From your companies’ financial statements, list each item of equity and write your understanding of each item. Discuss any changes in each item of equity for your firms over the past year articulating the reasons for the change

Assignment Brief

HI5020 Corporate Accounting Assessment item 2 , Assignment

Assessment task Select two public limited companies listed on the Australian Securities Exchange (ASX) that are in the same industry. Go to the website of your selected companies. Then go to the Investor Relations section of the website. This section may be called, “Investors”, “Shareholder Information” or similar name. In this section, go to your companies’ annual reports and save to your computer your firms’ latest annual reports consecutively for last three years. Do not use your companies’ interim financial statements or their concise financial statements. Please read the financial statements (balance sheet, income statement, statement of changes in owner’s equity, cash flow statement) very carefully. Also please read the relevant footnotes of your companies’ financial statements carefully and include information from these footnotes in your answer.

You need to do the following tasks: OWNERS EQUITY (5 Marks)

(i) From your companies’ financial statements, list each item of equity and write your understanding of each item. Discuss any changes in each item of equity for your firms over the past year articulating the reasons for the change.

(ii) Provide a comparative analysis of the debt and equity position of the two firms that you have selected.

CASH FLOWS STATEMENT (5 Marks)

(iii) From the financial statement of your chosen companies, list each item reported in the cash flows statement and write your understanding of each item. Discuss any changes in each item of cash flows statement for your companies over the past years articulating the reasons for the change.

(iv) Provide a comparative analysis of your companies’ three broad categories of cash flows (operating activities, investing activities, financing activities) and make a comparative evaluation for three years.

(v) Also provide a comparative analysis of the two companies that you have selected explaining the insights that you can get from the comparative analysis.

OTHER COMPREHENSIVE INCOME STATEMENT (5 Marks)

(vi) What items have been reported in the other comprehensive income statement for each company?

(vii) Why have these items not been reported in Income Statement/Profit and Loss Statements?

(viii) Provide a comparative analysis of the items shown in the other comprehensive income statement section for the two companies. If these items were included in the income statement / profit and loss statements of each company, how would the profit attributable to shareholders of the company be affected?

(ix) Should other comprehensive income be included in evaluating the performance of managers of the company?

ACCOUNTING FOR CROPORATE INCOME TAX (15 Marks)

(x) What are the tax expenses shown in the latest financial statements of the two companies that you have selected?

(xi) Calculate the effective tax rate for both companies that you have selected. Effective tax rate is calculated as (income tax expense / earnings before tax). Which one of the companies has the higher effective tax rate?

(xii) Comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded.

(xiii) Was there any increase or decrease in the deferred tax assets or in the deferred tax liability reported by each of your selected companies?

(xiv) Please calculate the cash tax amount for both companies using the book tax amount, changes in the deferred tax assets and deferred tax liability (please do your own research for your better understanding of these concepts and the method of calculating the cash tax amount the book tax amount.)

(xv) Calculate the cash tax rate for both companies. Which company has higher cash tax rate? (Please do your own research to familiarise yourself with how to calculate cash tax rate).

(xvi) Why is the cash tax rate different from the book tax rate?

Sample Answer

Selection of Companies

For this analysis, I have chosen BHP Group Ltd and Rio Tinto Ltd, both leading mining firms listed on the ASX. I downloaded their latest three annual reports and carefully reviewed the financial statements and relevant footnotes for each firm.

1. Owners’ Equity

i. Items of Equity & Changes Over the Year

From the Statement of Changes in Equity, I noted:

• Issued Capital / Share Capital: funds raised from issuing shares.

  • For BHP, a small increase reflects new shares from employee share plans.

  • Rio Tinto shows stability, no share issuance.

• Reserves (e.g., Hedging reserve, Foreign currency translation reserve): hold cumulative gains or losses not shown in profit.

  • Both firms experienced minor changes due to exchange rate impacts and adjustments for financial hedging.

• Retained Earnings: cumulative profits less dividends.

  • Both companies saw decreases due to substantial dividend payouts.

ii. Comparative Analysis of Debt & Equity Position

Using the Balance Sheet:

Both firms show stable gearing ratios (about 19%), indicating a moderate reliance on debt and strong equity financing.

2. Cash Flow Statement

iii. Cash Flow Items & Changes

From the Consolidated Cash Flow Statement, the main items include:

• Operating activities: cash generated from core business activities.

  • Both companies saw a decrease in operating cash flows due to lower commodity prices.

• Investing activities: purchases of PPE and intangible assets, plus sale of assets.

  • BHP slightly increased capex; Rio Tinto reduced capex as it completed major projects.

• Financing activities: dividend payments, debt issuance or repayment, share buybacks.

  • Both paid large dividends; BHP bought back more shares versus Rio Tinto.

iv. Comparative Analysis (3-Year Trends)

Across 3 years, performance trends are similar:

• Operating Cash Flows: declining for both due to falling commodity prices.

• Investing Cash Flows: increased capex; Rio Tinto showed reduction in later years.

• Financing Cash Flows: steady dividend payments, with BHP having slightly more aggressive share repurchase activity.

v. Comparative Analysis Between Firms

Rio Tinto generally maintains slightly stronger operating cash flows. BHP is more active in financing via share buybacks. These trends show Rio Tinto`s stable short-term cash position and BHP`s focus on shareholder returns.

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