2, Why has the leasing standard been changed? What will change? What does it mean for BHP and Rio Tinto? And how AASB 16 would benefit and or disadvantage the BHP and Rio Tinto? AASB 16 was issued in February 2016 and will come into effect in January 2019. This is to replace the current standard AASB 17. Transparency were not achieved under AASB 17 as the leasing items are not complete, neutral or free from error. Under the current standard, leases with similar financial circumstances to purchased assets were classified as finance lease therefore, it is being reported on the balance sheet. On the other hand, any other type of lease was classified as an operating lease and was not subject to the same reporting procedures. Also, under the current accounting standard, the obligation to make future payments under an operating lease are not recorded on the company’s balance sheet even though they represent a future liability The new standard has been developed due to lack of transparency regarding …show more content…
lease obligation between preparers and the users of financial reports. Thus, faithful representation element is now being recognised in the new standard because vast majority of operating leases as defined by the current standard, which currently do not impact the Balance Sheet will now be required to be capitalised on the Balance Sheet. The major change of AASB 16 for lessees is that, leases will no longer classified as either operating leases or financial leases.
This is due to the fact that many traditional operating leases will now be brought on balance sheet as as right-of-use assets representing its right to use underlying leases asset and lease liability representing its obligation to make lease payments will also be recognised on balance sheet. Also, there is no more rental expense. Under AASB 17, operating expenses operating lease payments are recognised as a straight line basis whereas under AASB 16, all lease will incur a front-end loaded expenses such as depreciation on the Right to use asset and interest on the lease liability. These expenses will be recognised in the income statement over the least term. Moreover, AASB 16 also allows two recognition exemption where a lessee may choose not to recognised the Right-to-use asset and lease liability; the short term leases and low value
lease. Although the new standard (AASB 16) will improve transparency it will also have a major impact on their financial reporting and business implications due to the fact that Rio Tinto and BHP Billiton Limited have a significant amount of expensive equipment’s that are held under operating leases. The new standard could also influence their leasing decisions and strategies, for example, they may shorter the lease term for them to minimise their lease liabilities. Furthermore, under the current accounting standards, operating leases and service contracts is similar, thus, they may have difficulties on determining whether it is a lease or a service contract.Under AASB 16, most leases will be recognised on balance sheets, the effects of treating an arrangement as a service instead of arrangement containing a lease may be material. The benefit of the new standard is to improve the level of transparency and quality of financial reporting and to improve comparability. Provided that financial reporting has been improved, both the companies and their stakeholders can get benefit from it. The new standard (AASB 16) can give more accurate representation of their financial positions by including all their liabilities and it will also provide more useful information in financial reporting for their stakeholders. Furthermore, reflecting the assets of the company provides a more faithful representation of the financial position about the company’s financial leverage and capital employed. This is to assure their investors with better knowledge of the financial position and performance of their company compare to the current accounting standard (AASB 17). Therefore, BHP Billiton and Rio Tinto can get more precise measurement under AASB 16 than AASB 17. AASB 16 can also improve the comparability of their financial information as the requirement to recognise and measure leases are now prescribed and consistent. Moreover, financial statement will indicate the distinct operating decisions made by different companies. As all obligations will need to feature on the balance sheet under the new standard, some costs and problems may occur. BHP Billiton and Rio Tinto, as a lessee will need to separate their non-lease components such as services fee like maintenance to make sure that only the required item and amount are included in the balance sheet. 3. What effect does AASB 16 has on BHP and Rio Tinto’s income statement, balance sheet and cash flow statement? What does it mean for users of BHP and Rio Tinto’s financial statements?
Shelly Zumaya (2220 East Hennepin Avenue, Minneapolis, MN 55413) is the president and sole shareholder of Kiwi Corporation (stock basis of $400,000). Incorporated in 2003, Kiwi Corporation’s sole business has consisted of the purchase and resale of used farming equipment. In December 2011, Kiwi transferred its entire inventory (basis of $1.2 million) to Shelly in a transaction described by the parties as a sale. According to Shelly and collaborated by the minutes of the board of directors, the inventory was sold to her for the sum of $2 million, the fair market value of the inventory. The terms of the sale provided that Shelly would pay Kiwi Corporation the $2 million at some future date. This debt obligation was not evidenced by a promissory note, and to date, Shelly has made no payments (principal or interest) on the obligation. The inventory transfer was not reported on Kiwi’s 2011 tax return, either as a sale or a distribution. After the transfer of the inventory to Shelly, Kiwi Corporation had no remaining assets and ceased to conduct any business. Kiwi did not formally liquidate under state law. Upon an audit of Kiwi Corporation’s 2011 tax return, the IRS asserted that the transfer of inventory constituted a liquidation of Kiwi and, as such, that the corporation recognized a gain on the liquidating distribution in the amount of $800,000 [$2 million (fair market value) - $1.2 million (inventory basis)]. Further, because Kiwi Corporation is devoid of assets, the IRS assessed a tax due from Shelly for her gain recognized in the purported liquidating distributi...
Financial Accounting Standards Board. (1985). Statement of Financial Accounting Standards No. 86. Norwalk. Retrieved April 7, 2014, from http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175820922177&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=189998&blobheadervalue1=filename%3Dfas86.pdf&blobcol=url
When it comes to safety most people think they are safe, and they have a true understanding on how to work safe. Human nature prevents us from harming ourselves. Our instincts help protect us from harm. Yet everyday there are injuries and deaths across the world due to being unsafe. What causes people to work unsafe is one of the main challenges that face all Safety Managers across the world.
Financial Accounting Standards Board (FASB). Accounting Standards Codification TM. Financial Accounting Standards Board (FASB), 2010. Web. 16 May 2014.
RBC Financial Group uses a customer relationship management (CRM) strategy that provides a variety of services for a variety of clients. The strategy allows for individual customers to trust RBC and develop a personal relationship with each and every client. One major factor that allows CRM to operate effectively is the use of technologies and analytics to help classify each client’s financial situation. These customer profitability-based techniques allowed RBC to categorize their clients into A, B, and C groups so that the sales teams could optimize their efforts in catering to these different clients. This strategy holds the following strengths: optimizing sales efforts to different customers, easily accessible electronic sales leads, centralized and standardized financial decisions, and building personalized and sustainable customer relationships. There are a few weaknesses to the system though including the complexity in predicting future positions of companies despite the use of analytics as well as the complexity in creating consistency when using these
The NAL still favors buying over leasing by $1216. The only other consideration would be that lease may raise the earnings on asset ratio above 12%. But since the PV of the lease payments is greater than 90% of the FMV (assuming the purchase prices is FMV), then it would be considered a capital lease and the asset would go on the Balance Sheet. Therefore there are no earning over asset ratio advantages to leasing.
BHP Billiton is the most successful company throughout the world by using unchanged strategies in their business. They have a strategy to operate large, low cost, expandable, and upstream commodities by using raw materials, geography, different assets and market, which give them a superior marginal costs throughout economic and commodity cycles for several years. They put the security of their workers first and supporting them by providing various facilities (see appendix 1). Their diversification makes the easy cash flow system by reducing the exposure to any one commodity and give for more identifiable and great financial performances. To become more successful BHP have heaps of human resources or workforce which reflect their values and communities. They have aim to recruit and attract other people who make their organization successful and thrive on working in teams and going to their extra miles to give their best. Moreover, they are committed to meet the changing needs of their customers. They have world class portfolio of growth option that will make them able to plan for a short term and long term goals and continuing them to create value for their shareholders which BHP more powerful (BHP Billiton, 2014). By using these all measures BHP Billiton kept its solid position in the nine month period till the end of March 2014 with the record of production attained for four items and at 10 operations. In aggregate, processing expanded by 10% for throughout the period what's more is required to develop by 16% over the two years to the end of the 2015 fiscal year. For further development BHP having a plan to start new projects where they pursuing a higher rate of returns on incremental investment and increasing inter...
The Political, Social, and Legal Environment of Business. Case Study Analysis: Union Carbide Corporation and Bhopal. A single slip in action may cause lasting sorrow. A slight mistake in operation at a Union Carbide pesticide plant in Bhopal, India, caused a lot of deaths and injuries. What a tragedy it is.
...ciates its assets on a straight line basis. Both IAS 16 and GAAP, depreciates assets over its expected useful life.
Introduction: Leighton Holdings is Australia’s one of the most reputed organization, which is active in engineering and infrastructure, mining and resources, environmental services industries and telecommunications which is listed on the Australian Securities Exchange since 1962. This company has operations in different countries including Australia, South East Asia, New Zealand, Vietnam, China and Middle East. The main focus and activities of Leighton Holdings include market positioning, strategic direction and planning, financial management and corporate and public affairs.
In the early part of this century was a time when industry was booming with growth around the installation of major railroads. With this growth came the transatlantic cable, the telegraph, and a whole lot of steel. Steel would be needed in the construction of these new transportation systems and communications were now possible between businesses and industries. (Wren, 2005)
Rio Tinto is a leading international mining group headquartered in the UK (United Kingdom), combining Rio Tinto plc, a London public listed company, and Rio Tinto Limited, which is listed on the Australian Securities Exchange. These two companies were founded in 1873 and 1903 respectively. The original Rio Tinto company was set up by a group of investors including Matheson & Co. and Duetsches Bank, who together bought Rio Tinto mine from the Spainish government for $3.7 million in the early 1870’s. By the end of the 1880’s Rio Tinto was known as the world’s leading copper producer.
...n. Based on the definition of asset/liability, the operating leases items meet it. Therefore the amount should show as asset/liability off balance sheet as well.
The Moral problem in the case we are facing is that BP oil company are exploited the people, polluting the ecology, diluting the government guidelines, cheating everyone for their profits is not acceptable on part of giant company like BP .Oil being a natural resource is being extracted by the company for their vested interests neglecting the society and the climate. The food pyramid is getting affected due to its short cuts and lapse in guidelines and total negligence resulting in gross cheating and mass killing of live stocks in sea as well polluting the air. The government intervention at crisis is an example of socialism. BP operations are in more than 100 countries with several reserves are creating chaos for the people working
In 2011 PepsiCo announced the launch of their Social Vending System. This system featured a full touch interactive screen. A consumer can select a beverage and enter the reciepent's name, mobile number, and personalized message and gift it with a video. PepsiCo uses technology to their advantage for global implementation.The company uses media sites in multiple was as advertisement and marketing tools.