Answer :

Introduction

This report is a compilation describing the financial position of two ASX listed company Aspen Group Inc. and AGL energy limited for the last three financial years. It starts with identification and evaluation of different sources of funds used by the company with specific focus on the changes of different sources of funds, next there is a brief highlight on the percentage of the fund that is internally generated and the percentage of the fund that is externally generated along with relative merits and demerits, later there is an examination on different types of liabilities shown in the balance sheet and which ones of the liabilities are interest-bearing and which ones are not interest bearing. It also contains the key aspects under provisions under the AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets with its relevance to the mentioned listed companies, and there is an identification of all different categories of assets recorded and their measurement basis. In the end of this report, there is a brief conclusion containing the description of the working of the company.

Different sources of the funds

• Equity capital-It is one of the common methods by which funds are generated by the company, in this companies raise capital by selling equity shares or stock in the market. Both Aspen Group Inc. and AGL energy limited have used this method to raise capital (Mookdee, & Bellamy, 2017). The equity capital of the company is ideally used by most of the organization to raise the funds due to the fact that company does not have to pay these amount of capital in the certain period of the time (AGL energy limited, 2019).
• Debt capital in this method firm raises finance to fulfil its working capital needs or for some capital expenditure needs by selling debt instruments in the market and in return generates loan, for lending the money the individuals or institutions become creditors and receive principal and interest on the debt amount. Both companies have used debt funding also to raise capital. Sometimes high debt funding leads to an increase in financial leverage. A company should maintain an optimal balance between debt and equity funding (Tasman, Masdupi, & Safitri,2019).
• Borrowing from banks and financial institution-It is another method generally used to raise capital. The most common types of the financial institution include commercial banks, investment banks, brokerage firms, insurance companies, and asset management funds. Loans provided by banks are not a permanent source of capital as it carries specific interest rates and loan must be repaid within a specific period of time. 

Evaluation of the sources of funds and analysis 

Aspen Group Inc. and AGL energy limited both have raised funds using equity and long term debt as a source of finance (Aspen Group Inc., 2019).

The equity holding of Aspen group has continued to increase from the year 2016 to 2019 it has increased from AUD$ 11000 in the year 2016 in A$19000 in the year 2019. Overall it has changed 20% considering the change in the last 3 financial years.  The long terms debt has also been increased by the company i.e. company has raised capital using long term debt continuously. The company has raised AUD$ 8,344.89 from 2016 to 2019 (Levine, Tam, & Beatty, 2016).

AGL energy limited has maintained consistent equity holding from the last three financial years. While the long term debt of the company has decreased continuously this depicts the continuous decline in financial leverage of the company (Endah, & Wahyudin, 2017).

% of the internal sources and external sources funds 

The Aspen Group Inc. has maintained a good balance between externally and internally generated funds in 2016 but in 2017, 2018 more funds have been generated internally which depicts the increment in cost of capital of the company (Aspen Group Inc., 2019). In 2019, the balance maintained by the company is average and not very good (Endah, & Wahyudin, 2017).

AGL Energy Ltd. has maintained a good balance between externally and internally generated funds in 2016, 2017, 2018 & 2019. Although the percentage increase in internally generated funds has increased considerably every year but a balance maintained is satisfactory (AGL energy limited, 2019). The satisfactory balance between the sources of funds also depicts the satisfactory balance between financial leverage and the cost of equity of the company (Fitriyani, & Khafid, 2019). 

Merits and shorting coming of the funds

• Equity capital

Merits 

• With equity funding, the burden of loan repayment within the specific period of time reduces and the interest burden is not present which would enable the businesses to channel more money into their business without worrying. Both the companies have deployed their funds in equity capital and have less interest burden on them (Hogan, Hutson, & Drnevich, 2017).
• If the company faces credit troubles due to a low credit rating score than prescribed, equity funding is the most feasible option.
• Sometimes debt financing offered carries a high amount of interest, which makes equity financing the most feasible option.  

Demerits 

• The main demerit of equity capital is the loss of control, as shareholders become owners of the company and would involve in the decision of the company. The company has to call a general meeting every year to inform the shareholders about the conduct and working of the company which is a hectic procedure (Levine, Tam, & Beatty, 2016).
• The profits of the company are shared among the shareholders i.e. the profits are divided.
• Sometimes, potential conflicts may arise due to the difference in opinions among the shareholders.
• Both companies have deployed a huge amount of funds in the equity capital which depicts the increased cost of capital of the companies.

• Debt Capital

Merits 

• The lender does not get any control in the organization; he is only liable to get the amount lent and interest due on the principal amount.
• Interest on the loan is tax deductible which is not in case of dividends.
• The principal and interest amount are well known in advance, hence the company can work on cash flows hence debt capital is more predictability which prepares organisation for the future (Maulida, Amboningtyas, & Fathoni, 2019).

Demerits 

• The principal amount and the interest have to be repaid within the specified period of time.
• The high amount of debt in the company may lead to high risk and would increase the financial leverage of the company.
• Loan from Banks and Financial institution 

Merits 

• It is an easily available source of finance if companies hold good credit ratings
• It incurs a low cost of capital as compared to equity financing.

Demerits 

• It debt is not repaid timely by the companies it could affect the credit rating of the companies and could have a negative impact on the public image of the company (Mookdee, & Bellamy, 2017).

Types of the liabilities including % of interest bearing and non-interest bearing

Both companies hold a good amount of liabilities. The liabilities are shown in the liabilities side of the balance sheet and are bifurcated between current liabilities i.e. liabilities which may arise in 1 year or less depending upon its type (Pawsey, 2017).

Non-current liabilities are those which do not arise in the near future and are held by the company for a longer period of time. However, company has recorded average 14% of the non-current liabilities in its books of account which reveals that company has strong financial position in its recorded books of accounts (Aspen Group Inc., 2019).

The liabilities of the Aspen group have increased in the past years. The major cause of increment is the increase in long term debt of the company and other liabilities .there is 113% increment in liabilities of 2019 as compared to 2018. the average increase in liabilities for the past years has been 99% for the Aspen group Inc. The interest-bearing liabilities held by the company are long term debt and non-interest-bearing liability is deferred Liability (Sarycheva, 2016).

The liabilities of AGL energy limited has increased in 2019 as compared to 2018 but overall from 2016, it has reduced considerably (AGL energy limited, 2019).The major cause of increment in 2019 is the increase in deferred tax liabilities and other long-term liabilities (Storey, 2017).

Overall from the year 2016, the liabilities have decreased 1% on average.

 The interest-bearing liabilities held by the company are long term debt and around 8% interest is charged on them, and non-interest-bearing liability is deferred tax Liability.

(AGL energy limited, 2019).

AASB 137 and contingent liabilities provision

The AASB 137 deals with the application, identification and disclosure requirements relating to the Provisions, Contingent Liabilities, Contingent Assets, onerous contracts and restructuring program.

The standard defines in detail the abovementioned terminology and the disclosure requirements associated with them.  The disclosure requirements mentioned should be followed by the companies strictly otherwise it would lead to misrepresentation of financial statements and would not depict the true picture and working of the company leading to negative public image and penalties in certain cases (Tasman, Masdupi, & Safitri, 2019).

The standard mainly talks about the activities which are not recorded under the balance sheet or income statement of the company as they may not carry any amount but has significant importance in judging the position of the company and must be conveyed to the stakeholders. These should be majorly represented by the way of a footnote in the balance sheet or any other manner as described in the standard (Tran, & Zhu, 2017).

Example of Activities that would cover by this standard is like lawsuit pending in court against the company, provisions for bad and doubtful debts etc. These are those Liabilities that may or may not arise in the future depending upon the contingency of event but certain funds have to be allocated against them to meet the future obligations. Therefore, it could be inferred that there is need to set up proper compliance program by the listed companies to strengthen the transparency. The AASB 137 helps company to maintain the contingency account to strengthen the contingency liabilities recording framework in the books of accounts of the company.

AASB 137, contingent liabilities and other provision in company

After reading the annual report and looking at the financials of the Aspen Group Inc. and AGL energy limited it has been noticed that companies have not made any provision or contingent liabilities as no legal obligations have arisen to do the same (Wang, 2019).

Different categories of assets recorded 

Both Aspen Group Inc. and AGL energy limited has investments in current assets and non-current assets.

Categories of current assets which would liquidate in one year and are held by Aspen Group Inc. are cash and cash equivalents, net receivables and other current assets. These assets are recorded at the value which would be transferred to the current cash equivalents, net receivables and other current assets  (AGL energy limited, 2019).

Categories of Non-Current assets held are Property, plant and equipment, Intangible assets, Goodwill and other assets (Wang, 2019). These non-current assets are recorded at value after impairment test implication. These are recorded at the value after deducting the impairment loss from the carrying value. This shows the actual amount of these assets which are recorded at the fair value (Aspen Group Inc., 2019).

In the context of AGL energy limited

Categories of current assets which would liquidate in one year and are held by Aspen Group Inc. are cash and cash equivalents, net receivables and other current assets. These assets are recorded with a view to determine the cash equivalents, net receivables and other current assets for the recorded assets  (AGL energy limited, 2019).

Categories of Non-Current assets held are Property, plant and equipment, Intangible assets, Goodwill and other assets (Wardani, Viverita, Husodo, & Sunaryo, 2019). The impairment test is also implement to determine the value of the non-current assets which reveals the actual value. 

Measurement basis used by the company for each class of assets recoded 

• Current assets 

These are the company’s liquid assets i.e. they are expected to liquidate in 1 year depending upon the operating cycle of the company and are used to meet short term obligations of the company .the measure used by the company to record the assets under this category are (Wilson, Kacer, & Wright, 2018).

• Cash and cash equivalents: measurement is done based on the amortized cost or fair value.
• Net receivables: It is recorded at net realizable value or at fair value.
• Inventory: It is recorded at lower of cost or net realizable value.
• Other current assets: It is recorded at the original value. However, these other current assets are recorded and valued they are expected to liquidate in 1 year depending upon the operating cycle of the company and are used to meet short term obligations of the company.
• Non-Current Assets

These are the company’s long term assets i.e. they are expected to stay till the company exists and are used by the company for its working. The measures used by the company to record the assets under this category are as follows (Aspen Group Inc., 2019).

• Property, plant, and equipment: Measurement is done using the historical cost approach (original value minus deprecation).
• Intangible assets: It is measured after using the impairment test. The impairment test helps company 
• Goodwill: It is measured after using the impairment test. However, in case of the internal generated goodwill value the valuation of the goodwill is done with the recorded values only. 

Conclusion

After reading the annual report and looking at the financials of the Aspen Group Inc. and AGL energy limited it has been concluded that both the companies are working efficiently in their fields. The Aspen Group has more amount of internally generated funds which shows a higher cost of equity for the company while AGL energy limited has tried to maintain a fair balance between their internally and externally generated funds. The long term liabilities of ASPEN Inc. has increased considerably for the last three financial years while AGL ltd. has tried to maintained consistent liabilities over the years. The increase in liabilities shows a high amount of financial leverage present in the company.  The investors are advised to take an informed decision while investing in the companies depending upon their approach and expectation from the companies. However, all the impairment test is used to assess the recorded value of the assets to set up the real value of the assets. Now in the end, it could be inferred that all the transaction should be recorded in the books of accounts with a view to strengthen the transparency in recorded accounts.