Unadjusted and Adjusted Trial Balance at 31 March 2017

Rio Tinto is a British multinational company and a leading metal and mining corporation in United Kingdom. It deals with the production of copper, diamond, coal, aluminium, iron ore and uranium. For the purpose of increasingwer: its operating efficiency, the company is reorganizing its business. The trial balance for Rio Tinto at 31 March 2017 was as follows:

Additional information:

1. Salaries amounted to £20,000 were unpaid at the end of March 2017.
2. A portion of insurance premium paid in advance, worth £7000 is related to 2019.
3. Equipment are to be depreciated at the rate of 20% on straight line method. The depreciation on the vehicles is to be at the rate of 25% on written down value method.
4. There are further bad debts of £500. Provision of 5% is to be made at debtors. 

1. The investments were initially recorded at historical prices. Now they are need to be reported at realisable value of £116,675.
2. Previously the closing stock was valued by LIFO method and now the valuation method has been changed to FIFO. 

Adjustments made:

• There was an outstanding salary of £20,000 which is shown on the credit side of trial balance as outstanding salary (Maheshwari, 2012). The same amount has been added to the salaries expenses account on the debit side of trial balance (Van Mourik & Walton, 2013).
• The amount of £7,000 has been added to the prepaid insurance account in trail balance and same has been deducted from the cash account (Weygandt, Kimmel & Kieso, 2015, Porter & Norton, 2012). 
• Depreciation amount on both the equipment is shown as an accumulated depreciation account on credit side of trial balance, the treatment of which is done in the balance sheet later on (American Water Works Association. 2012, Nikolai, Bazley & Jones, 2009).
• The balance of the bad debt has been increased by £500 and accounts receivables are decreased by the same value (Epstein, Nach & Bragg, 2009). A provision of doubtful debt is created at 5% of net debtor’s value, shown in adjusted trial balance on credit side. The bad debts are then shown in profit and loss account of the company (Heintz & Parry, 2012). 
• The value of investment is recognized at their market value (Dagwell, Wines & Lambert, 2015, Coucom, 2012).
• Closing stock is been increased when recorded at FIFO method (Sofat, 2010, Maheshwari, Maheshwari & Maheswari, 2013).

The unadjusted trial balance shown above is the list of the balances of general ledger accounts that are prepared at the end of the financial year. This trial balance is prepared before making any adjustment entries for the purpose of making financial statements (Warren, Reeve & Duchac, 2011). 

The adjusted trial balance prepared is a listing of all account balances after doing the treatment of additional adjusting entries. The adjustment of these journal entries is also done in the income statement and balance sheet appropriately. The treatment of adjusting entries made in trial balance mainly includes accruals, prepayments, adjustment related to the closing stock, bad debts and non-current assets. An adjustment of depreciation method is also passed if it is given outside the trial balance. All these transactions are not included in unadjusted trial balance and therefore it becomes necessary to prepare an adjusted one in order to get the correct figures of debit and credit balances (Warren, Reeve & Duchac, 2011). 

The changes made in the trial balance are highlighted. On the basis of above adjusted trial balance, financial accounts like statement of profit and loss and statement of financial position for Rio Tinto are prepared. The income statement will record all the expenses incurred during the year and sales made. It also include the treatment of adjusting entries. The balance sheet of Rio Tinto shows all the assets and liabilities of the company reported at the end of the year. It shows the actual financial position of the company (Hoyle, Schaefer & Doupnik, 2015). 

Income statement for the year ending March 2017

Balance sheet as on date 31^st March 2017

Rio Tinto is an Australia-British based multinational company and one of the leading producer of metals. It was found in 1873, named after a river in Spain (Riotinto.com. 2018). Through many mergers and acquisitions, a long growth has been achieved by the company, making it the world’s largest producer of commodities like iron ore, copper, aluminium, coal, uranium and diamonds. The industry sector in which it operates is metals and mining. 

Income Statement for the year ending March 2017

The country is known for having a rich history of mining, especially of copper and tin. In 2200-850 BC, Copper was mined at Wales. Later, the Romans came to Britain and develop iron tools in order to mine galena, an important Lead ore mineral which is used to refined tin, silver and lead. Romans used local slaves and workers for the purpose of mining. Galena ore was extracted from the mines situated in Scotland and Wales (Copper.org. 2017).

Along with the mining of copper and lead, UK was also famous for having large availability of coal and iron. In the late 18^th and 19^th centuries, these are the key factors in Europe’s Industrial Revolution. Now days, less mining of coal and iron ore is done in United Kingdom but there was a time in history, when they were mined in huge quantities and used for the production of steel and energy. The production of coal and metals has reduced in 20^th century because of the foreign competition and the extraction of crude oil has increased.  Million tonnes of coal was produced in UK in year 2013, employing large number of workers across 30 locations. Most of the coal produced in England is extracted from the deep mines located in Scotland. UK coal is considered as a largest coal mining company of United Kingdom, who had once produced 287 million tonnes of coal and now the production is continuingly decreasing due to loss of heavy industry (The Guardian, 2015).

Talking about the metal production, despite of having variety of metal ores, the production of metal has been reduced in the country because of globalization. People find it cheaper to extract the same thing in another country. Though United Kingdom has large reserves of copper and iron ore, but these are now imported on a large scale from countries like Chile and North America, China, Brazil and Australia which gives high quality metal at lower cost. 

Extracting out the raw materials from the ground is not an easy task, especially when there is an environment of transformation and disruption. In the past years, global economic and political trend has changed the mining industry fundamentally. In United Kingdom, the companies operating in metal and mining sector are been pressurised to improve and differentiate their portfolio from competitors due to low cost production offshore. According to an article given by Deloitte UK, the changes in technology and new innovation has impacted the mining sector to a great extent. Despite of having ample of resources, the country’s sector still lack behind because of the changes occurring globally. When there is a strong demand of commodity, prices get a hike which as a result forces the mining companies to increase their production (Deloitte UK. 2018). Along with that, in year 2016 Brexit vote had also impacted UK mining sector. The decision of the country to exit European Union had significant effect on its mineral resource sector. The coal industry in UK has been declining due to the country’ electricity sector depending more upon renewable energy resources than on the electricity which is produced from coal fired plants. This has impacted the employment in the coal industry (Mining Weekly, 2017).  According to government statistics, number of people employed in coal mining industry has been reduced over the past years. Shifting attitudes towards alternative sources of energy like solar and wind has reduced the role of UK’s coal industry. Moreover, the prices has also fallen because of the less consumption and production of coal.

Balance sheet as on date 31st March 2017

As per the article published by KPMG UK, fall in the prices of commodities, increases the demand of mining companies from investors. The miners has also faced one of the most difficult environment for operating. Changes in the regulations and increased tax pressures along with issues and disturbances related to geopolitics and resource nationalism are some of the challenges faced by miners in UK in recent years. This has result in the degradation of mining and metal sector of the country. Companies and organisations need to strengthen their portfolios in order to function in such uncertain market. Further, the assessment of mining sector is not only done on the basis of its financial performance but also on their compliance with social and political issues. KMPG suggested that to survive in such environment, companies need to be flexible enough to adapt the changing market conditions. They should be focussed on areas like geographical diversification, capital allocation, and reduction of cost and should have enough knowledge about the local laws, customs and the rules and regulations formed by the government (KPMG).

The financial statements provided above are of Rio Tinto, which is a multinational mining corporation. The primary focus of the company is to extract minerals but now it has also engaged in refining, particularly the refining of bauxite and iron ore. Apart from United Kingdom, the company operates mainly in Australia and Canada. The Rio Tinto group is a dual listed corporation traded on both London stock exchange and Australian Securities Exchange. In its financial statements provided above, the balance sheet of the company shows that the value of investments under heading current assets is the highest. As the company has grown through many mergers and acquisitions, it has made many investments, the value of which is high as shown in the balance sheet. Its expenses mainly include salary paid to employee amount to £60,000 and the wages paid to the factory workers worth £20,000 recorded as factory labour. As Rio is a mining company that deals in production, extraction and refining of resources, its most of the expenses are related to its workers and employees. The extraction of minerals requires a huge labour which comes with the cost of paying them. Similarly for the work of refining, Rio has employed a large number of employees that operates within and are been paid for their work.

Looking at the balance sheet, it can be said that a company has enough cash to pay its debts and a small portion of non-current assets. Generally, the mining industry sector has high value of non- current assets which comprises of plant and machinery and other equipment because their economic life is high. Having a high economic life means that the asset is likely to give benefits in the long run. However, the statement of financial position of Rio Tinto say that it has low portion of Non-current assets comprises in form of equipment and vehicle. This has eliminated the need of non-current liabilities as the company has not taken any loan for acquiring any fixed asset neither it has any lease payments as its liabilities. The debt part only shows the creditors and outstanding salaries under the head current liabilities. Reason for having low value of equipment is may be the company is focused more on labour intensive technique rather than capital intensive techniques. It requires more workers and labour to conduct the operation of extraction and refinery with the use of machineries and equipment.

History of mining in the UK

The company’s talented workforce uses the mining process and technology in an efficient manner which reduces the cost and enhances the functioning of the organization. Rio is world’s leading producer of copper and diamond, the two resources which plays an important role in everyone’s life. The production of aluminium is also done at a large scale in the company. It has bauxite mines and alumina refineries of high quality along with the world’s most competitive and modern portfolio of aluminium smelters. Rio also get majority of its sales by producing iron ore. It derives benefits from the continuing and increasing demand of iron ore assets across China and other developing countries in the world (Iron Ore. 2018). So overall, the company is performing well in recent times which results in the improvement in the situation of metals and mining sector in UK, as and when compare to the history of this sector.

A speech was given by the British ambassador on the role of United Kingdom in development of Kazakhstan’s mining sector at yearly Mining and Exploration Forum. In his speech, he addressed the factors on which the future development of mining industry sector in UK will depend. He said that several factors like prices of mineral commodity and policies made by the government will affect the growth of industry. Talking about Kazakhstan’s mining sector, he addressed that mining through it, can result in the great contribution to regional development and can also be considered as an essential contribution in overall social and economic development. In order to transform the mining sector of Kazakhstan into a world class industry that stimulate economic growth, the government of United Kingdom has formed a UK Mining Sub group which includes more than 70 firms of both the nations. UK’s expertise, technologies and finance are been used in Kazakhstan’s projects. All this will ultimately result in overall growth of mining sector in UK. He also said that foreign investment, legislative security, fiscal stability and the introduction of new technology such as availability of Geodata and technical data can help in the development of the sector (GOV.UK. 2015). 

After facing so many difficulties in past, the British Coal mining industries are all set for a comeback by following a strong strategy and a coking coal project of £200million. Planning to extract thermal coal of high value is done by West Cumbria Mining (WCM). This coal is to be sued for the purpose of steel making rather than for using it in power stations. The mining will start operating in 2019 and its chief executive officer believes that this project will make the coal industry to grow in the next 12 months (Benton, 2017). In 2016, it has been noticed that Metallurgical coal was the commodity which has performed best and also Europe has no source of this particular type of coal. The coking coal project planned by WCM will produce such coal and provide it to the European steelmakers. WCM has already made commitments from them to take 500,000 tonnes every year. The project is considered as a future of coal industry (Benton, 2017).

Challenges faced by the mining industry

Companies which are engaged in the mining of iron ore or thermal coal will have to face different challenges than those who deals with the production of precious metals. The miners which are involved in mining of diversified resources have to face challenges different from those who are focused on niche commodity, in near future.  In order to deal with them they have to keep in mind the environment situation prevailing in the market, the geopolitical factors, availability of new technology, legacy laws and the rules, regulations and taxes formed by the government.

The future of metals and mining industry sector highly depends upon the conditions of environment, legacy impacts and human resources. The enhanced evaluation of environmental conditions and ecosystem in order to ensure the health and life quality of public has forced the mining industry to improve its performance in future as compare to its past situation. It can also be seen in near future that all the companies operating in mining industry have introduced automation in all its phases, from drilling and extracting the resources to chemically processing them. This will cut down the labour cost and eliminates the need of miners and workers. The negative impact will be that the job opportunities will be reduced which will affect the employment rate of the country. The people will be jobless because of the lack of opportunities. But looking its overall impact, it will led to the economic development of both country and sector. Ability to adopt the changes in the market conditions instantly will help the mining sector to grow and to contribute more to the Gross Domestic Product of the country. The future of United Kingdom’s mining and sector will be better than its situation in past years.  

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