HA2032 Corporate and Financial Accounting Assignment Help
Select the latest annual report of two ASX listed companies for the last three years period. Please read the balance sheet carefully and complete the following tasks:
(i) What items have been recorded under owners' equity section? Clearly explain your understanding of each item recorded under the owner equity section.
(ii) Explain the movement in each item recorded under the owner equity section with the reason
(iii) What items have been recorded under liabilities section? Clearly explain your understanding of each item.
(iv) Explain the movement in each item recorded under liabilities section with reason.
(v) Briefly explain the relative advantages or disadvantages of each sources of fund each of your selected companies is using.
Do your own research and critically examine the concepts of small proprietary company, large proprietary company and reporting entity. What are the implications of being classified as either one of these three types of companies in terms of compliance and reporting requirements?
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Annual report of two ASX listed companies for the last three years period.
This report is examining the sources of funds from selected companies (i.e. Telstra Group and BHP Group limited) from ASX listing, used for purpose of their annual reporting. It tries to examine the uses, movement, advantages and disadvantages of sources of funds that both of these companies use or obtain. At the same time, it discusses the concepts underlying with small proprietary and large proprietary companies as well reporting entities.
Items recorded under Owners' Equity.
For BHP Group Ltd for the year 2019, the company listed the share capitals for the group, treasury shares, reserves, and retained earnings. The same items appearing in the year 2018 and 2017 respectively.
The understanding: BHP Group Share capitals are shareholders' funds (both parent and subsidiary companies) that they have invested in the group which they expect the company to trade well and earn dividends from the profits business makes. Treasury shares are those shares BHP Group issued previously to the stockholders or and now they have purchased them back to the company in order to reduce them from the outstanding open share market. BHP Group reserves are funds set aside by the company to cater for any uncertainties' or contingent liabilities that may arise in the near future that will attract legal action. They will use this money to handle such eventualities. Finically retained earnings are money that the company has earned from operations and not distributed to BHP group shareholders in terms of dividends which are yet to be decided by directors how much they will get as dividends to be paid the following year.
For Telstra Group, year 2019, the company listed the share capital for the group, reserves, and retained earnings. The same items appearing in the year 2018 and 2017 respectively.
The understanding: Telstra Group share capital is the shareholders' funds (both parent and subsidiary companies) that they have invested in the group which they expect the company to trade well and earn dividends from the profits business makes. Telstra Group reserves are funds set aside by the company to cater for any uncertainties' or contingent liabilities that may arise in the near future that will attract legal action. They will use this money to handle such eventualities. Finically retained earnings are money that the company has earned from operations and not distributed to Telstra group shareholders in terms of dividends which are yet to be decided by directors how much they will get as dividends to be paid the following year.
Items Movement Owners Equity section
BHP Group share capital in the year 2019 decreased as well as reserves and retained earnings. However, its only treasury shares increased which they purchased back more. Year 2018, the scenario was not that different, whereby share capitals remained constant as reserves and treasury shares increased and retained earnings decreased. The same with year 2017 where capitals still remained the same as treasury shares, reserves and retained earnings experiencing a serious decrease.
For Telstra Group, share capital in the year 2017, 2018 and 2019 respectively increased constantly as well as retained earnings. However, only reserves increased in the year 2018 but decreased in the year 2019.
Items recorded under liabilities section
Under BHP Group, the items listed for all three years are; trade payables, interest bearing liabilities, financial liabilities, current and non-current tax payable, deferred income and provisions.
Understanding: Trade payable are credit goods or services supplied to HBP Group which it is yet to pay at a future date. Interest bearing liabilities are accrued interest the company needed to pay that are due for past year. Financial facilities are loans the BHP group took in the past financial year of which they have not paid to date. Current tax payable are taxes the directors proposed to be paid but they have not yet settled off, while non-current tax payable are taxes which have recurred for more than one year not yet paid. Deferred income are revenues received not yet being utilized.
Under Telstra Group, listed items include trade payable, employee benefits, borrowings, derivative financial liabilities, current tax payable, revenues received in advance, contract liabilities, benefit liabilities.
Understanding: Trade payable are credit goods or services supplied to Telstra got Group which it is yet to pay at a future date. Interest bearing liabilities are accrued interest the company needed to pay that are due for past year. Employee benefits are salaries outstanding from previous year that they have not paid their employees. Derivative financial facilities are loans the group took in the past financial year of which they have not paid to date. Borrowings are sourced money they acquired from other financial institutions to fund their business and repay them later Current tax payable are taxes the directors proposed to be paid but they have not yet settled off, while non-current tax payable are taxes which have recurred for more than one year not yet paid. Deferred income are revenues received not yet being utilized. Contract liabilities are services the group was rendered previous year but not yet paid for to date.
Items Movement under liabilities section
Under BHP Group, the items movement are; trade payables increased in year 2017, 2018 and 2019 respectively. Interest bearing liabilities reduced in 2017, they increased in 2018 and went down in 2019. Financial liabilities we see increase in year 2017 but in years 2018 and 2019 they decreased. Current and non-current tax payable increased in 2017, but in 2018 decreased and increased in 2019, deferred income and provisions also they increased in year 2017, 2018 and increased and decreased in 2019 as well.
Under Telstra Group, liabilities item movement are; trade payable which increased consecutively from 2017 to 2019. Employee benefits increased in year 2018 but reduced in 2019. In the side of borrowings, they increased in year 2017, reduced in 2018 and increased in the year 2019. Derivative financial liabilities decreased consecutively for years 2017, 2018 and 2019 respectively. Current tax payable decreased continuously from years 2017 to 2019. Revenues received in advance increased continuously for all years. Contract liabilities increased in 2018 but dropped again in 2019. However, benefit liabilities increased throughout for all years.
Advantages/ Disadvantages of each company source
Benefits of trade payables are obtained within a short period of time and repayable within two months after sale. However, they are repayable in a short period of one to two months. Employee benefits can be used to finance the other trade activities, but if this outstanding in not paid in a reasonable time, it will result to legal case. In the case of financial liabilities, there is no obligation that will be subjected to the loan lender if they will clear it off. But due to high interest rates that keep on increasing without paying will make the business not meet the needs of the loan. Current tax payable is another source that will keep the companies move forward with the money for other trade activities and pay the taxes after they have generating incomes from them. Retained profits will subject it to self-dependence since they will not pay any interest on the money as a holding fee as in the case of other external sources. Share capital advantages are that no repayment will be need by these companies because they have no obligations to make any interest payment or initial repayment of the money since they are internally sourced. Another benefits are that, they have a lower risk to obtaining them since the investors have no right when losses are experienced until it makes profit which therefore brings equity to all partners. But disadvantages are that they take long time and more effort to obtaining them and also involves a lot of costs in the process of obtaining them.
Research and critical examination of the concepts of small proprietary company, large proprietary company and reporting entity.
A proprietary company is a form of business organization in countries such as South Africa and Australia which are either limited or unlimited. Though, unlike public companies which depends on the authority and constraints on what they can or can't do. In Australia, a proprietary company under the company's Act section 45A, puts certain conditions not permitting them to have more than 50 members. This section still distinguishes proprietary companies as small, large and reporting ones.
The concept of Small Proprietary Companies
These are forms of businesses which are not controlled by foreign companies but operate on their own within the country where ASIC requires them to do a financial reporting (Ball, Robin, and Wu, 2003). This kind of reporting must be made in agreement with the Company's Act 2001 in the request under section 294(1) of the Act. These type of form of businesses are not mandatory to make financial reports to ASIC. However, in some special circumstances, these small proprietary companies are also needed to make and present financial reports as well.
The concept of Large Proprietary companies
These are those businesses for a financial year satisfies at least three criterion.
(i) The combined revenues for the present financial year and every subsidiaries they control is above $50 million.
ii) The worthiness of merged gross properties at the company's financial year end and every subsidiaries they control must be more than $25 million worth cost of all properties.
iii) The companies and any subsidiaries they control which have 100 employees or more at their financial year end.
Therefore, they must make and present a financial report as well as report of director's for every economic year. These monetary report prepared need to be reviewed by auditors unless or otherwise granted relief by ASIC. In certain circumstances, these small proprietary companies are also required to prepare reports of financial position. There are some of the advantages and risks related with every reporting framework for these companies (Ball, 2006). As it has been argued is that, most significant threat to reporting is on whether a certain company is appropriately well-defined as either large or small. If its classification is in correct as per ASIC requirement, then it will examine those vested with the authority for preparing a correct financial report and as a result not going against the reporting regulations of the Companies Act 2001 as well as the Australian Accounting Standards (AAS). So, the experience needed to be learned from here is to make sure that those large companies are correctly defined and are matched with the correct reporting framework.
The concept of Reporting Entities
By meaning, a reporting entity is a company which is responsible to its users on a general purpose of financial report (GPFR) in order to achieve an acceptance of the monetary position and how the company is performing. In addition it also help them create judgments centered on this monetary statistics and/or other facts that are enclosed in the report (Ball, 2006). The readers of this report may be shareholders, lenders, employees, customers, and creditors, general members of the public or probable investors. But an entity which is not classified as not reporting is that indicted by way of authority to determine whether user dependent exists on a GPFR or not (Ball, Robin, and Wu, 2003). In this circumstance, they are allowed to prepare an exceptional resolution financial report and not a GPRF as reporting ones are required to do. At the same time, it is important to note that those vested using authority to present which company has user dependence on GPFRs to allow them to describe the company as reporting or not. This helps them to come up with the reporting framework that will be used (Ball, 1988).
Reporting entities examples are those registered as public companies, large privately owned companies who have outside shareholders and do not have the right of entry to financial statistics apart from the yearly published accounts report and other interested parties or companies (Ball, Robin, and Wu, 2003). Those that are non-entity reporting include those privately held businesses with insignificant number of stock holders whom are usually employed as management of those business, those that are not for profit making organizations and those that are very small owned by view people or individuals (Ball, 1988). So, if a certain company is well-defined as a reporting entity, then it must have to prepare a GPFR report. That meaning, all Australian Accounting Standards has to be functional in the presentation of monetary report. On the other hand, if the company is not a reporting by classification, it only required to make a special purpose report which in any case doesn't require to use measurement and acknowledgement of Australian Accounting Standards with restricted disclosure (Ball, 2006).
There are some of the advantages and risks related with every reporting framework. As it has been argued is that, most significant threat to report is whether a certain company is appropriately well-defined as either reporting or not (Ball, Robin, and Wu, 2003). If definition is in correct as per ASIC requirement, then it will scrutinize those vested with the authority for making an inappropriate monetary report and as a result going against the reporting desires of the Companies Act 2001 as well as the Australian Accounting Standards. So, the experience learned from here is to ensure that company is properly defined and matched with right reporting framework.
Another advantage of those vested with authority is to discover the profits of creating a GPFR even if the company is not a reporting one in its nature. There might be certain chances for prospective new users to get to know about the company and its actions or tasks (Ball, 2006). Also there may be interested parties that value the additional information provided in a GPFR. The disadvantage side of it is the cost of preparing the report which could significantly be more than a special purpose financial report.
Also, registered firms use the report as an advertising tool to support their operations and make evident to their corporate social responsibility and the value they possess within the community at large. Therefore the concept of reporting entity and significance is well defined as an important to financial report made by the company and the linked benefits and risks.
We conclude that the two firms have a strong source of funds and a capital base to run these companies. To this end we saw the change movement that is applicable each year. The report also provided an evidence on the financial reporting styles for both small, large proprietary firms as well as reporting entities within ASIC. We got that both privately held companies and those that are publically held or listed companies are required to prepare a GPFR. Although it is expect that those entities which have potential users that are dependent for the end of year's report will use them as a basis of making decisions.
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