ACCOUNTING POLICIES AND FINANCIAL STATEMENTS BY BHP BULLITON

QUESTION

Download the year ended 30 June 2010 financial statements from the BHP BILLITON corporate website and answer the following questions:

a) Comment on the composition of the board of directors. (3)

b) What commitments have been made to ensure that sustainability is integrated into all initiatives? (4)

c) What are the main operating activities mentioned in the director’s report? (4)

d) What is the main source of cash flow for the current year? Comment on the liquidity of the company. (5)

e) What method is used to value Property, Plant and Equipment? (2)

   What method is used to depreciate Property, Plant and Equipment and what        is the total depreciation expense for the year for Property, Plant and Equipment? (2)

 f) How does the disclosure of Property, Plant and Equipment compare with the requirements of the relevant Accounting Standards? (5)

 g) What is the deferred tax for the group?

How does the disclosure of tax compare with the requirements of the relevant Accounting Standards? (5)

h) What is the accounting policy for Business Combinations? (2)

i) What is regarded as cash equivalents? (2)

j) What are the accounting policies regarding dividends?

Have any dividends been paid this year? Give details.(4)

k) How is earnings per share calculated? (1)

What is the earnings per share for the year?(1)

SOLUTION

Answer (a)

According to the directors’reports,BHP Bulliton had performed well and strengthened its financial position. Long- term outlook is better for the company. The company has unique assets that will provide more revenue to it. Its economic and commodity spread are in a position that will provide risk reduction and optimise the opportunities. The directors are focusing on strong production, cost performance and long life low cost upstream high quality assets.

Answer (b)

There is a system to establish sustainability in the company. For this, company has made sustainability committee of the board which takes care of the sustainability in the company. There are four key components of sustainable developments.

First is health; company is focusing on the health of the employees by reducing the noise and like on the work place that could harm in long term. Second is safety; company is providing proper safety of the employees so that they couldn’t injured. Third is pollution; company is reducing and protecting pollution so that biodiversity can be prevented. And the last is community; company is engaging with those who are affected by the operation of the company and protecting their human rights.

Answer (c)

Companies’ main operating activities are –

Petroleum

Aluminium

Base metals

Diamonds specialty products

Stainless steel materials

Iron ore

Manganese

Metallurgical coal

Energy coal.

Answer (D)

Main sources of cash flow in the current year-

Petroleum-8382

Aluminium-5746

Base metals- 14774

Diamonds specialty products-969

Stainless steel materials-5088

Iron ore-9455

Manganese-2912

Metallurgical coal-3941

Energy coal. -6560

Company’s liquidity is pretty well as Base metal is giving most revenue out of the operating activities.

Answer (e)

The method is used to depreciate plant and equipment, and property by straight line method. Total depreciation on Property, Plant and Equipment is 4759.

Answer (f)

According to the AASB-116, Assets are recorded at cost less depreciation and impairment charges. Basically cost is the value at the time of acquiring the asset which includes direct cost and cost of bringing the asset to the desired location.

Answer (g) 1^st part

Deferred tax is the tax that is not paid to the tax department. But it payable sometimes in future.

When tax is not paid by the companies of the group company , it is called deferred tax for the group.

 Answer (g) 2^nd part

The government is imposing a new resource tax . This will increase  the tax amount from 43 % to 7 %.The problem is that government has not defined all the things regarding design , implementation and application of new tax. The will affect the investment in the company because investors have no idea how much amount of tax will be out followed from the company.

Answer (h)

Business combination has been done on the basis of Australian accounting standards. Purchase method of accounting is used for business combination. Combined purchased consideration includes assets, liabilities and contingent liabilities on the basis of fair value at the date of acquisition.

Answer (i )

Cash equivalents are safe and solid investments that are very near to cash or highly liquid. Near cash means, it can be converted into cash in a short time. Cash equivalents have short time of maturity. They have very low risk.

Examples of cash equivalents

a)     T-Bills

b)     Commercial paper

c)     Short term Interest bearing investment

d)     Outstanding accounts receivables

e)     Checks

f)      gift cards and gift certificates making possible to purchase goods and services without having cash

 Answer (j) 1^st part

 Dividends are to be paid either from cash flow from financing activities or from operating activities. According to the Australian accounting rule, company has to disclose higher cash flow from operating activities. Dividends declared are not recorded as liability.BHP Billiton declared dividend of 45 us cent per share but will be paid on 30 September 2010.

Have any dividends been paid this year? Give details.(4)

Answer 2^nd part

Dividend announced is US 45 cents.

But it will be paid at 30 September 2010.

Since the interim dividend is not paid on 23 March 2010 so total dividend paid will be 87 US cents per shares. Thedividend paid will be fully franked for Australian taxation purposes. The dividends have declared in US dollar. It is also paid in pounds sterling and South African rand. Any currency conversion elections made after 10 September 2010 will not apply to this divided.

Answer (k) 1^st part

To calculate following things are followed

a)     First profit after tax is calculated.

b)     Outstanding shares are taken from balance sheet.

c)     EPS= (profit after tax )/ (outstanding shares)

 Answer (k) 2^nd part

Required EPS (excluding exceptional) = 224.1 US cents.

References:

1. 1.      Armitage, H. M. and Nicholson, R., 1993. Activity-based costing: a survey of Canadian practice, Issue Paper No. 3, Society of Management Accountants of Canada.
2. 2.      Ask U. and Ax, C., 1992. Trends in the Development of Product Costing Practices and Techniques—A Survey of Swedish Manufacturing Industry. Paper presented at the European Accounting Association Conference, Madrid, 22–24 April.
3. 3.      Bjornenak, T., 1997. Diffusion and accounting: the case of ABC in Norway, Management Accounting Research, 8, 3–17.

Bjornenak, T. and Mitchell, F., 1999. A Study of the Development of the Activity-basedCosting Journal Literature 1987–1998, Working 

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