BHP Billiton Limited - Assignment Example

A.BHP Billiton Limited Introduction BHP Billiton is a global natural resource corporation formed in the year 2001 by the merger of BHP and Billiton Plc. The company is involved mining of ore, steel oil, and gasses. The corporation as also interest in engineering and transportation. The company as a subsidiary investment BHP Iron Ore (Jimblebar) Pty Ltd worth 85 % share.The subsidiary company invests in iron ore mining.The proportion of ordinary shares held in principal subsidiaries is disclosed in Note 26 to the note to financial statement ‘Subsidiaries’. 1. The group follows goodwill method BHP Billiton assumed the full process of realizing goodwill. This is reflected in the Goodwill and intangible asset accounting policy for BHP Billiton annual reports 2014. 2. How goodwill or gain on bargain purchase is calculated and Disclosed The company estimates goodwill on acquisition where difference in value of the consideration paid for business combinations is excess of the fair value of BHP Billiton’s share of the realizable asset 3. How revaluation of assets of the subsidiary is done According to annual financial statement of BHP Billiton, limited there is asset revaluation (BHATTACHARYYA, 2012).Revaluation of subsidiary asset is done by taking into account changes in fair value from the time of subsidiary asset purchase. The difference is credited to revaluation reserve account. 4. Testing impairment of goodwill BHP Billiton does not amortize goodwill; however, its carrying amount is ascertained yearly against its recoverable amount. This is explained by the impairment of fixed asset. On subsequent disposal of a prior acquired business, the company considers any remaining balance of goodwill and includes it in the determination of the profit or loss on disposal weak termination. 5. Calculating non-controlling interest and its disclosure Non-controlling interest is the share of equity rights in a subsidiary not attributable to the parent company. Nom-controlling interest= {purchase consideration-share of net asset}. The proportion of Non-controlling interest is accounted for in the consolidated income statement as net income attributable to subsidiary concern. 6. Whether NCI shares any goodwill or not under the goodwill method applied BHP Billiton has its goodwill included in non-controlling interest (Barry J. Epstein, 2009). This is because, under full goodwill method adopted by the company, it allows for the realization of goodwill share in the non-controlling interest. 7. Consistency of the financial reporting and disclosure with AASB 13 and AASB 10 The financial report of BHP Billiton Limited complies with Australian Accounting Standard Board (AASB 3) and AASB 10 because, the annual report represent a comprehensive report to shareholders together with the fair value measurement. This is achieved by accounting for revaluation reserves. The accounts, therefore, are in agreement with the books of account and can thus be relied upon by users of the financial report in making an investment decision about the company. B. Woolworth limited Introduction Woolworth is Australia largest supermarket chain with over 870 chains across Australia. The company employs 111,000 employees in stores, outlets, as well as support staff. The company owns 75% equity shares in ALH group Pty Limited, which is a subsidiary of Woolworth limited, the company also owns 60% of equity shares in Harding’s hardware Pty Limited (James Wahlen, 2012). More Disclosures concerning interests in subsidiaries are set out in Note 29 (Notes to the financial statement) 5. Goodwill method followed by the group The company adopted full goodwill method in realizing goodwill on acquisition of its subsidiaries. The company recognized goodwill on acquisition of $ 45.9 million. This is due to the company’s capacity to generate recurring revenue streams 6. How goodwill or gain on bargain purchase is calculated and Disclosed Goodwill is worked out as the difference between the amount of consideration transferred from the purchaser as well as net identifiable asset acquired Goodwill={purchase consideration+ Value of controlling interest+ fair value of equity interest+ Net asset realized} The value of goodwill on acquisition is disclosed in the statement of financial position as non-current asset. 7. How revaluation of assets of the subsidiary is done According to Woolworth group annual financial statement, the company realized an asset revaluation .this is realized by taking into account changes in fair value from the time of subsidiary asset acquisition. The difference is credited to revaluation reserve account. 8. Testing impairment of goodwill The company tested for impairment of goodwill using the AASB 136 (Impairment of asset). Woolworth limited calculated the fair value of the reporting unit and evaluated with the value with the carrying amount inclusive of the goodwill .where there is a surplus of fair value from the book value (James Wahlen, 2012). The company then calculates the value of goodwill impairment and account for any loss in the income statement. 9. Calculating non-controlling interest and its disclosure Non-controlling interest is the share of equity ownership in a subsidiary not attributable to the parent company.NCI is calculated as {purchase consideration-share of net asset}. NCI is accounted for in the income statement under the net income attributable to subsidiary interest. 10. Whether NCI shares any goodwill or not under the goodwill method applied Since, Woolworth account for goodwill under the full process approach, goodwill is included in Non-controlling interest. 11. Consistency of the financial reporting and disclosure with AASB 13 and AASB 10 According to AASB 3(Business combination), the statutory provides that there is enhancement of information concerning the business combination by an entity for annual reporting period. AASB 3 require the following fulfilment be made in the annual report to identify the purchase as well as determine the acquisition date Realizing the identifiable tangible and intangible asset measured at fair value at the time of purchase as well as the liabilities assumed Recognizing and measuring goodwill or gain from acquisition AASB 10 (Consolidated financial statement) establishes standards for the presentation of comprehensive financial statement when a company controls or more entities. The standard, therefore, provides that an entity disclose The requirement of the consolidated financial statement in AASB127 Consolidated and separate financial statement Interpretation of special purpose entities The financial report of Woolworth limited is in conformity with ASBA 13 and AASB 10 since, the annual report depict a consolidated report to shareholders that is all inclusive as well as provide the fair value measurement by realizing and accounting for revaluation reserves (Paul Fischer, 2015). In this regards, the going concern assumption of the company can be ascertained by users of the financial report. Conclusion and Recommendation The 2014 annual report for BHP Billiton Limited is in compliance with the required accounting standard on discourse of the annual report. The company provides comprehensive annual report that considers both the external and internal report that is relevant to the users of the annual report. The annual report contains both the detailed report as well as the sustainability report certified by the Independent Auditors. In this regards, the annual report for the company can be relied in making decision since, the going concern assumption of the business s accounted. The Woolworth 2014 annual report depict the company has going concern. However, the weakness of the report is that it doesn’t account for corporate social responsibility (sustainability report is not disclosed) in this regards, the company should ensure that an integrated financial report is provided the considers both the green accounting and sustainability report in order to enhance the performance of the business as far as accounting standard and disclosures are concerned (Saudagaran, 2009). References Barry J. Epstein, R.N.S.M.B., 2009. Wiley GAAP 2010: Interpretation and Application of Generally Accepted Accounting Principles. 6th ed. New york: John Wiley & Sons. BHATTACHARYYA, A.K., 2012. Essentials of Financial Accounting: BASED ON IFRS. Sydney: PHI Learning Pvt. Ltd., 2012. James Wahlen, J.J.D.P., 2012. Intermediate Accounting: Reporting and Analysis. New York: Cengage Learning, 2012. Paul Fischer, W.T.R.C., 2015. Advanced Accounting. New York: Cengage Learning, 2015. Saudagaran, S.M., 2009. International Accounting: A User Perspective. London: CCH, 2009. Read More