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HI5020 Corporate Accounting

(i) From your firm’s financial statement, list each item of reported in the CASH FLOWS STATEMENT and write your understanding of each item. Discuss any changes in each item of CASH FLOWS STATEMENT for your firm over the past year articulating the reasons for the change.

(ii) Provide a comparative analysis of your company’s three broad categories of cash flows (operating activities, investing activities, financing activities) and make a comparative evaluation for three years.

(iii) What items have been reported in the other comprehensive income statement

(iv) Explain your understanding of each item reported in the other comprehensive income statement

(v) Why these items have not been reported in Income Statement/Profit and Loss Statement

(vi)What is your firm’s tax expense in its latest financial statements?

(vii) Is this figure the same as the company tax rate times your firm’s accounting income? Explain why this is, or is not, the case for your firm.

(viii) Comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded.

(ix)Is there any current tax assets or income tax payable recorded by your company? Why is the income tax payable not the same as income tax expense?

(x) Is the income tax expense shown in the income statement same as the income tax paid shown in the cash flow statement? If not why is the difference?

(xi)What do you find interesting, confusing, surprising or difficult to understand about the treatment of tax in your firm’s financial statements? What new insights, if any, have you gained about how companies account for income tax as a result of examining your firm’s tax expense in its accounts?

Answer:

Introduction:

Accounting is a process which makes it easier for an organization to identify and evaluate the accounting system, accounting standards, accounting recording system etc of the company. The report explains about the evaluation on the financial statement of the company and tax recording system of the company. It measures the different taxation figures of the company to measure the recording system and the accounting regulations. The report has been prepared to understand the taxation figures of the company. For this evaluation, JB HI FI has been measured.

JB HI FI:

JB HI FI is an Australian company which is operating its business in retailing industry. It retails the consumer good majorly the video games, CDs, DVDs etc. the company has been founded in the year of 1974. The company is operating its business through 303 retail stores. The company has diversified its business at international market to measure and enhance the performance of the company (Home, 2018).

Cash flow statement:

Cash flow statement is one of the main financial statements of the company which measures the total cash position of the company. It evaluates the cash outflow and inflow of the company on the basis of the operating activities, financial activities and the investing activities of the company (Robinson, Stomberg and Towery, 2015).

Analysis on cash flow statement:


ify;">The cash flow statement of JB HI FI has been evaluated and it has been measures that how many changes have occurred into the cash position of the company from the last year and what are the factors due to which these changes have occurred. The operating activities explains that the non cash items and the revenue have been improved in the company from the last year and due to it, the operating cash flows of the company has been improved (Morris, 2017).

The investment into the property, plant and equipment has impacted on the total cash flow from investing activities. It has been identified that the changes have taken place due to less investment into PPE. Further, the company has issued more common stock in the market in the year of 2017 as well as the dividend amount has also been increased. However, the stock amount is higher and thus the cash flow from investing activities of the company has been improved (Annaul report, 2017).  

JB HI FI LTD  (JBH) Statement of  CASH FLOW

Fiscal year ends in June. AUD.

2015-06

2016-06

2017-06

Non cash items

-42466000

5955000

395900000

Investments in property, plant, and equipment

-42466000

-52343000

-49100000

Common stock issued

3125000

5955000

395900000

Cash dividends paid

-87174000

-93205000

-119100000

Other financing activities

-484000

-90000

-1700000

(Monrinsgtar, 2018)

Comparative analysis:

The cash flow statement of JB HI FI has been compared with the cash flow statement of last 3 years. On the basis of the cash flows statement of 2015, 2016 and 2017, it has been found that the operating cash flows of the company have been improved in last 3 years. The main reason behind the improvement is higher revenue of the company and less cost of revenue.

In addition, the investing cash flow of the company has been measured and it ahs bee found that the cash outflow of the company has been higher due to huge investment into the PPE and the ore cash outflow in the acquisition process (Ho, 2017).

Moreover, the financing activities of the company has been measured and it has been found that the net cash flow from financing activities have been enhanced due to issue of common stock in the company.

JB HI FI LTD  (JBH) Statement of  CASH FLOW

Fiscal year ends in June. AUD.

2015-06

2016-06

2017-06

Cash Flows From Operating Activities

-42466000

5955000

395900000

Net cash used for investing activities

-44370000

-52001000

-885500000

Net cash provided by (used for) financing activities

-129640000

-130565000

715900000

Net change in cash

-174210000

-182387000

-169700000

Free cash flow

137430000

132797000

141500000

On the basis of the study, it has been recognized that the net cash flow and free cash flow of the company explains about the better financial position of the company. It explains that the company has improved the cash flow position (Gorry, Hassett, Hubbard and Mathur, 2017).

Comprehensive income statement:

Comprehensive income statement is a statement which describes about those income and expenses of the company which cannot be recorded into the financial statement of the company (Eberhartinger, Genest and Lee, 2017).

Items of the comprehensive income statement:

In the annual report of JB HI FI, comprehensive income statement has been identified and it has been found that the other comprehensive income of the company is $ 171.2 which has been improved from $ 156.2 million. It has been found that the main items of comprehensive income statement of the company are changes in the fair value and exchange differences. It has lead to the profitability position of the company to downwards. On the basis of the annual report (2017), it has been found that the profitability position of the company has been lower due to comprehensive income statement.

Figure 1: Comprehensive income statement

(Annual report, 2017)

Understanding about the items:

The annual report (2017) explains that the comprehensive income figures of the company are those items which are not related to the daily functions and the operations of the company. These items are the external factors related to the market and the country and impacts on the total profitability level of the company. The company has recorded all these data separately in the annual report of the company.

Reasons behind not adding it into income statement:

The main reason behind not involving these items and their figures into the income statement of the company is that it is not related to the daily functions and the operations of the company (Eberhartinger, Genest and Lee, 2017). These factors affects the net profit of the company without involving into the operations of the company and the accounting recording regulations, only those items could be added into the income statement of the company which is related to the operations of the company.

Accounting for corporate income tax:

Corporate income tax of the company has been evaluated further. It is the liability amount of the comapny towards the government of the company. This amount is paid by the company to the country’s government as liability amount towards the society and the government of the company (Bardley, 2007).

Tax expenses:

The tax expenses of the company have been evaluated on the basis of the annual report of the company and it has been found that the tax expenses of the company have been lowered from 2016 in 2017. The tax expenses of the company have been lowered due to the higher interest expenses and the effective tax planning of the company.

Particulars (AUD $ in millions)

2016

2017

Income tax expenses

86.8

65.6

Accounting income and taxation:

Further, the taxation rules brief that the taxation amount is the liability which is paid by the company to the government on the basis of the accounting profit of the company. The taxation amount of the company of the company is $ 65.6 million whereas the accounting profit of the company is $ 259 million so the taxation amount of the company is 77.7 million ($ 259 million *30%). It explains that there is huge difference among the taxation amount and the accounting profit of the company (Brigham and Ehrhardt, 2013).

These differences have occurred into the JB HI FI due to the items which are included in the income statement of the company but it is exempted in the Australian taxation system of the company. The changes have also occurred due to deferred tax liabilities and current tax payable of the company.

Deferred tax expenses:

Deferred tax expenses are those figures which explain about the different payment than the actual payment of taxation. If the accounting taxation is higher than the paid amount than the difference amount is deferred tax liabilities and vice versa. The annual report (2017) of the company explains that the deferred tax liabilities of the company have taken place in the performance of the company (Tran, 2015). It has been higher due to less payment of taxation.

Particular (AUD $ million)

2017

2016

Deferred tax liabilities

8.2

0

The deferred tax liabilities explain that the deferred tax liabilities of the company have been enhanced and it explains that the company has to pay more amounts to the government of the company (Pawsey, 2016).

Current tax assets and liabilities:

Current tax liabilities and current tax assets of the company explains about the amount which has to be paid to the government of the Australia. The annual report (2017) explains that the current tax payable amount of the company is AUD $ 4.9 million in 2016 and $ 9 million in 2017 which explains about the decrement.

Further, the income tax payment explains that the income tax expanses of the company has been improved and the company has not paid the entire amount to the government so the amount has been stated in the annual report of the company as income tax payable amount (Shantapriyan, O'Donnell, Streeter and Hicks, 2014).

Particular(AUD $ in millions)

2016

2017

Income tax payable

4.9

9

(Annual report, 2017)

Income tax in income statement and cash flow statement:

In addition, it has been found that the cash flow statement and the income statement of the company explains about the different taxation amount of the company. It briefs that the taxation amount in the cash flow statement of the company is $ 98.5 million whereas the income tax payment of the company in the income statement of the company is $ 65.6 million (Glasson, Therivel and Chadwick, 2013). It explains that the amount paid by the company is higher than the amount stated in the income statement of the company.

It explains that the income tax payment stated in the income statement of the company is related to the revenue expenses of the company and it only explains about the current year only. However, in case of cash flow statement, it has been found that the income tax expenses of cash flow statement is related with the total expenses of the company irrespective of the years.

It explains that the company has paid higher amount to the government as tax amount than the expected amount. It includes the last year debt amount of the company as well. It explains that the company has paid the current year tax amount as well as past year tax amount to the government of the country.  

Insight factor of the taxation system:

Further, on the basis of the above study, I have found that the study was surprising, interesting, confusing as well as bit difficult. The interesting things about the study were the taxation rules, accounting standards and the regulations which have been followed by the company to charge the taxation amount. The company could be tough for the accountant to measure the current taxation amount of the company (Garrett, Hoitash and Prawitt, 2014).

Further, the main surprising thing about the report was the different figures and the items of the taxation which has been presented by the company in an effective way in the annual report. The taxation figures of the company could be easily identified and evaluated from the annual report of the company.

In addition, the difficult part of the report is to measure the taxation amount of the company. There are various taxation items and figures such as deferred tax liabilities, current tax liabilities etc of the company which is difficult to understand and evaluate.

Conclusion:

On the basis of annual report (2017) of JB HI FI and various books study, it has been measured that the JB HI FI has followed the IFRS, AASB and other international rules to follow the performance and the position of the company. the taxation system of the company is quite better and explains that the accountant of the company has recorded all the figures and data in better manner in the company.

References:

Annual report. 2018. JB HI FI. [online]. Available at: https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf (Accessed 23/5/18).

Bradley, S., 2017. Inattention to Deferred Increases in Tax Bases: How Michigan Home Buyers Are Paying for Assessment Limits. Review of Economics and Statistics, 99(1), pp.53-66.

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Eberhartinger, E., Genest, N. and Lee, S., 2017. Practitioners’ Judgment and Deferred Tax Disclosure: A Case for Materiality.

Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality. Journal of Accounting Research, 52(5), pp.1087-1125.

Glasson, J., Therivel, R., and Chadwick, A., 2013. Introduction to environmental impact assessment. Routledge.

Gorry, A., Hassett, K.A., Hubbard, R.G. and Mathur, A., 2017. The response of deferred executive compensation to changes in tax rates. Journal of Public Economics, 151, pp.28-40.

Ho, A.T., 2017. Tax-deferred saving accounts: Heterogeneity and policy reforms. European Economic Review, 97, pp.26-41.

Home. 2018. JB HI FI. [online]. Available at: https://www.jbhifi.com.au/ (Accessed 23/5/18).

Morningstar. 2018. JB HI FI. [online]. Available at: https://financials.morningstar.com/cash-flow/cf.html?t=JBH&region=aus (Accessed 23/5/18).

Morris, J.L., 2017. Classification of Deferred Tax Assets and Deferred Tax Liabilities: An Evaluation of FASB's Attempt at Standards Simplication. Journal of Accounting and Finance, 17(8), pp.198-208.

Pawsey, N., 2016. Project: Review of IFRS adoption in Australia.

Robinson, L.A., Stomberg, B. and Towery, E.M., 2015. One size does not fit all: How the uniform rules of FIN 48 affect the relevance of income tax accounting. The Accounting Review, 91(4), pp.1195-1217.

Shantapriyan, P., O'Donnell, K., Streeter, J. and Hicks, B., 2014. Getting it Right: Directors’ Assessment of Information.

Tran, A., 2015. Can taxable income be estimated from financial reports of listed companies in Australia?. Browser Download This Paper.

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