Buacc5932 Corporate Accounting : Accounting Assessment Answers

5. All topics covered during the course of the semester will be examinable. The examination will be of three hours duration. The examination will assess your:

understanding of the techniques used in corporate accounting

understanding of corporate accounting issues

ability to analyse and apply the most appropriate techniques to a problem and be able to interpret the results and offer a reasoned logical solution in a coherent and readable form

Further details will be provided nearer the completion of the semester.

Mark allocation will be specified in the final examination guidelines document and on the final examination paper

1: AGL can be regarded as the largest as well as fastest growing energy corporation in Australia. This corporation operates has immense experience in the field of energy business for over and above 180 years. Essentially, the primary business areas of AGL are solar PV, gas as well as electricity in addition to other associated products/services. In essence, AGL has a customer base of around 3.5 million. AGL’s mission is to deliver a carbon retrained future to people in Australia. However, AGL can be regarded as one of the most integrated energy corporation that delivers different types of energy associated products/services. Essentially, chief aim behind production of energy is to lessen the impact of emission of green- house gas on earth (What We Stand For | AGL, 2017). In addition to this, AGL also has miscellaneous portfolio of power generation. However, parts of this portfolio of power generation include base, peaking as well as intermediary plant generation, developing storage of different natural gas and diverse categories of renewable sources such as solar, landfill gas, wind, biomass and hydro among many others. Other than this, AGL also has a distribution network of electricity. In essence, the primary geographical location of this distribution network of electricity is carried out is the eastern Sydney, Central costs as well as Hunter region. Yet another main function of the corporation is to establish energy in addition to gas plants for companies regardless of size and category of businesses (About AGL | AGL, 2017). .

2: AGL operating in the industry of renewable energy of Australia has a bright future. According to opinion of majority of scientists across the world, Australia has the capability to become a leading superpower in the segment of renewable energy in the entire world owing to storage of fuel energy of the nation. In essence, demand for renewable energy in particularly Australia is escalating as the Australian Government has currently implemented around 33,000 GWh Renewable Energy. Currently, 16% of the entire electricity utilized in Australia is necessarily renewable energy and majority of the energy is derived from wind energy. In addition to this, there is also existence of biomass as well as hydro energy. Again, the Australian government considers the fact that in the coming years; 1/3^rd of energy utilized in Australia will essentially be solar energy (What We Stand For | AGL, 2017).

Again, it can be witnessed that there are necessarily three major corporations that can be regarded as the rivals of AGL. The competitors of AGL are essentially the Duke Energy Corporation, Origin Energy Limited as well as International Power Limited. In essence, all these corporations necessarily operate in the energy as well as power business. The competitor Duke Energy Corporation is necessarily engaged in supplying electric and gas to all the people of south as well as mid Australia. In essence, the primary business function of International Power Limited is necessarily operations of fossil-fuel power plants. Again, the primary business functions of Origin Energy Limited are necessarily in the areas of gas, energy and power among many others. Grounded on the discussions, it can be hereby mentioned that the business firm AGL has good business prospect in the upcoming period. By itself, the rate of growth in the industry of renewable energy can be considered to be the primary reason behind the business prospect in this industry. Thus, the business concern AGL can acquire advantage of the progress made in this industry as mentioned above and formulate business strategies accordingly (About AGL | AGL, 2017).

3: As rightly indicated by Bartelmus (2014), financial framework of a business concern can be indicated as the precise amalgamation of long term debt and equity that a company can use in a bid to finance its functions. Fundamentally, this arrangement affects risks and the value of the asset of the entire business. Particularly, the financial framework of AGL is such that as specific amount of flow of cash of the business concern basically gets focused towards creditors and a certain amount is delivered to shareholders of the firm. Essentially, the business concern AGL has specific debt equity ratio. As such, the borrowing of AGL has escalated to approximately $3.9 billion from the amount of $3.7 billion; specifically this increase in percentage is around 5.4%. However, this increase is owing to the acquirement of Macquarie Generation. Particularly, during the year 2014, the business concern has issued Medium Term Notes that is worth around $600 million. During the year 2015, the business has raised finances of around $410 million using long-term borrowing scheme. However, during the end of the year 2015, the firm’s ratio of (Net Debt/ (Net Debt + Equity) was registered to be around 28%. However, with the assistance of the funds that are raised, the business established a facility that has a cost of around $100 million.

Again, the equity share capital of AGL during the financial year FY 2015 and FY2014 was registered to be $6696 million as well as $5437 million correspondingly. Essentially, the fraction of equity capital enhanced during the financial year 2015. Particularly, the total amount of borrowings (long-term) decreased during FY2015 to $3439 from $3669 registered during the FY2014.  Again, during the FY 2015 and FY2014, the total worth of intangible assets of the business concern was approximately $3266 million and around $3248 million correspondingly.

4: The important fundamentals of financial performance of business concern are essentially assets, liabilities, revenue, net profit/loss as well as specific investments that are undertaken by different owners, deliveries to specific owners, incomes, disburses along with all-inclusive income. Essentially, assets are fundamentally those things that a particular company owns. In As such, assets consists of cash, specific inventory, plants, property as well as buildings, alongside various intangible assets. Again, assets of AGL is registered to be around $15833 million throughout the year 2015. Again, liability of the corporation is essentially a company’s financial debt otherwise responsibilities that arise specifically during particular course of functions of business. By itself, liabilities can be properly settled by means of transfer of different economic benefits that contains of monies, products along with services. Fundamentally, liabilities of the corporation AGL is recorded to be approximately $7018 million during the FY 2015 (AGL Annual Report 2015, 2015). Basically, equity denotes the overall value of shares that are declared by a business concern. In this case, equity of the corporation AGL is recorded to be around $8815 million during FY 2015. Yet again, analysis of financial reports of firm reveals the fact that investment of AGL registered to be $91 million indicates towards the finances that is invested by the business concern. Yet another significant factor that replicates financial performance of the business concern is the revenue that represents total earnings of a firm that is shaped by marketing definite amount of firm’s output specifically at a price and subtracting government tax (Carvalho et al., 2016). As such, revenue of the corporation AGL is recorded to be around $10678 million. Nevertheless, disbursements of the corporation is registered to be approximately $9759 million. Besides, profit that replicates financial advantages is necessarily difference between amount earned and spent in purchasing, operating otherwise producing things. Particularly, the profit yielded by the corporation AGL is around $218 million (AGL Annual Report 2015, 2015)

5: AGL carried out 100% acquirement of Australian Power and Gas Company Limited (APG) during the financial year 2014. Essentially, the business concern has stated regarding this event in the upcoming year’s financial declaration and appropriately adjusted the entry accordingly. Essentially, the cost of business transaction of the acquirement was essentially $16 million. In particular, $2 million was related to the process of termination of different funding abilities of APG. Again, $21 million was related to the prevailing customer service provisions. Again, $11 million can be associated to the cost of termination (AGL Annual Report 2015, 2015).  

6: Fundamentally, AGL has altered the identification of distribution usage of costs of system. Particularly, this transformation directs towards grossing up of specific revenues as well as expends in consolidated declarations. Owing to this alteration, there was a revival of different comparative information in specific consolidated financial announcements (Bartelmus, 2014). Again, AGL also announced regarding this to the market on 22^nd January of 2015. However, this alteration in process of detection of Distribution Use of costs of System was basically undertaken in South Australia as well as Queensland for necessarily operating sections of specific Energy Markets. Other than this, this business enterprise also announced an alteration in the foundation of the reporting section in a bid to keep in line with the framework of organization on particularly 16^th April of 2025 as well as consequent review and reframe of “Upstream Gas Business” (AGL Annual Report 2015, 2015). Thus, comparative information has been mentioned to reflect the modifications in reportable operating segments.

Carrying amount of plant, property as well as equipment

Bartelmus (2014) asserted that carrying amount can be utilized instead of book value. Essentially, the carrying amount shows the amount that a specific business has necessarily on particularly asset otherwise liability in the books. In particular, accounting regulation AASB 116 can be implemented for accounting property, plant in addition to equipment and excluded at the time when other guidelines permits a different treatment for accounting.  According to the accounting standard para 6 (definitions) of AASB 116 carrying amount can be considered as the quantity at which a specific asset is identified after subtraction of amassed depreciation in addition to accumulated impairment loss (Aasb.gov.au, 2017). According to consolidated declaration of financial position of the corporation AGL represented in the pronouncement of the year 2015, property, plant as well as equipment mentioned under the non-current assets has carrying amount equal to $6958 million (AGL Annual Report 2015, 2015).

Accounting policies related to Property, Plant and Equipment

In particular, financial declarations of the business concern AGL are prepared in accordance with the regulations stipulated under Corporations Act 2001 in addition to AASB 1039 for Concise Financial Declarations. Fundamentally, financial announcements of the corporation AGL Energy Limited are an excerpt from mainly the full declarations. In actual fact, the accounting policies that can be related to property, plant, as well as equipment (PPE) is AASB 116. Essentially, this specific accounting regulation is specifically pertinent for accounting treatment of PPE excepting when other regulations require a diverse accounting use. As stated by the regulations mentioned under directives of paragraph 6 of the accounting standard AASB 116 (stands for recognition), cost of specific items of PPE needs to be recognized as a particular asset if it is probable that the economic advantages in the future period can be associated to the items that flow to business units and the cost of the item can be dependably calculated (Aasb.gov.au, 2017). In addition to this, according to paragraph Aus. 15 of accounting directive mentioned under AASB 116, diverse items of PPE that basically qualifies for acknowledgement as an asset can be computed at cost (Aasb.gov.au, 2017).

Description of the accounting policies related to Intangible Assets adopted by AGL

In essence, particular accounting strategies that can be related to intangible assets taken up by the company AGL is AASB 138. Specifically, this accounting standard is in actual fact applicable to diverse business firms that needs to arrange and at the same time prepare specific financial pronouncements as per Part 2M.3 stipulated under Corporations Act. In addition to this, this accounting standard can also be implemented for general purpose financial declarations of each and every reporting entity along with financial pronouncements that are essentially general purpose financial statements. Yet again, according to Aus 1.2, this accounting standard can also be implemented to diverse annual declaration periods that essentially begins on or after 1^st January of 2005 (AGL Annual Report 2015, 2015). Besides this, the scope of this accounting standard replicates the applicability of this directive for intangible asset accounting excepting intangible resources that within scope of other Australian Accounting Standard (AAS), diverse financial resources that are as definitely illustrated in the standard AASB 132 for representation of different financial instruments, detection along with enumeration of mainly exploration in addition to evaluation assets, disburses on progress together with abstraction of minerals, natural gas, as well as undistinguishable non-regenerative resources (). In essence, intangible assets mentioned underneath total noncurrent resources of the company AGL Limited is have the worth of around $3266 million.

Impairments 

As rightly indicated by Mohd Nasir et al., (2011), Impairment loss can be calculated as specific amount at which carrying value beats the fair value. Russell (2015) asserts that after recognition of impairment loss, adjusted amount of carrying value of particular intangible asset essentially become the novel accounting base.

According to the statutory financial consequences of the business concern AGL Energy Limited, the maximum of the important items is fundamentally the impairment of approximately $600 million in the worth of upstream gas reserves of Gloucester. In addition to this, the copper oil sale is happening and expected to direct towards a loss of approximately $7 million that is a loss before deduction of tax (AGL Annual Report 2015, 2015).

References:

Aasb.gov.au, (2017). Retrieved 9 May 2017, from https://www.aasb.gov.au/admin/file/content105/c9/AASB138_07-04_COMPjun14_07-14.pdf

Aasb.gov.au, (2017). Retrieved 9 May 2017, from https://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun14_07-14.pdf

About AGL | AGL. (2017). Agl.com.au. Retrieved 9 May 2017, from https://www.agl.com.au/about-agl

AGL Annual Report 2015. (2015). Agl.com.au. Retrieved 9 May 2017, from https://www.agl.com.au/-/media/AGL/About-AGL/Documents/Investor-Centre/150826_AnnualReport_1466512.pdf?la=en

Mohd Nasir, A., Eves, C., & Yusof, Y. (2011). The Profiling of Property, Plant & Equipment (PPE) Contributions in Australia and Malaysia Public Listed Construction Companies. In Proceedings of 2011 International Conference on Construction and Real Estate Management (Vol. 2, pp. 769-773).

Russell, M. (2015). Management incentives to recognise intangible assets. Accounting & Finance.

Bond, D., Govendir, B., & Wells, P. (2016). An evaluation of asset impairment decisions by Australian firms and whether this was impacted by AASB 136.

Carvalho, C., Rodrigues, A. M., & Ferreira, C. (2016). The Recognition of Goodwill and Other Intangible Assets in Business Combinations–The Portuguese Case. Australian Accounting Review, 26(1), 4-20.

Bartelmus, P. (2014). Green accounting: Balancing environment and economy. Creating a Sustainable and Desirable Future: Insights from 45 Global Thought Leaders, 175.

What We Stand For | AGL. (2017). Agl.com.au. Retrieved 17 May 2017, from https://www.agl.com.au/about-agl/what-we-stand-for