp.1-19.
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.
Morris, J.L., 2017. Classification of Deferred Tax Assets and Deferred Tax Liabilities: An Evaluation of FASB’s Attempt at Standards Simplication. Journal of Accounting and Finance, 17(8), pp.198-208.
Okenwa, O.C., Francis, E. and Abiahu, M.F., 2017. Assessment of Deferred Tax Recognition and Measurement under IFRS and Nigeria-SAS: An Empirical Examination.
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.
Rubinstein, F., & Vettori, G. G. (2018). Taxation of Investments in Bitcoins and Other Virtual Currencies: International Trends and the Brazilian Approach.
Sansing, R., 2018. Valuing the deferred tax liability. Journal of Accounting Research, 36(2), pp.357-363.
Sözbilir, H., Kula, V. and Baykut, L.E., 2015. A Research on Deferred Taxes: A Case Study of BIST Listed Banks in Turkey. European Journal of Business and Management, 7(2), pp.1-10.
Wang, Y., Butterfield, S. and Campbell, M., 2016. Deferred tax items as earnings management indicators. International Management Review, 12(2), p.37.
Watson, L., 2018. The Deferred Tax Asset Valuation Allowance and Firm Creditworthiness. The Journal of the American Taxation Association, 40(1), pp.81-85.
Appendix
|
BHP BILLITON LTD ADR (BHP) Statement of CASH FLOW |
||||||
|
Fiscal year ends in June. USD in millions except per share data. |
2013-06 |
2014-06 |
2015-06 |
2016-06 |
2017-06 |
TTM |
|
Cash Flows From Operating Activities |
||||||
|
Depreciation & amortization |
6945 |
8701 |
9158 |
8661 |
7719 |
7956 |
|
Investment/asset impairment charges |
311 |
797 |
828 |
210 |
188 |
373 |
|
Inventory |
-47 |
-54 |
151 |
527 |
-679 |
-445 |
|
Other working capital |
-472 |
205 |
-338 |
-320 |
327 |
563 |
|
Other non-cash items |
11515 |
15715 |
9497 |
1547 |
9249 |
8003 |
|
Net cash provided by operating activities |
18252 |
25364 |
19296 |
10625 |
16804 |
16450 |
|
Cash Flows From Investing Activities |
||||||
|
Investments in property, plant, and equipment |
-21573 |
-15993 |
-11947 |
-6946 |
-4252 |
-4377 |
|
Property, plant, and equipment reductions |
2338 |
114 |
66 |
|||
|
Acquisitions, net |
2202 |
768 |
185 |
206 |
-48 |
202 |
|
Purchases of investments |
-338 |
-1193 |
-15 |
|||
|
Sales/Maturities of investments |
204 |
956 |
445 |
|||
|
Purchases of intangibles |
-400 |
-192 |
-98 |
|||
|
Sales of intangibles |
8 |
|||||
|
Other investing activities |
-304 |
-294 |
-1212 |
-505 |
139 |
-510 |
|
Net cash used for investing activities |
-17871 |
-15834 |
-12568 |
-7245 |
-4161 |
-4685 |
|
Cash Flows From Financing Activities |
||||||
|
Debt issued |
9975 |
6288 |
3440 |
7395 |
1613 |
913 |
|
Debt repayment |
-2580 |
-7198 |
-4168 |
-2788 |
-7120 |
-9157 |
|
Common stock issued |
21 |
14 |
9 |
|||
|
Repurchases of treasury stock |
-445 |
-368 |
-355 |
-106 |
-108 |
-136 |
|
Cash dividends paid |
-6167 |
-6387 |
-6498 |
-4130 |
-2921 |
-4449 |
|
Other financing activities |
18 |
1183 |
-704 |
-87 |
-597 |
-1239 |
|
Net cash provided by (used for) financing activities |
822 |
-6468 |
-8276 |
284 |
-9133 |
-14068 |
|
Effect of exchange rate changes |
-34 |
23 |
-5 |
-1 |
322 |
652 |
|
Net change in cash |
1169 |
3085 |
-1553 |
3663 |
3832 |
-1651 |
|
Cash at beginning of period |
4881 |
5667 |
8752 |
6613 |
10276 |
13928 |
|
Cash at end of period |
6050 |
8752 |
7199 |
10276 |
14108 |
12277 |
|
Free Cash Flow |
||||||
|
Operating cash flow |
18252 |
25364 |
19296 |
10625 |
16804 |
16450 |
|
Capital expenditure |
-21973 |
-16185 |
-12045 |
-6946 |
-4252 |
-4377 |
|
Free cash flow |
-3721 |
9179 |
7251 |
3679 |
12552 |
12073 |
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download