Introductory Financial AccountingAspiring Accountaholic

ACCT11081School of Business and Law

CQUniversity Australia

Kate Edwards 12022314

Due Date: 25th July 2017

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Step 3: About AGL Energy and Annual Reports This time around, I have been allocated a new company for this assignment. I was very curious to know what industry my company would be in, and whether they will be just as good as my last company. I illustrated my main reactions to receiving my company in my blog post. I’ve put a little excerpt from my blog post below: ‘After my reaction of my company from last term (See my blog post), I was pausing and hoping that I would receive a more interesting company. Once again, the time came to 5pm on Friday 14th July.*imaginary drum roll*My company is AGL ENERGY!! When my eyes turned to my name and then towards my company’s website, my initial thoughts and questions were:

‘Hmmmm…okay. A utilities company – interesting!’

‘Who is AGL Energy? What kind of things do they do?’

‘What does AGL stand for? Adventures of Getting through Life? I don’t know!’

‘Well, at least this website looks better than my last company!’

‘So glad I got an Australian company again! I must be one of the very fortunate people!’

As I may have briefly mentioned in my blog post, AGL Energy is a supplier of gas and electricity, and provides energy related products and services to over 3.5 million people, whom are their customers. I found out that they are an Australian firm who originated from Sydney, and has since grown their business across Queensland, New South Wales, Victoria, and South Australia. Although AGL Energy does operate in some locations such as Brisbane and Adelaide, their main corporate offices are located in Sydney and Melbourne. I didn’t exactly know a lot about the utilities industry, so I had to investigate a little bit more to see how AGL Energy sources their energies. For example, AGL Energy has significant thermal energy assets, which generates electricity from heat, of which results from gas or coal. They have five main thermal power stations, which are located in Adelaide, Melbourne, Traralgon, and two stations located outside Macquarie. The Loy Yang Power Station (Located in Traralgon), Bayswater Power Station, and the Liddell Power Station (Both located a few kilometres outside Muswellbrook) generates their electricity from coal. The Torrens Island Power Station, which is located in Adelaide, is the largest natural gas station in Australia, and you guess it –

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They rely on gas! They also operate with the Hunter Valley Turbines, which is located near the Bayswater and the Liddell Power Station, as well as having 50% financial interest with the Yabulul Power Station (Located near Townsville).

Above: Locations of Thermal Energy StationsAfter doing some more investigations into this company, I realised that my company had a little more going on behind the scenes than I thought there was, as their annual reports tells me that they weren’t doing so well. Googling ‘AGL Energy’ and going into the ‘News’ section, I could definitely see why someone would consider this company as a controversial one. For example, this article details the controversial project where it involved a process called ‘fracking’ (Pictured below), which from my research, is a process that involves injecting water, sand, and chemicals underground, so that the gas can be brought to the surface. But why is it so controversial? It’s controversial because there are huge amounts of water that are used, which can be very environmentally bad. Also, the chemicals that are used could potentially contaminate water around the site, and could even possibly cause a slight earthquake! There was another project about a year later which caused controversy due to the chemicals that AGL Energy were using to test the waters from wells. The EPA was asked to investigate and found dangerous chemicals that AGL Energy were using for their project!

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One of the first things that I noticed about their annual reports is that they had some statistics, and there were also pictures of people! For example, there were statistics in the latest annual report showing that they have powered over 50,000 homes, and have launched a $2-3 billion-dollar fund to help develop renewable energy! So, now we’re going into billions! I found that very fascinating, as my last company were mainly doing hundreds of thousands (That is $‘000 in case if you don’t know)! With my last company, I felt that their annual reports looked pretty boring, as there wasn’t really much on there, so this definitely opened my eyes out! I’m going to attach AGL Energy’s annual reports below, so that anyone can refer to these reports at any time! 2014 Annual Report2015 Annual Report2016 Annual ReportAs I scrolled through all of their annual reports, I noticed that AGL Energy has a five-year financial summary! This ranges from their revenues and their profits/losses, to total number of customers, to the total assets! As I put on my detective skills to use, I realised that AGL energy has an outstanding increase in revenue! And yet, they made a massive loss in that same year! The other thing that I noticed was that AGL Energy has a 31% increase in their share prices, going from $14.72 to $19.29! I was very curious to know – How did AGL Energy manage to increase their share prices and their revenues, but yet make a loss? I went to look at the latest salaries from the latest annual report and I found out that the CEO, who is Andrew Vesey, has a total salary package of nearly $7 million! With some more research, I found this article, which talks about a meeting that this company had with its

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shareholders. It turns out that shareholders were advised to vote against the remuneration report due to Andrew’s over-paid salary. I wondered if the rise of salaries from the previous year contribute to the loss of AGL that year? After looking at their financial summaries and investigating the director’s report overall, I was very keen to get to their financial statements and see in detail how they have been doing for the last four years. In the Consolidating Statement of Profit or Loss, I can clearly see that AGL Energy has been increasing their revenues each year, from $9,716 in 2014 to $11,150. When I report my company’s figures, they are reported in $m (e.g. $123 would mean 123 million). I noticed that AGL Energy doesn’t have Cost of Goods Sold, which is due to the fact that they are a service company rather than a company that provides goods to their customers. Their general expenses have also increased from $8,806 in 2014 to $10,979 in 2016, and of course, there is a Consolidated Statement of Comprehensive Income in all of the annual reports. I noticed that there was a significant loss in defined benefit plans in 2016. I’m not exactly sure what that account means, whether it’s a type of plan for customers or a type of plan for the business. However, it was pretty interesting to see that significant loss in that account. Moving onto the Consolidated Statement of Financial Position! It’s not a surprise for me to see that their most significant assets are their property, plant and equipment, as this would provide a future economic benefit for their future projects. The value of the company’s current assets has increased from $2,836 in 2014 to $3587 in 2016. There was a significant increase of current assets between 2013-2014, from $2,836 to $3,411. I believe that this was due to the cash and cash equivalents, and the trade and other receivables account, as these are the only accounts within the current assets category where it’s had a great increased significance. Trades and other receivables went from $1,844 in 2013 to $1,902 in 2014, and cash and cash equivalents went from $281 in 2013 to $456 in 2014. Total non-current assets had increased from $10,530 in 2013 to $12,374 in 2015, but then had a decline in 2016 of $11,017. There was a sudden increase from $10,723 in 2014 to $12,374 in 2015, which was due to the increase in the property, plant, and equipment account, which is very significant to AGL Energy. There was a big decline in AGL Energy’s other financial assets, deferred tax assets, and property, plant, and equipment, which contributed to the downfall of their non-current assets. AGL Energy’s total assets told a similar story to the non-current assets, where it kept on increasing from 2013-2015, but then had a decline in 2016. The current liabilities had a slight decline in 2013, but since 2014, has increased from $2,166 to $2,553. Their non-current liabilities were increasing from $3,834 in 2013 to $4,645 in 2015, but then had a decline in 2016.

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There was a particular significant increase between 2013-2014, which was due to the increase in borrowings. This is also the same reason why there was a decline in 2016, as there was a decrease in borrowings. Once again, the total liabilities tell a similar story to the non-current liabilities, where it increased from 2013-2015. I was very intrigued to see the results of the total equity, as it had increased from $7,340 in 2013 to $8,815 in 2015. There was a significant increase of $7,588 in 2014 to $8,815 in 2015. My detective skills told me that this sudden increase was due to the huge increase in non-current assets, which would contribute to the total equity (Remember the equation Assets – Liabilities = Equity). I must say that I found it very intriguing to look at my company’s footnotes. With my last company, there were at least 30 footnotes altogether. However, my company has only around 8 footnotes. Before I looked at the footnotes, I was wondering why there weren’t many footnotes attached to some of the accounts. I believe that having less footnotes is a good thing for me, as I don’t have to scroll up and down as much, and most of the information is present inside the financial statements and the director’s report. I looked at the footnotes that were given in respect to the revenue account, and I noticed that I actually have a sale of goods account! Like my last company, my cost of goods sold is located within my footnotes rather than inside the profit or loss statement. It was very interesting to compare how much revenue was from sales of goods, as opposed to revenue from services. After I’ve read through these footnotes, I found out that Deloitte are audit partners to AGL Energy! I must say that I felt pretty excited to have a company that has a Big 4 firm as its independent auditors! It seems very clear to me that AGL Energy will certainly have challenges up ahead of them. AGL Energy are still trying to recover from the controversies that has happened over the last few years. As a result of their controversies, they have lost customers. According to their latest annual report, they had 3,800 customers in 2014, which has decreased to 3,735 customers, to 3,681 customers in 2016 (These customer numbers are in ‘000). AGL Energy needs to climb up that hierarchy ladder again, so that they can continue to become successful before their controversies happened. There are also challenges up ahead for the gas industry in Australia, due to the recent shortages of gas supplies, which has caused gas prices to double! The ‘gas crisis’ in Australia is due to the fact that gas companies are supplying gas to countries overseas, and not keeping enough gas to cover Australia’s own use. The other thing that I should also mention about is my comparisons to other people’s companies. I have to say that comparing my company with other people, through being on-campus, has really been helpful to me, as it really helps me to improve on my knowledge of my company, and accounting in

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general. I was also intrigued to reading people’s blogs about their companies, and how their companies have been successful (Or in some cases, not so successful).

Above on the previous page: My comment on Billy Van Moolenbroek’s Step 3 blog postOh, Billy! Not you again! No, I’m just kidding with you! I have to say that it was really great to see Billy’s blog again in this unit, as in the last unit, his blog was officially ranked as my number 1 blog!! I thoroughly enjoyed reading about his company AV Jennings, which is an Australian company! So straight away, I already noticed that our companies were both Australian! As I read through his company, I could definitely see the comparisons between his company and my company! There are quite a lot of similarities that I compared between our companies. For example, AV Jennings seems to have a similar aim with AGL Energy, with both aiming to provide customers with something that will benefit them for the long term. It’s not a surprise to see that AV Jennings demonstrates this aim through various housing projects, like AGL Energy did before they went downhill! I noticed that in AV Jennings’s annual reports, their independent auditors are EY! In case if you don’t know, EY (known as Ernst and Young) are one of the big 4 firms, alongside with Deloitte, who are AGL Energy’s auditors! Also, the utilities and the housing industry are both slowing down, which seems to respectively affect AGL Energy and AV Jennings. Probably the main difference between our companies would be that AV Jennings is more successful than AGL Energy, as they haven’t had any controversies from

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what I’ve heard. They have relatively been doing very well, and doesn’t seem to have too many difficulties as opposed to AGL Energy. With my last company AMA Group Ltd, although they were fairly successful and didn’t seem to have too many problems, it was initially hard for me to see what they did as a company, and how they operated as a company. I find that AMA Group didn’t have as much recognition as AGL Energy has. They both operate in two different industries, with AMA Group operating in the vehicle industry, and AGL Energy operating in the energy/utilities industry. The other main difference between AMA Group Ltd and AGL Energy would be that they have different currencies, even though they are both Australian firms. AMA Group operated in $’000 and AGL Energy operates in $m. Overall, I feel very enthusiastic about my company AGL Energy. Although it may have some problems, I really like the way that AGL Energy communicates their activities through their website and their annual reports. I found it very fascinating to look at what they actually do, and I absolutely loved how everything is set out on their website. I was quite surprised to have received an Australian company again, as I honestly thought that I would receive a company that operates overseas. I find AGL Energy better than AMA Group, as AGL Energy’s content is much more interesting to read than AMA Group. I’m very happy to have received AGL Energy as my company for ACCT11081, as I thoroughly enjoyed researching their content and reading about how they have grown over the last 180 years!

Step 4: Chart of AccountsSo, the first thing that you’re probably asking is ‘What did you learn from creating your own Chart of Accounts? What did you learn from recording your own transactions?’ To be honest, classifying accounts and transactions looked like a challenge to me at first. When I found out that I would have to use one of my online banking accounts, I thought to myself

‘But I don’t have a job! It’s so difficult for an 18-year-old to find a job in Rocky!’

‘How am I supposed to do my own chart of accounts if I barely have any transactions!’

‘How much detail should I put into my chart of accounts?’ ‘What accounts should I use, and how many should I use?’

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‘How am I supposed to make up my own transactions? I’m not very good at making up stuff!’

As I thought about it, I realised that I had actually kept a lot of my Accounting work from the last 2 years. This was kept in a folder, of which my teacher gave me as assistance, as at the time I was in high school, I would often lose stuff! As I was looking through this folder, I realised that I could use some of these accounts from my printed sheets and from my accounting work in MYOB (I talked about this in my last KCQs). I decided to use similar account numbers from MYOB, so that I could help myself see what the accounts list looks like, and perhaps help myself to navigate MYOB a little bit for Step 8! Initially, I wasn’t sure how I was going to set out my chart of accounts, but fortunately, I also did a lot of research and some reading *wink*, and afterwards it was fairly clear to me. So basically, my chart of accounts below is mainly based on my history of accounts in MYOB, as well as my research from this place called ‘Google’! So, what are the main differences between my chart of accounts and the chart of accounts illustrated in the ‘Assignment’ PDF document? Well, my chart of accounts has more detail in it that the chart of accounts provided in the ‘Assignment’ PDF document. Also, the category of accounts is different to mine, as I’ve based my account numbers off of MYOB (e.g. 1-100) as opposed to account numbers such as 1-1. For my chart of accounts, I tried to put as much detail in it as possible, as such the extra sections of ‘Type’, ‘Debit/Credit’, ‘Header/Detail’, and the level of the accounts. That way, there’s more information about what type of element that an account falls under (Revenue or Expense), and whether they are a debit or a credit. Overall, they both seem to have similar details, but except I’ve included more sections so that I could detail it as much as possible. With regards with my detail of my chart of accounts, I could’ve added a lot more accounts! For example, people would have accounts such as ‘Life insurance’ and ‘Funeral insurance’ for example. If you’re like my mum, you probably would have expenses that are related to work, such as buying books and supplies to help with her job! If you’re like my dad, you probably would have way more accounts, which would be associated with running your own business, and perhaps incur some expenses for work-related projects.

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So, as I moved onto the transactions, I tried to make the most use out of every account as much as possible. From this exercise, I’ve learnt that certain things can be quite expensive, particularly in Australia! When I was calculating the costs of each transaction, I was basing this on a different ‘Aspiring Accountaholic’, who would have her own place to live, and who had a job that paid enough for these expenses! Most of my transactions were all made up, and were once again based on my research from Google! Another thing that I’ve learnt from recording transactions is that you cannot accurately predict the costs of each transaction. For example, my cost for car insurance is $195. However, in real life the costs of car insurance are probably a bit higher than that (Or perhaps it could be lower). I’m curious to know what the basic costs, such as food, fuel, and rent would cost if I were to live in Brisbane? Or perhaps if there was 5 people who were living in the same apartment or house in a capital city? I would imagine that the costs would probably just sky-rocket through the roof (Unless of course you have a job to sustain that). As I got to my income statement and added in my revenues and expenses, the total net profit came at exactly $201. One of the questions that this assignment asks me is ‘How might you analyse your Income Statement?’ When I looked at my income statement, I thought ‘Which expenses could I cut down on? Are there any expenses that I could completely get rid of?’ Overall, I believe that I could cut down on Personal Expenses, as this account isn’t necessarily essential for me, and could be used less often, and perhaps spend it on something cheaper! I could technically get rid of the Charity Contributions expense, but however, I believe that it’s very good to give

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back, so I would prefer to not get rid of that account! If I were to buy a fairly good apartment at a reasonable price that’s not too expensive, I probably could cut back on Home Repairments too! Since I’ll be graduating in about 3 years-time (2020 to be exact), I believe that I will definitely use this exercise again, and expand on it even more within the near future! I have three main reasons on why I want to (And should) expand on this exercise:

1. There’s a very high chance that I’m probably going to be moving out within a few years, so I’ll definitely need this to calculate my budget!

2. I’ll probably have a big debt totaling approximately $42515 after I graduate from university! If you’re wondering how I figured that out, it’s approximately $1324 per unit, multiplied that by 4 (I do 4 subjects every term) and multiply that by 8 (Number of full-time terms in a 4-year degree). This also includes an additional fee of $147.

3. Because I can and want to do it! Because I really enjoyed this exercise, and although it was a challenge, I’ll happily do it again!

So overall, I’ve thoroughly learnt quite a lot about classifying accounts and recording transactions! It was a bit challenging for me to make up a lot of my accounts and transactions, but in the end, it became like a very fun adventure! I can’t wait to use these skills that I’ve developed, and apply them to my real life within the near future! 😁

Step 5: Trial BalanceI have to say that doing the trial balance backwards was quite a challenging, but a fun experience for me to do! I’ve had some experience of looking at and doing trial balances during my high school days, so I’ve had some prior knowledge about trial balances. However, I always looked at trial with Revenues as the first element, rather than doing Assets first! So, I already knew that this was going to be a little bit more challenging than I thought it would be! As I ventured onto the trial balance, I inserted in all of my company’s accounts, except for my comprehensive income accounts. I added them up and it balanced! So, I thought to myself ‘Gee, that was pretty easy!’ However, I looked at Maria’s spreadsheet and I realised that I was supposed to do a formula for Retained Earnings and for my Reserves account! I did a slightly different formula for the Retained Earnings, to what Maria did, as whenever I did that formula, it once again balanced! I can’t exactly remember the formula that I did for the Retained Earnings, but I remember it was taking away the ‘tax effect’, and then adding the ‘Remeasurement loss on defined benefit plans’.

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So, my next step was to total the income statement and the balance sheet. I know that I should’ve done this a little earlier, but I was just so busy trying to fix up the trial balance! The good news is that my balance sheet was balanced, so I immediately knew that I was at inserting the Assets, Liability, and Equity accounts in correctly! With my income statement however, I knew that it wasn’t correct, as when I minus the total debit column away from the total credit column, it didn’t equal my total comprehensive loss for the year! My company was making a total loss of -$442! So, after some fixing up with my Retained Earnings once again, and adding an account into my comprehensive income, it all balanced! I knew that this had to be the correct one this time, as I finally used Maria’s formula, and when I went to check my income statement again, it equaled…you guessed it…-$442, which is my total comprehensive loss for the year! With my discussions with Tia and Billy, I have to say that I gained quite an insight on how they had approached their trial balances! It seems to me that Tia, Billy, and I all seem to have a little struggle at first with the trial balance, but then, after watching Maria’s lectures and looking at her spreadsheet, that’s when we everything seemed to click together! It also helped me to understand how a firm’s financial statements link together! Within the trial balance, the difference from the total debits and credits in the income statement is the total comprehensive income (or loss) for the year. This links to the balance sheet, as the total comprehensive income flows through retained earnings. The total comprehensive income (Or known as the net income) also flows through the cash flow statement, as it’s the starting point for calculating the cash flows from a company’s operations. In my company’s annual reports, you’ll see that the total cash and cash equivalents in the Balance Sheet is exactly equal to the cash and cash equivalents at the end of the financial year, under the Cash Flow statement. Basically, any account in the Balance Sheet and the Income Statement that involves a source of cash, it all flows into the Cash Flow statement. Tia McGrath – Grey Kate Edwards – BlueSo, what did you learn from your company's trial balance (If you don't want to answer this straight away, you don't have to - just at anytime)?

Oh god I really don't know how to answer this in a smart way Well I guess it's clear to see with mine that my company BOTB had more revenue than expenses in this period so that's a positive thingWhat about you??

With grouping my asset and liability accounts into current and non-current, I've learnt about the value of each of their assets/liabilities, and seeing how it contributes an economic

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benefit to their company. It was also very interesting to see how the amounts, when correctly allocated, balances out in the final total!

Also they have more money in their assets than liabilities so it seems like they are using their assets in the best way as they are generating higher salesI thought that was really interesting too!! I've never done a trial balance in reverse before haha

When I initially balanced out my trial balance, I thought 'YES!!! I GOT IT CORRECT!!', and initially, I didn't include my company's comprehensive income accounts, since I thought it balanced correctly. However, I looked at Maria's spreadsheet and I realised that I needed to do a formula for the Reserves account!! Silly Kate didn't watch Maria's lecture, and just went ahead and did it! After adding my company's comprehensive income accounts and doing the formula for my reserves account, it added up again, but with a new amount this time! The formula I did in order for it to add up was slightly different to Maria's but still the same!

So overall, it was quite an interesting experience for me, particularly doing it backwards, as I've never done it backwards before!

At least we can both agree on that!! Yeah I knew I had to add in the other comprehensive income but I got a bit confused about how to actually close of the accounts. Once I figured it out it was pretty simple though my company closed off its income to retained earnings so I just had to take away the revenue accounts and plus the expenses! Then once I did it I was out by $40 but that was due to a transferring error in one of my accounts

Ah okay! Yes, once I looked at Maria's spreadsheet, and a few other people's spreadsheets, then I had a broad idea of how to approach this step. By discussing about this with others, I could definitely gain a great understanding of how trial balances can show us whether the debits and credits match, and just generally knowing how to do a trial balance for the double-entry recording process

I completely agree It's a very interesting processOh the difference in what we did differently in our trial balances was that you kept your assets under the non current and current assets and liabilities whereas I just joined them together under assets and liabilities

Billy Van Moolenbroek – Blue Kate Edwards - GreyYes, I'm ready for our discussion!

So, what have you learnt by doing a trial balance for your company?

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I've learnt that AVJennings' accountants are pretty good since it all balances.

With grouping my asset and liability accounts into current and non-current, I've learnt about the value of each of their assets/liabilities, and seeing how it contributes an economic benefit to their company. It was also very interesting to see how the amounts, when correctly allocated, balances out in the final total!

Well, that's very interesting to know! My company seems to be doing alright in their trial balance, but I was expecting a bit more in their final total

Approximately 1.121.12 billion* total for AVJennings. (Hit enter early)What was AGL's total?

OOOH!!! In the billion dollar marks!! AGL's total was around 26.5 million! 26,515 to be exact (This is in $m)

Wow. It's still doing good for a company that's been around for that long though!

Yeah! Considering that AGL Energy is currently making a loss, it's actually pretty good to see that it's around 26 million total! How did you go with doing the Trial Balance? Was it easy or difficult? Did you get it right on your first go?

I found it very easy! Until I realised I didn't do it right. My first attempt, although I managed to get it to balance, I realised I hadn't 'unpacked' the reserves and retained earnings after working through Maria's tutorial. I found it so odd I was out by the exact amount of my profit. lol How about you?

I originally got it incorrect, but I was only off by less than 100 dollars. After doing some investigation, I realised that what I added in the 'Comprehensive Income' section were contributing to this imbalance. I also forgot to add another account in my Equity section. Once I fixed these mistakes up, then it was correct

I was so excited when I fixed mine up. Making errors in accounting is a gift and a curse. It's annoying trying to find the error, but it's always great when you fix it up and everything balances again.

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I know how you feel! Fixing up mistakes in the world of Accounting is like getting out of bed. You find it difficult to do it, but once you get up after about 30 minutes to an hour or 2, then you feel happy

LOL Exactly!

So do you have any other questions about my trial balance? I don't have any other questions with regards to your company's trial balance!

All good on this front! So, onto the final question to discuss! How do your firm's financial statements link together?I feel like I could make a song about it. The Income Statement's connected to the comprehensive Income Statement! The comprehensive income statement's connected to the statement of changes in equity! When I did Accounting in school, I didn't know there was a statement of changes in equity. I always thought it was just the Income Statement, which calculated profit/(loss) to close off the temporary accounts into the Balance Sheet as capital. This process has essentially taught me the SOCIE is the middle-man, it accounts for the changes in the equity accounts (Profit or loss for the period etc.). It's the link between the comprehensive income statement and balance sheet.

So, my firm's financial statements links together into the trial balance, as they have certain things that can appear more than once in each statement. For example, I can view my company's equity accounts in my balance sheet, but can also double check them with my statement of changes in equity! I didn't have that much knowledge with these statements back when I was in high school either, as I was taught to 'rote-learn' everything! As you can probably see, I don't do that now! Not sure if that properly answers your question but here is my best attempt to answer it

Also, to my knowledge, I believe that the value of the assets and liabilities can contribute to the revenues and expenses, so you could say that's another way where the balance sheet links with the income statements!

Oh yeah, that's very true!

So Billy, do you believe that from your company's trial balance, that you have a good idea of where your company stands?

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I believe I do. This whole assignment has given me a good idea. How about you?

Yes, I feel like I have a fairly good idea of how my company is doing! I still think that maybe they're not doing too well, but does have the possibility to get back on its feet and improve! I must say that doing a trial balance really gave me a flashback, as I used to often do this when I was in high school, so it was a very good reminder! When I did trial balances, it was certainly not in a reverse order. It's interesting to note that the only statement we didn't need to use was the Cash Flow Statement, mainly since it records the activities that affect the firm's bank account.

Yes, I certainly agree with you there Billy!