Current liability represents the obligation to the company that is due to be met within one year, it usually tells a direct relationship to the operation activities of a business.
Saturday, October 23, 2010
Wednesday, October 20, 2010
AGL's deferred tax liabilities policy
The Parent Entity and its wholly owned Australian resident subsidiaries formed a tax consolidated group under Australian taxation law with effect from 25 October 2006 and are therefore taxed as a single entity from that date. AGL Energy Limited is the head entity in the tax consolidated group.
The members of the tax consolidated group have entered into a tax sharing and tax funding agreement. The tax funding agreement requires payments to/from the head entity equal to the current tax liability (asset) assumed by the head entity and any tax loss deferred tax asset assumed by the head entity. The payments are recorded as intercompany receivables/payables.
As a result of retrospective changes to the tax consolidation legislation enacted in June 2010, AGL has recognised a tax benefit of $85.5 million relating to tax deductions which are available for the tax value allocated to certain derivative assets in place at the time of the merger/demerger transaction with Alinta Limited in October 2006. These changes will result in a tax refund of $89.0 million and a deferred tax liability of $3.5 million.
AGL’s long-term borrowing policy
Significant terms and conditions
Bank loans are unsecured and are repayable on maturity in October 2011. Bank loans bear interest at the relevant interbank reference rate plus a margin. The consolidated entity has entered into interest rate swap contracts to manage the exposure to interest rates. This has resulted in a weighted average interest rate on bank loans of 5.8% (2009: 7.1%) Finance lease liabilities are secured over the assets leased.
Customer deposits relate to security deposits lodged with certain subsidiaries of the consolidated entity by gas and electricity customers. Deposits are normally held by the consolidated entity for periods of either one or two years. Other gas deposits are held until such time as the customers cease to be customers of the consolidated entity and all outstanding amounts are either paid or deducted from the security deposits.
Accrued compensation and related costs
Salaries and wages:
employees earned salaries that have not yet been paid at the end of each accounting period.
Employee entitlements:
The collective term for benefit entitlements that employees accumulate as a result of the rendering of their services to an employer up to the reporting date. Employee entitlements consist of superannuation, annual leave and long service leave.
» Superannuation: is a certain percentage of employees’ total wages to fund their retirement.
» Annual leave: is paid leave that accrues to the employee for each year of service.
» Long service leave: is the extended leave awarded to an employee after serving a number of years paid employment.
Actuarial loss on defined benefit plans
Actuarial loss on defined benefit plans is the loss incurred from present value of the defined benefit obligation at the end of the reporting period less the fair value of the plan’s assets at that date and any unrecognized past service cost.
Direct method for operating cash flow of AGL
For the direct method, the analysis will be concentrated on two items: the receipts from customers and payments to the suppliers.
Receipts from customers
Cash inflows from customers refer to the difference between net sales and increase in trade and other receivables. The change in accounts receivable is shown as follows:
It can be found that the net increases in receivables through continuing operations are higher than decreases in receivables because of the collections form customers by $24.8m, which should be subtracted from revenues to calculate the cash flows from customers. Compared with the increasing change in accounts receivables of 2009, 2010’s falls significantly along with much higher revenues. This demonstrates more efficient performances of AGL related to the management and policy of cash flows, such as its credit sales or similar business on credit.
Payments to the suppliers
Changes in inventory and changes in accounts payable would contribute to the payments to the suppliers as following:
As shown in the reconciliation, AGL’s inventories increase by approximately $43m from 2009. Adding this amount with the cost of goods sales, the result would be the amount including the cash payments for the purchases of inventory and purchases on account. For AGL, cost of goods refers to sale of traditional energy and new sustainable energy. In this analysis, it is assumed to be $3068.5m, half of the expenses displayed in the income statement since the exact item of cost of goods has not been provided in the report. To further estimate the cash outflows, it is essential to analyse addition information in regards to the accounts payable. From the account of trades and other payable in AGL’s statement of financial position, the accounts payable indicates an increase by $59m, which means that increases to the credit purchases were greater than reductions to the accounts payable. For the increasing tendency of liability, the Broadening of business may be one reason. Moreover, cash may be distributed to the other aspects, such as the exploration of new energy so that the cash is reduced for the repayments of purchases on account.
Issued Capital
The issued capital is the capital contributed by investors through the purchase of shares in the company.
There are mainly two kinds of shares: ordinary and preference shares. The ordinary shareholders generally will have benefit in voting rights, dividends and residual claim. Voting rights means the rights to vote on major issues in the company, such as the elections of board of Directors’ members. Dividends mean the proportions of the company’s profit pay out to the shareholders. Residual claim is the right of company’s assets during the liquidation of the company. On the other hand, preference shareholders do not usually granted voting rights, have priority payment of dividends than ordinary shareholders and normally have a fixed dividend rate.
When a company decides to issue more shares to the public, they may participate by underwriting some of their shares to a financial service provider in order to minimise the risk of under subscription. Underwriting is the process by which investment bankers raise investment capital from investors on behalf of corporations. The underwriter should also buy the remaining shares that are not sold on the issue date.
Basic equations for cash and related transaction effects
Basic equation
Assets=Liabilities + Shareholders’ equity
Splitting assets into cash and non-cash assets:
Cash + Non-cash assets = Liabilities + Shareholder’s equity
From this relationship, the change in cash between beginning and the end of the period is:
Δ Cash = Δ Liabilities + Δ Shareholders’ equity – Δ Non-cash assets
Transaction effects
CATEGORY | TRANSACTION | CASH EFFECT | OTHER ACCOUNT AFFECTED |
Operating | Collect accounts receivable | +cash | -Accounts receivable (A) |
Pay accounts payable | -cash | -Accounts payable (L) | |
Prepay expense | -cash | + Prepaid expense (A) | |
Pay interest | -cash | -Retained earnings (SE) | |
Sale for cash | +cash | +Retained earnings (SE) | |
Investing | Purchase equipment for cash | -cash | + Equipment (A) |
Sell investment securities for cash | +cash | -Investments (A) | |
Financing | Pay back debt to bank | -cash | -Notes payable—Bank (L) |
Issue shares for cash | +cash | -Contributed capital(SE) |
Relationship between Cash Flow,Financial Position and Comprehensive Income
To acquire the cash flow, its relationship with Financial Position and Statement of Comprehensive Income should be considered since cash flow has close relationship with Financial Position and Comprehensive Income. Preparing cash flow statement involves an understanding of both comprehensive income and financial position.
Estimated useful life and Residual value
Estimated useful life
Estimated useful life means the expected service life of an asset to the present owner.
Residual value
Residual (or salvage) value means the estimated amount to be recovered at the end of the company’s estimated useful life of an asset.
Assets in Development and Producing Assets
Assets in development
The costs of oil and gas assets in development are separately accounted for and include past exploration and evaluation costs, development drilling and other subsurface expenditure, surface plant and equipment and any associated land and buildings. When commercial operation commences, the accumulated costs are transferred to oil and gas assets in production.
Producing assets
The costs of oil and gas assets in production are separately accounted for and include past exploration and evaluation costs, past development costs and the ongoing costs of continuing to develop reserves for production and to expand or replace plant and equipment and any associated land and buildings. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves.
Equity method
Equity method
An accounting technique used by firms to assess the profits earned by their investments in other companies. The firm reports the income earned on the investment on its income statement and the reported value is based on the firm's share of the company assets. The reported profit is proportional to the size of the equity investment. This is the standard technique used when one company has significant influence over another.
Tangible assets
Tangible assets
Tangible assets (fixed assets) usually refer to long-lived assets that have physical substance, such as property, plant and equipment. There are three main accounts of tangible assets, including land, plant and equipment and natural resources. Generally, land is detailed in the notes to the accounts rather than shown as a separate item on the statement of financial position.
The characteristics of long-lived assets:
1) Initial outlay for long-lived assets is significant
2) Purchase decisions upon long-lived assets are difficult to reverse.
Perpetual and Periodic inventory systems
Perpetual inventory system maintains a detailed inventory record for each type of inventory and in this system each purchase and sale during the accounting period will be recorded.
Periodic inventory system does not maintain up-to-date record of inventory. In this system, ending inventory and cost of goods sold are determined at the end of the accounting period based on a physical count.
Inventory : Raw material, Work in process and Finished good
Inventory : Raw material, Work in process and Finished good
A good purchased as a "raw material" goes into the manufacturing of a product. Goods that are only partially completed during the manufacturing process are called "work in process". When the good is completed as to manufacturing but not yet sold or distributed to the end-user, it is called a "finished good".
Methods to calculate cost of goods sold : FIFO and LIFO
There are several methods to calculate cost of goods sold such as FIFO and LIFO.
(1) First-in-first-out (FIFO)
Definition: FIFO, one kind of inventory costing methods, assumes that the first goods purchased (the first in) are the first goods sold.
Flow chart above shows the purchases of 100L of Gas at $40/per Liter in 2002, 80L of Gas at $50/per liter in 2005 and 50L of Gas at $100/per liter in 2007, which amounts to Goods available for sale of $13000. Under FIFO, each good sold is then assumed to be removed from the bottom in sequence (100L at $40 and 80L at $50). When sale order of 50L is sent to store in 2008, the 50L at $40 is sent to customers first and these goods totaling $2000 become cost of goods sold (COGS). In 2009, the remaining 50L of gas at $40 and the extra 30L at $50 is sent out as response to the order of 80L. Then the remaining amount ((80-30)*50+50*100=7500) become ending inventory.
(2) Last-in-first-out (LIFO)
Under LIFO, the goods sent out first should be 50L at $100 while the delivery for the second time is coming from purchase in 2005, 80L at $50. The cost of goods sold (COGS) is $9000 (50*100+80*50). Hence, the ending inventory after these two sales is $4000 (100*40).
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