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HI5020 Corporate Accounting And Financial Statements

HI5020 Corporate Accounting And Financial Statements

Sample Answer

Answer: Introduction In this assignment tow companies have been selected, NEPTUNE MARINE SERVICES LIMITED and PARINGA RESOURCES LIMITED. Both the companies belong to the marine sector and are listed on the ASX stock exchange. Neptune Marine Services Limited is a leading provider of integrated services that includes inspection, repair and maintenance solutions to the oil and gas and the other marine and renewable energy sector. The headquarters of the company is in Perth. It provides various special services as an individual solution or a complete package of solutions. It also provides various solution as a package of ‘total solution package’ to the client. It provides services that covers the basic requirement solution needs of the companies. It is a registered corporate under various heads like Subsea Energy Australia, Subsea UK, IMCA, and the Petroleum Club. In the given case the annual report of the company is downloaded and important details with respect to the same is discussed (Abdullah & Said, 2017). Paring Resource Limited is a very popular US Based energy provider and it is one of the largest and the biggest producer of largest and the lowest coal cost producing regions in the US. It deals in development of US marine oils and other high complex energy related services are also provided by the company. It indulges in development of Buck Creek Mining Complex and it is one of the largest remaining large-scale underdeveloped blocks of high quality coal that provides direct access to the Ohio river. The overall services that the company is providing is very unique. The annual report of the company has been downloaded and few important aspects related to the equity and other elements have been analysed for the company. Shareholders’ Equity: It is known as owner’s equity for the company. It helps in raising funds for the company in form of shares that are issued to the shareholders, the overall risk that is associated with this form of investment is lower in terms of raising funds through debts and other stocks. In case of public listed companies, the liability of the shareholders would be limited to the investment that they are making. In return of their equity, the shareholders are paid returns by the company in terms of interest. The main aim of the companies is mostly shareholder wealth maximization (Alsagoff, 2010). There are various elements that are included in the shareholder’s equity and are presented below- Equity Share Capital – The companies offer their share through stock exchange and raises funds through that. Most of the shares are allocated based on the nominal value of the total shares of the company. The shares can be issued both at a premium or discount depending on the management of the company. It is also important that the companies should see that they are putting proper returns to the shareholder of the company. In case of Paringa Limited, company has raised shares for a placement of 102 million shares of the company and there is no change in the overall equity share structure of the company. In the other case, Neptune Limited there is no change in the equity structure overall, however the companies have made indulgence in the share based payment to the employees and that shares are paid at fair value, thus it can be seen that there is a certain equity element involved(Antle & Smith, 1985). Retained Earnings – It is the overall earnings that the company has earned and that is retained in the funds of the company, the earnings are left to the company post the paying of dividend of the equity and the preference shareholders for the company. Even if there is no profit or loss, the company can still pay off the dividend from the accumulated profit sectors, given the fact that there are certain conditions that they can met with relation to certain conditions which they can meet. In case of Paringa Resources, the company cannot did not pay the dividend as there were huge losses that the company had faced in both 2016 and 2017(Boghossian, 2017). In case of Neptune Limited, interim dividend is paid by the company but there is no final dividend in lieu of the operations done by the company. There are accumulated losses that the company is having and hence they are not able to pay off the dividend and there are no profit elements involved with the same. Other Free Reserves- Free reserves are general reserves that can be used by the companies for any purpose and there are no specific elements that are attached to it. The free reserves are inclusive of many things like shares forfeited, premium received etc. In case of both the companies there are no such free reserves available, given the fact that they have incurred huge losses in the correct year(Coate & Mitschow, 2017). Non-Controlling Interests – In case of simpler terms, there are certain shareholders who are holding less than half of the total voting power that the company is having. In both the companies there have been acquisitions under business combinations and that thus with respect to that there are few minority interest shareholders due to the company. Thus, we see that the companies are having certain non-controlling interests in those subsidiaries by the companies and the same has been presented in the annual reports of the company(Dan, 1995). (Amount in USD Million) Paringa Resources - Owner's Equity Particulars 2017 2016 Equity 81,194 32,833 Reserves 457 -1389 Accumulated Losses -15,121 -15,121 Total Equity 66,530 16,323 In case of Paringa Resources the company is having huge accumulated losses and there are no retained earnings and that has affected the equity position of the company very badly. The overall reserves are also less and there are no minority interests with relation to the owners’ equity of the company. But from 2016 to 2017, there has been an increase in the overall owner equity for the company. (Amount in USD Million) Neptune Limited - Owner's Equity Particulars 2017 2016 Equity 273,540 273,540 Reserves -15725 -13722 Accumulated Losses -200,164 -187,019 Total Equity 57,651 72,799 In case of Neptune Limited, the equity shares of the company are same in both the share which means there was no change in the overall equity structure of the company. It can also be seen that the reserves that the company are having are in negative which means that the company is having huge accumulated losses and apart from that also there are accumulated losses. Thus, we see that it would be difficult for the entities to pay good returns to the shareholders who are dependent on them in some ways (Delone & Mclean, 2004). 2) The companies have option to raise funds through various options which includes debt and equity. In case of debt the risk element is more, but the return that the company gets in relation to that is more. In case of equity there is less risk and stable returns. On analysing the debt-equity position of both the companies they have taken efforts to reduce the amount of debts that they are having and trying to improve the overall position of the shareholders of the company. (Amount in USD Million) Neptune Limited - Owner's Debt-Equity Position Category Description 2016 2017 Debt Interest bearing Debts 15 465 Total Debt 15 465 Equity Equity attributable to shareholders of 57,651 72,799 Total Equity 57,651 72,799 Debt-Equity ratio 1% 1% (Amount in USD Million) Paringa Resource Limited - Owner's Debt-Equity Position Category Description 2016 2017 Debt Other Financial Liabilities 3750 1500 Total Debt 3750 1500 Equity Equity attributable to shareholders of 60,575 16,323 Total Equity 60,575 16,323 Debt-Equity ratio 1% 9% There is a lot of difference between the debt-equity position of the two companies. Neptune Limited is at a lower position of the Paringa Resources and that can be seen from the given tables above. In case of Paringa the overall debt is lower than Neptune Limited. Hence it can be seen that Neptune is at a more balanced position in terms of raising funds in comparison to Paringa (Eddy, et al., 2004). The cash flow statement depicts the movement of cash from the beginning of the financial period to the end of the end of the financial period and the various transactions that have affected the position of the cash are also taken into consideration. It depicts the movement of the liquidity front of the company in terms of income earned and it is as per the relevant provisions of the Australian Accounting Standards and the Corporation Act 2001. The major segments of the cash flow statement have been given below Cash Flow From Operating Activities. It covers those transactions that occurs in the ordinary course of the business and results in an increase or decrease in the overall cash element for the company. Few of such transactions will include collections from debtors, cash paid to creditors, operating expenses that are paid, payment of interest and other current liabilities etc. In case of Paringa Resources, cash flow from operating activities is negative as the company has paid off huge amount to its creditors. In case of Neptune Limited the cash paid from operating activities is positive and the company is involved in various operating transactions which includes receipts from customers, interest received, interest paid, income tax paid, payment to suppliers, and thus all these activities have resulted in a positive cash flow from operating activities of $4,940 and that is in different to the Paringa Resources Limited (Gray, 2018). These are the activities that are related to the cash flow of the company because of their investment activities as they are having idle funds or they want to increase their overall business operations and that is affecting their movement of cash in the company. There are various transactions that fall under this category and includes, purchase of securities, investment in securities and other joint ventures etc (Gullet, et al., 2018). In case of Neptune Limited the company has purchased some plant and property and have also sold some. The company has also purchased some intangible assets for the company. Thus, there is a negative cash flow from the activities of $916. In case of Paringa Resources Limited the company has purchased certain property, plant and equipment and has also made payment for deferred considerations and has also paid for exploration of the evaluation of the assets for the company. The net cash flow from the investing activities in this case is $8575 and it is negative and thus we see that for both the companies are having negative cash flow from investing activities for both the companies involved (Kusolpalalert, 2018). There are activities that are capital in nature and affects the financial position of the company. Few of the transaction that are included are issues of share or debenture, repayment of the long-term debt, redemption of the debentures, payment of interest, receiving interest etc. In case of Neptune Limited, the company has paid dividends, repayment of borrowings, receipt of deposits and that has made the net cash flow that the company has received equal to $5,125. In case of Paringa Resources the company has indulged in two financing activities that includes proceeds from issuance of the shares and payment for the issue costs and that has made the overall cash flow from financing activities positive $48,128 (MORGAN, 1988). Thus, we see that Paringa Resources have a better cash flow position in comparison to the Neptune Limited for the Company. In the given case above we can see that an analysis of the cash flow statement of both the companies are given, the total cash flow for Neptune Limited has been more or else stable in comparison to the prior years that has been given, there is not major difference in the total cash flow at the end of the period (Richard & Stephan, 1995). Mostly it can be seen that only operating activities have been positive rest investing and financing related have been mostly negative and that can be seen from the information that has been provided by the companies. Currency exchange fluctuations have also affected the position of the cash flow adversely. The position of the cash often indicates the overall liquidity position of the company and based on that it can be said that in this case the position is overall positive and in case the company must pay off its liabilities then it is having enough cash but since prior years there is a degradation in the same and the management needs to take care of that (Eddy, et al., 2004). In case Paringa Resource Limited cash flow from operating activities has always been negative, only cash flow from investing financing activities is positive which means that the company is not able to manage its normal business operations in a positive way and that is affecting their cash position. It can also be seen that cash position because of financing activities have become a lot better (Sikka & Willmott, 2010). This shows that the company has enough resources to pay of its debts and its overall liquidity position is stable. But there are certain aspects that companies need to see that the cash position has deteoriated over the years and the management needs to take care of that (Vieira, et al., 2017). Statement Of Other Comprehensive Income A statement of comprehensive Income Statement for the two companies have been stated below. In case of Neptune Limited, the currency has indulged in foreign transactions and that has affected their income statement. Also, net income or loss from hedge transactions are also presented in the income statements. These are those elements that cannot form part of the basic income statement for the company. In case of Paringa Resource Limited other comprehensive income is inclusive of the gain or loss that the company has got from foreign exchange transactions and has affected their financial positions(Yadao, 2018). Treatment related to Corporate Tax: The table below highlights the taxation metrics for three years of the two companies: Neptune Limited - Tax Details Particulars 2017 2016 2015 Tax Expenses Incurred 309 -1,341 1,353 Effective tax Rate 30.00% 30.00% 45.50% Taxes paid in Cash 76 741 16 Deferred tax -5737 -1898 -1970 In case of Paringa Limited the company has incurred huge losses and thus they have not paid any taxes and hence no statement is available (Eisemann, et al., 2017). In case of Neptune Limited, the company has paid taxes and made specific disclosures with respect to that in their annual report based on the table given below. References Abdullah, W. & Said, R., 2017. Religious, Educational Background and Corporate Crime Tolerance by Accounting Professionals. State-of-the-Art Theories and Empirical Evidence, pp. 129-149. Alsagoff, N., 2010. Microsoft Excel as a tool for digital forensic accounting. Antle, R. & Smith, A., 1985. 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'Extraordinary turnaround': Big miners pushing ASX towards 10-year high. The Sydney Morning Herald. Gullet, N., Kilgore, R. & Geddie, M., 2018. USE OF FINANCIAL RATIOS TO MEASURE THE QUALITY OF EARNINGS. Academy of Accounting and Financial Studies Journal, 22(2). Kusolpalalert, A., 2018. The relationships of financial assets in financial markets during recovery period and financial crisis. AU Journal of Management, 11(1). MORGAN, G., 1988. ACCOUNTING AS REALITY CONSTRUCTION:TOWARDS A NEW EPISTEMOLOGY FOR ACCOUNTING PRACTICE. Accounting, Organizations and Society, 13(5), pp. 477- 485. Richard, B. & Stephan, H., 1995. The negative effect of an accounting standard on employee welfare: the case of McDonnell Douglas Corporation and FASB 106. Accounting, Auditing & Accountability Journal, 8(3), p. 12. Sikka, P. & Willmott, H., 2010. The dark side of transfer pricing: Its role in tax avoidance and wealth. Critical Perspectives on Accounting, pp. 342-356. 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