Strategic Aspects of the Company

Question Discuss about the Strategic Aspects of the AGL Company. Answer: AGL is one of the largest and fastest growing energy companies in Australia. The company has experience in the field of energy business for more than 180 years. The core business areas of AGL are gas, electricity, solar PV and other related products and services. The company has been providing the above discussed products and services to the people of Australia. AGL has a customer base of 3.5 million. The mission of the company is to provide a carbon-constrained future to the people of Australia. In todays world, AGL has been considered as one of the integrated energy companies that have been providing various kinds of energy related products or services for a long period. The main business operation of the company is to operate and generate renewable energy in Australia. The main objective behind this generation of energy is to reduce the effect of green house gas emission from earth. The company has a diverse power generation portfolio. Some of the major parts of this portfolio are base, peaking and intermediate generation plant, storage of natural gas and different kinds of renewable sources like wind, hydro, solar, landfill gas, biomass and others. Apart from all these, the company has an electricity distribution network. The main operational area of this electricity distribution network is the eastern part of Sydney, Hunter region and Central costs. Another major operation of the company is to set up energy and gas plans for the businesses irrespective of size and type of the businesses (agl.com.au, 2017). AGL has been operating in the renewable energy industry of Australia. As per the current trend, the future of the renewable energy business of Australia is bright. As per the opinion of most of the scientists of the world, Australia has the ability to become the leading renewable energy superpower in the world. One of the major reasons behind this statement is the storage of fuel energy of the country. The demand for renewable energy in Australia is increasing as the Australian Government has recently implemented 33,000 GWh Large-Scale Renewable Energy. At present, 16% of the total electricity used in Australia is renewable energy. In this, majority of the energy is from wind energy. There is also presence of biomass and hydro energy. The Government of Australia is considering the fact that in the recent years; one third of the energies used in Australia will be the solar energy (Oliphant, 2015). It can be seen that there are three major companies that are considered as the competitors of AGL. They are Duke Energy Corporation, International Power Limited and Origin Energy Limited. All these companies are in the business of energy and power. Duke Energy Corporation is involved in the supply of electric and gas to the people of south and mid Australia. The main business operation of International Power Limited is fossil-fueled power plants. The main business operations of Origin Energy Limited are gas, power, energy and others. These are the main business operations of these companies (Twidell Weir, 2015). Based on the above discussions, it can be said that AGL has a bright business prospect in the near future. The growth in the renewable energy industry is the main reason of this. AGL can take advantage of the improvement of the above-mentioned positive factors and they should make future business strategies based on them. Yao et al., (2015) opines that the financial structure of a firm can be referred to as the specific mixture of long term debt as well as equity that a corporation utilizes in order to fund its operations. Essentially, this composition directly affects the risks as well as asset value of the business. The financial structure of AGL can also be divided into amount of particular cash flow of the company that gets directed towards creditors and another amount that is provided to specific shareholders. Therefore, the business enterprise AGL also has own particular debt equity ratio. Total borrowing of AGL has increased $3.9 billion from $3.7 billion; the percentage of increase is 5.4%. The increase is due to the acquisition of Macquarie Generation. In the year of 20114, the company issues Medium Term Notes worth $600 million. In the year of 2015, the company raised funds of $410 million with the help of long-term borrowing. At the end of 2015, the companys (Net Debt/ (Net Debt + Equity) w as 28.6%. With the help of the raised funds, the company developed a facility with a cost of $100 million (AGL Annual Report 2015 2015). Equity share capital of AGL for 2015 and 2014 was $6696 million and $5437 million respectively. The portion of equity capital increased in the year 2015. The amount of long-term borrowings in the year 2015 and 2014 was $3439 and $3669. The amount decreased in the year 2015 (AGL Annual Report 2015 2015). In the year of 2015 and 2014, the amount of intangible assets of the company was $3266 million and $3248 million respectively. The key elements of financial performance of the firm are the assets, liabilities, equity, specific investments that are made by owners, distributions to different owners, earnings, expends, profits or else losses in addition to comprehensive income. Assets are essentially those things that a corporation owns. Assets comprise of cash, inventory of products, plants and buildings, property together with different intangible assets. The assets of AGL is recorded to be $15833 million during the financial year 2015 (AGL Annual Report 2015 2015). Liability of a firm is necessarily a firms financial debt or else obligations that stem particularly during specific course of operation of business. As such, the liabilities can be settled properly by way of transference of economic advantages that comprises of funds, products as well as services. Essentially, the liabilities of the firm is registered to be $7018 million in 2015. Essentially, equity refers to value of the overall shares that are issued by a corporation. In essence, the equity of the firm AGL is registered to be $8815 million during the financial year 2015. Again, the investment of the business concern of AGL that is recorded to be $91 million refers to funds that is invested by the corporation (AGL Annual Report 2015 2015).). Another very important factor that reflects financial performance of a firm is the revenue that is the overall flow of earnings of a corporation that is generated by selling a specific quantity of companys output particularly at a price, deducting tax to the government. The revenue of the firm AGL is registered to be $10678 million. However, expend of the firm is recorded to be $9759 million. Again, profit that indicates financial gains is essentially variance between the amount earned and spent in buying, running or else producing something. As such, the profit for the company AGL is registered to be $218 million (AGL Annual Report 2015 2015). In the year of 2014, after the completion of the financial year, AGL made a 100% acquisition of Australian Power and Gas Company Limited (APG). The company has mentioned this event in the next year financial statement and adjusted the entry accordingly (AGL Annual Report 2015 2015). The transaction cost of the acquisition was $16 million. $2 million was associated with the termination process of the funding facilities of APG. $21 million was associated with the existing customer service arrangements. $11 million was associated with other termination costs. AGL has changed the recognition of distribution use of system costs. This change lead to the grossing up of the revenues and expenses in the consolidated statement. Due to this change, there was a restart of comparative information in the consolidated financial statements (agl.com.au, 2017). AGL declared about this market to the market essentially on January 22 of the year 2015. This change in the process of recognition of the Distribution Use of System costs was essentially carried out in South Australia and Queensland for essentially the operating segments of Energy Markets. In addition to this, the company also declared a change in the basis of the reporting segment in order to align with the structure of the organization on particularly April 16 of the year 2025 in addition to subsequent assessment and restructure of the Upstream Gas Business (AGL Annual Report 2015 2015). Therefore, segment comparative information has been restated to replicate the alterations in the reportable operating sections. Carrying amount of each class of Property, Plant and Equipment at reporting date of AGL As rightly indicated by Hu et al., (2015), carrying amount can be used in place of book value. In essence, the carrying amount indicates towards the amount that a particular corporation has essentially on the books for asset or else liability (Hodgson Russell, 2014). The standard AASB 116 is applicable for accounting the plant, property as well as equipment excluding when other regulations allows a diverse treatment of accounting. As per the AASB 116 para 6 (definitions), carrying amount can be regarded as the amount at which a particular asset is detected after deduction of any accumulated depreciation as well as accumulated impairment loss (Aasb.gov.au, 2017). As per the consolidated statement of financial position of the firm AGL presented in the annual report of 2015, the property, plant and equipment stated under the non-current assets has a carrying amount of $6958 million (AGL Annual Report 2015 2015). Description of accounting policies related to Property, Plant and Equipment adopted by AGL The financial declarations of the corporation AGL have been prepared consistent with the Corporations Act 2001 as well as the Accounting Standard AASB 1039 Concise Financial Reports (AGL Annual Report 2015 2015). Essentially, financial statements of the firm AGL Energy Limited are an extract from particularly the full statements. The accounting policies that can be associated to plant, property and equipment is AASB 116 (Aasb.gov.au, 2017). This particular standard is particularly applicable for the purpose of accounting of plant, property as well as equipment except when other standard necessitates or else permits a diverse accounting usage. According to the directives stated under the regulations AASB 116 paragraph 6 (recognition), cost of a particular item of plant, property as well as equipment needs to be detected as a specific asset iff (if and only if) it is likely that the economic benefits in the upcoming period can be related to the item shall flow to the business entity an d the items cost can be reliably enumerated. Again, as per paragraph Aus. 15 of the accounting regulation AASB 116, items of plant, property as well as equipment that essentially qualifies for recognition as a specific asset can be enumerated at the cost (Aasb.gov.au, 2017). The standard essentially includes certain reporting requirements. The standard is essentially to account for particular plant, property and equipment, mainly its recognition and subsequent treatment by means of two different mechanisms that is cost as well as revaluation. Essentially, this standard covers majority of physical assets until and unless the specific assets are covered by another regulation. The recognition of the asset as per (para 7 to para10) essentially happens at the time when upcoming economic benefits can be associated to assets that can flow to business concern and cost of asset can be enumerated dependably. As per para 13, assets need to ne enumerated at cost (Aasb.gov.au, 2017). Description of the accounting policies related to Intangible Assets adopted by AGL The accounting policies that can be associated to intangible assets adopted by AGL Limited is AASB 138 (Aasb.gov.au, 2017). In particular, this standard is essentially applicable to different business entities that requires to arrange and prepare financial declarations according to Part 2M.3 as stated under Corporations Act and that is essentially a reporting entity. Again, this standard is also applicable for general purpose financial statements of each reporting unit as well as financial declarations that are necessarily general purpose financial statements. Again, as per Aus 1.2, this standard is applicable to different annual reporting periods that are beginning on or after January 1 of the year 2005 (Aasb.gov.au, 2017). Again, the scope of this standard shows the applicability of this regulation for accounting of intangible asset barring intangible assets that within the scope of other Australian Accounting Standard, financial assets that are as distinctly defined in AASB 132 fo r presentation of financial instruments, recognition as well as measurement of particularly exploration as well as evaluation assets, expends on development along with extraction of minerals, oil, natural gas as well as identical non-regenerative assets (Aasb.gov.au, 2017). The intangible assets under the total noncurrent assets is recorded to have the value of $3266 million (AGL Annual Report 2015 2015). Impairments Impairment loss is essentially enumerated at a particular amount by which carrying value exceeds the fair value (Yao et al., 2015). As rightly indicated by Russell (2015), after detection of impairment loss, adjusted carrying amount of specific intangible asset becomes the new accounting ground. As per the statutory financial outcomes of the firm AGL Energy Limited, so far the highest of the significant items is essentially the impairment of around $600 million in essentially the value of upstream gas assets of Gloucester (AGL Annual Report 2015 2015). Again, the sale of copper oil is also underway and anticipated to lead to loss of around $7 million before tax. An impairment charge can be recognized during the financial year 2015 in comprehension of the event. Conclusion The above discussion shows that that AGL has attractive business opportunities in the future as the renewable energy and power industry of Australia is going through massive growth and it is going to grow more in the future as per the expectations. It can be seen from the discussion that AGL has an effective financial structure. The unrecorded financial incidents of the previous year were adjusted in the current years financial statement. In case of the commutation of plant, property and equipment, the company follows the principles of AASB 116. 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 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 Hodgson, A. Russell, M., (2014). Comprehending comprehensive income.Australian Accounting Review,24(2), pp.100-110. Hu, F., Percy, M., Yao, D. (2015). Asset revaluations and earnings management: Evidence from Australian companies.Corporate Ownership and Control,13(1), 930-939. Oliphant, M. (2015). Renewable Energy in Australia. InEnergy Efficiency and Renewable Energy Handbook, Second Edition(pp. 119-131). CRC Press. Residential | AGL. (2017). Agl.com.au. Retrieved 9 May 2017, from https://www.agl.com.au Russell, M., (2015). Management incentives to recognise intangible assets.Accounting Finance. Twidell, J., Weir, T. (2015).Renewable energy resources. Routledge. Yao, D. F. T., Percy, M., Hu, F. (2015). Fair value accounting for non-current assets and audit fees: Evidence from Australian companies.Journal of Contemporary Accounting Economics,11(1), 31-45.