The reason for the difference in income tax payable and income tax expense
Abstract
The deferred tax assets and liability reported in the balance sheet 4
The reason for difference in income tax payable and income tax expense 5
Introduction
For the report to be conducted on financial analysis, the company chosen is Cash Converters International Limited. It is one of the most upcoming companies in Australia. The equities for the continuous two financial years have been studied and analyzed. As well as all the heads considered under it are also analyzed and the circumstances for changes are also identified. Further to which the difference in the taxable income of a company and the financial accounting and the reasons behind them are understood and tracked. According to countries law for the various tax rate under the rules is subjected towards a company is looked upon and the actual tax paid is also identified. In the later parts of the report, it is also discussed the deferred tax and liability concept to analyze the organization's point to understand how settlements are done under the taxability of the company. In the following parts, discussions are conducted on the difference of the tax done by the company in the income statements to that which is shown in the cash flows of the company. These differences are studied and the reason behind them is identified. This also comprises the various steps which the company takes for the same. The entire analysis includes the report of the financial year June 2019 and June 2018 to conduct a comparative analysis of the considering various aspects of the same (Laux, 2011).
The concepts of Accounting Profit, Taxable Profit, Temporary Difference, Taxable Temporary Difference, Deductible Temporary Difference, Deferred tax assets, and liability.
The recognition criteria of the deferred tax assets and liability
Firms’ tax expenses in the latest financial statement
The firm’s total expense on the Income-tax is $2,288 as per the June 2019 annual financial statement (Converters, 2019). With the total company earnings from the running business, the government applies a certain percentage of tax over these earnings. The company is liable to pay the taxes to the government over the earned amount. The company deals with these tax liabilities is many ways. The company readily arranges the amount of tax beforehand based on the assumption with the amount they can be charged (Bauer and Klassen, 2014). This strategy helps in dealing with big amounts of tax as the company can arrange the amount in installments which reduces the stress when big changes are applied. The firm, through the Tax Law of the country, pays the tax annually to the concerned government.
The reason for differences in company tax rate time and firms accounting income
The expenses indicated in the Annual financial statement of June 2019 which differs with the June 2018 (Converters, 2018). The difference occurs due to the tax rate time of the income of Cash Converters International Limited, the company’s taxability which is paid by the company in the current financial year which does not include any tax befits or tax expenses. The company is subjected to a tax rate of 30% by the Tax government authority. The tax rate with the accounting income paid by the company is $ 7,850. This amount is the income of the company which is taxable. The deferred assets of the company indicate the higher rate of interest charged by the company over the net income, which is used for paying the tax liabilities. The net income assets of the company in June 2019 financial year presented as $ 2,566 which was reduced in 2019’s financial statement with $ 1,902 (Converters, 2019). The company also has the deferred tax liabilities with the amount of $ 1,168, The deferred liabilities incurred by the company in 2019’s financial year are higher than in 2018 (Converters, 2018). The company being the public listed company estimated tax rate of 31%. The actual income earned by the company differs from the income which is calculated for the taxation, this is the reason for the deferred assets and liabilities of the firm. This is the situation when the company is willing to evade the tax liabilities and also when the company assumes a certain transaction as taxability free, but which are not taxability free according to the government authority.
The deferred tax assets and liability reported in the balance sheet
The reason for the difference in income tax payable and income tax expense
The major reason behind the difference between the two figures that are income tax payable and tax of the expense of the firm are seen when the accounting standards followed by the business is different from the standards which are taken into consideration when calculating the tax on expenses which are made by the firm (Goerke, 2014). Hence the difference between the two arises. So it can be said that the variance between the taxable liquidity and taxable income has arisen due to the difference in the accounting principles which has been taken into the consideration when recording the income of the firm are different from the accounting principles which are taken into consideration for calculating the tax which is paid to the tax authority (Dess, 2012).
The income tax expenses and income tax statements
The income tax paid by the company in 2019 reflected in the cash flow of the company is $2,092. The income tax expenses indicated in the income statement of the company in 2019 was $2,288. The income tax expense shown in the income statement is different from the income tax paid in the cash flow statement. This difference occurs as the amount of tax indicated in the cash flow presents the taxability after deducting the amount of refund if any, offset of tax, tax losses, etc. And the amount of tax indicated in the income statement is the net taxability presented by the company neglecting the actual amount which is payable to the taxing government authority. With this, there is also a difference in the period, as first the taxability is calculated and then there is the deduction of the considered adjustments (Higgins, 2016). Due to this reason, there is a difference in the income tax expense statement and the income tax paid shown in the cash flow statement of the company (Dess, 2012).
Concepts of the temporary difference and permanent difference
The rent and royalties taxed when collected, these are deferred in the purpose of financial reporting and are recognized as revenue when considered in later periods (Boll and Tell, 2015).
The key analysis and interpretation of the financial statement analysis
The financial accounts of the company can be analyzed which makes understanding the principals of the taxability of the company. Many interesting facts and figures are deduced. The confusion when it comes to deferred tax and daggered liabilities arises in the initial phases, and also the concept adopted for the different transaction records regarding the tax which is payable to the concerned government in the cash flow and the tax shown in the income statements of the company (Edwards, 2017). The taxability entries through notes statements in the financial statements help in interpreting and understanding the provisions as to taxability clearly and deducting the conclusion suitable to the taxability of the company. The process of analyzing the accounting statements of the company helps in increasing knowledge about the essential items which are included in the total income of the company and those on which tax will be levied. This analysis has also helped in gaining knowledge about the concept of a tax offset, and the treatment of last tax losses that may have occurred (Honkanen, 2014). The accounting system is beneficial in clearing the various theoretical concepts which are useful in understanding practical aspects and the real effects of the specific details on business transactions are very fruitful for professional understanding. The taxation system at which the companies are bounded is as per the government is also discussed. The various items which are said to be taxable and the items that are not taxable have been identified and understood. This entire analysis of the financial position of the company is beneficial in making and coming on to various conclusions for the future of the business (Edwards, 2017).
Conclusion
Reference
Converters, C., 2019. Cash Converters International Ltd - Annualreports.Com. [online] Annualreports.com. Available at: <http://www.annualreports.com/Company/cash-converters-international-ltd> [Accessed 2 June 2020].
Dess, G., 2012. Strategic Management. New York: McGraw-Hill/Irwin.
Laux, R., 2011. The Association between Deferred Tax Assets and Liabilities and Future Tax Payments. SSRN Electronic Journal,.