Understanding Accounting for Cash Flow, Other Comprehensive Income Statement, and Corporate Income Tax in AGL Energy

This report analyzes the financial statements of AGL Energy, an ASX listed energy company in Australia. It examines the cash flow statement, other comprehensive income statement, and corporate income tax. The report provides a comparative evaluation of the cash flow statement over the last three years and discusses the financial items listed in the other comprehensive income statement. It also explains the reasons why the items of the other comprehensive income statement are not reported in the income statement. The report concludes with an analysis of the tax expense and deferred tax assets and liabilities reported in the balance sheet.

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HI5020 Corporate Accounting

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Contents
Introduction......................................................................................................................................3
Section A: Understanding the accounting for cash flow statement in the book of account of AGL
Energy..............................................................................................................................................3
Section A.1: Financial items that are listed in the cash flow statement and discussion on any
change over the past year.............................................................................................................3
Section A: 2: Comparative evaluation of three main activities of cash flow statement over last
three years....................................................................................................................................5
Section B: Understanding the accounting of other comprehensive income statement as performed
by the AGL Energy..........................................................................................................................6
Section B.1: Financial items that are listed in the other comprehensive income statement of
AGL Energy.................................................................................................................................6
Section B.2: Brief discussion of each of financial items that are indicated in the other
comprehensive income statement................................................................................................7
Section B.3: Reasons why the items of the other comprehensive income statement are not
reported in income statement.......................................................................................................8
Section C: Understanding the accounting of corporate income tax as performed by the AGL
Energy..............................................................................................................................................8
Section C.1: Tax expense of the AGL Energy as reported in the latest financial report.............8
Section C.2: Income tax expense as reported in income statement and tax calculated using the
flat tax rate of 30%.......................................................................................................................8
Section C.3: Deferred tax assets and liabilities reported in balance and reason of recording the
same.............................................................................................................................................9
Section C.4: Current tax assets or income tax payable and income tax expenses.....................10
Section C.5: Income tax paid reported in the cash flow statement and income tax expense
reported in the income statement...............................................................................................10
Section C.6: Interesting, confusing, surprising or difficult to understand the treatment of tax. 10
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

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Introduction
This report is developed solely for the purpose of analyzing and examining the
organizational performance of an ASX listed entity with the help of financial statements. The
financial statements developed by a business entity helps in assessing its financial position by
gaining an examination of the various items reported in these statements. The report has mainly
undertaken an analysis of the financial statement of cash flow and other comprehensive income
statement of AGL Energy Limited; recognized ASX listed energy companies of Australia
involve sin retailing of energy and gas products and services. The major items reported in the
income and cash flow statement is analyzed in the report of the company. Also, the detailed
analysis regarding the accounting for corporate income tax in the financial statements is carried
out in the report.
Section A: Understanding the accounting for cash flow statement in the book of account of
AGL Energy
Section A.1: Financial items that are listed in the cash flow statement and discussion on any
change over the past year
Important cash flow items that are presented in cash flow statement
AGL Energy
Data for last two years
Amount in $ million
Financial Items 2017 2016 Change
Amount in %
Cash flow activities that has been
carried out in operating activity
Cash collected from the Debtors
$
13,552.00
$
11,903.00
$
1,649.00 13.85%
Cash payments made to employees
and company's supplier
$
(12,216.00)
$
(10,397.00)
$
(1,819.00) 17.50%
Cash payments for cost of finance
$
(188.00)
$
(186.00)
$
(2.00) 1.08%
Cash used to pay the income tax
$
(292.00)
$
(166.00)
$
(126.00) 75.90%

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Cash flow activities that has been
carried out in Investing activity
Cash used to pay the amount for
property, plant and equipment
$
(498.00)
$
(533.00)
$
35.00 -6.57%
Payments for making investments in
joint venture and associates
$
(13.00)
$
(30.00)
$
17.00 -56.67%
Cash received on sale of Fixed assets
$
278.00
$
8.00
$
270.00 3375.00%
Cash received on sale of subsidiaries
and other businesses
$
-
$
673.00
$
(673.00) -100.00%
Cash flow activities that has been
carried out in Financing activity
Cash payments used to buy back the
equity shares
$
(473.00)
$
-
$
(473.00)
Cash collected through loans taken
from banks
$
1,472.00
$
550.00
$
922.00 167.64%
Cash payments for repayment of
borrowings
$
(1,146.00)
$
(1,371.00)
$
225.00 -16.41%
Cash utilization of paying dividends
$
(517.00)
$
(446.00)
$
(71.00) 15.92%
(Annual report. 2017: AGL Energy and Annual report. 2016: AGL Energy)
Items shown under operating activity: Operating activity provides list of cash flows that
generated or used while performing the operations. Company mainly receives the cash from the
customers and pays maximum part of it to their employees and suppliers. It has been seen that
cash flow receipts from customers has been increased by 13.85% while there was increase of
17.50% in cash used for payment to suppliers and employees. In current year AGL Energy has
paid $292 of income tax which was increased by 75.90% as compared previous year.
Items shown in investing activity: Investing activity consists of cash flow used or recovered on
purchase or sale of fixed assets. Cash is used to buy the plant, property and equipment and also

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there is cash inflow through the sale of these assets when they got retired. There was about 7%
reduction in cash used for buying the plant, property and equipment. In year 2017, company has
sold their major asset that has increased its cash inflow to $278 million (Jury, 2012).
Items shown under the financing activity: Cash used or generated from the financing activities
like issue of shares, buy back shares, repayment of borrowings, cash received from borrowings
and dividend paid are shown under this activity. There has been increase of 167.64% in cash
generated from borrowing and 15.92 % increase in cash dividend paid to shareholders.
Section A: 2: Comparative evaluation of three main activities of cash flow statement over
last three years
Activities of Cash flow statement
AGL Energy
Financial data for last three years
Amount in $ million
Particulars 2017 2016 2015
Cash provided by operating
activity or (Cash used by operating
activity) $ 891.00 $ 1,186.00 $ 1,044.00
Cash provided by investing activity
or (Cash used by investing activity) $ (302.00) $ 81.00 $ (2,175.00)
Cash provided by financing
activity or (Cash used by financing
activity) $ (687.00) $ (1,274.00) $ 924.00
Net impact on cash and cash
equivalents after the impact of all
the activities of cash flow
statement $ (98.00) $ (7.00) $ (207.00)
(Annual report. 2017: AGL Energy and Annual report. 2016: AGL Energy)
It has been that there was constant decrease in cash flow from operating activity and in
year 2017 there was major decrease as cash generated from the operating activities was only
$891 million in year 2017 as compared to $ 1186 in year 2016. It means cash flow position of

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AGL Energy has been worst in current year as compared to previous year. In current year the
overall cash used in investing activity and financing activity are greater than the cash generated
from operating activity that signifies that company was incapable for generating the enough cash
flow to finance its investing and financing activity (Klammer, 2018).
Section B: Understanding the accounting of other comprehensive income statement as
performed by the AGL Energy
Section B.1: Financial items that are listed in the other comprehensive income statement of
AGL Energy
Items that are reported in statement of other comprehensive income statement of
AGL Energy
Figures are provided for last two years 2017 2016
Amount in $ m
Profit or loss as reported in the income statement
$
539.00 $ (407.00)
Items of other comprehensive income statement that
has been included in this statement
Items that will not be reclassified subsequently to profit
or loss
Re-measurement gain/(loss) on defined benefit plans
$
107.00 $ (111.00)
Income tax relating to items that will not be
reclassified subsequently
$
(32.00) $ 33.00
Sub Total
$
75.00 $ (78.00)
Items that may be reclassified subsequently to profit or
loss
Cash flow hedges

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Gain in fair value of cash flow hedges
$
72.00 $ 12.00
Reclassification adjustments transferred to profit or
loss
$
(15.00) $ 29.00
Share of other comprehensive income of a joint venture
$
- $ (1.00)
Reclassification of joint venture losses transferred to profit
or loss on disposal of investment
$
- $ 15.00
Income tax relating to items that may be reclassified
subsequently
$
(17.00) $ (12.00)
Sub Total
$
40.00 $ 43.00
Other comprehensive income for the year, net of
income tax
$
115.00 $ (35.00)
Comprehensive income including the changes due to the
other comprehensive items
$
654.00 $ (442.00)
(Annual report. 2017: AGL Energy and Annual report. 2016: AGL Energy)
Section B.2: Brief discussion of each of financial items that are indicated in the other
comprehensive income statement
There are mainly two items are that are reported in the other comprehensive income
statement. One is item that that may be reclassified subsequently to profit or loss and other one is
item under heading Items that will not be reclassified subsequently to profit or loss. AGL has
reported two items under heading item that will not be reclassified subsequently to profit or loss,
they are gain or loss on defined benefit plan due to its measurement and impact of tax due to
change in change profit of the company. These items will not affect the income statement in
subsequent period but it has impact on actual profit that is attributable to equity shareholders
(Nikolai, 2009).

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Section B.3: Reasons why the items of the other comprehensive income statement are not
reported in income statement
The reason why the items of other comprehensive income statement are reported in the
income statement is because income statement shows only those income and expenses that are
related to period for which income statement is drawn. On the other hand other comprehensive
income statement shows financial items that belong to income statement but are not related to
same financial period. Other comprehensive income statement also shows item that has no
relation to income statement but they impact the accounting profit attributable to the equity
shareholders (Weil, Schipper and Francis, 2013).
Section C: Understanding the accounting of corporate income tax as performed by the
AGL Energy
Section C.1: Tax expense of the AGL Energy as reported in the latest financial report
A tax expense refers to the accounting tax expenses that has been calculated on the
accounting profit and adjusted for some changes. Tax expense is reported in the income
statement of the company as it is regarded as the expenses that to be bear by the company. The
current tax expense as reported in the income statement of AGL Energy was $ 225 million for
year 2017. IN year AGL Energy has suffered a loss that helps to gain the income tax benefit of
$67 million in year 2016. The income tax benefit can be utilized in subsequent year to pay the
tax liabilities (Sullivan, 2012).
Section C.2: Income tax expense as reported in income statement and tax calculated using
the flat tax rate of 30%
An income tax expense is calculated using the flat tax rate of 30% but due to various
conditions the calculated tax @ 30% is subjected to various adjustments. Adjustment here can be
due to accounting income tax of previous year and adjustments related to impairment loss on
noncurrent assets. After making adjustments to the current tax calculated using the tax rate of
30%, the figure of tax expense is being calculated in order to report it in income statement.
On the basis of evaluation it has been found that income tax expense reported in the
income statement and tax calculated @ 30% are not same. Tax reconciliation statement showing
the difference between tax expense and tax @ 30% is presented below:

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(Annual report. 2017: AGL Energy and Annual report. 2016: AGL Energy)
Section C.3: Deferred tax assets and liabilities reported in balance and reason of recording
the same
Deferred tax assets reported by the AGL Energy its balance sheet are $762 million for
year 2017 and $953 million for year 2016. There are non deferred tax liabilities reported by the
company in its balance sheet.
The income tax calculated on the accounting profit or book profit and profit as per
income tax provisions are different due to reason of difference in treatment of some items under
accounting rules and income tax provisions. The difference in treatment of various items gives
rise to timing differences. Timing differences can be temporary or permanent in nature.
Temporary timing differences are capable of reversing in subsequent financial year whereas
permanent timing differences are not capable of reversing in any subsequent period. The tax
differences between accounting tax and actual income tax liabilities give rise to either deferred
tax assets or deferred tax liabilities. Deferred tax assets are those assets that will provide income
tax relief in subsequent time period. It means extra income tax has been paid in current year
according to accounting rules and tax authorities are liable to give it back in form of tax reliefs.
On the other deferred tax liabilities are those liabilities that are due in current year but it has not
been deposited with the tax authorities (Harris, 2013).

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Section C.4: Current tax assets or income tax payable and income tax expenses
AGL Energy has shown the current tax liabilities or income tax payable under the current
liabilities section of balance sheet. The amount of current tax liabilities was $13 million in year
2017 and $102 million in year 2016. The figure shown as current tax liabilities and income tax
expense are not same. The main for this difference is that income tax liabilities is merely a
notional tax figures that is calculated for accounting purpose whereas current tax liabilities
represents the amount of tax remained to deposited with the government in current financial
year.
Section C.5: Income tax paid reported in the cash flow statement and income tax expense
reported in the income statement
The income tax paid shown in cash flow statement represents the amount that are actually
paid in the current year to the income tax authorities whereas income tax expense shown in
income statement represent only a notional figures for the accounting purpose that has no
connection with income tax actually paid to tax authorities. The income tax paid and income tax
expense reported in AGL Energy are not same (Sullivan, 2012).
Section C.6: Interesting, confusing, surprising or difficult to understand the treatment of
tax
I find very interesting the method used to calculate the tax expenses and it is very
surprising to known that tax expenses reported in income statement and actual income tax
liability are two different things. It is very difficult to understand the treatment of deferred tax
assets and deferred tax liabilities (Sullivan, 2012).
Conclusion
Understanding the treatment of various items in the financial report is very complex and
it requires high level of skill and knowledge to understand the accounting perspective of various
financial items.

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References
Annual report. 2016. AGL Energy. [Online]. Available at:
https://www.agl.com.au/-/media/agl/about-agl/documents/investor-centre/
160828_ar_1587084.pdf?la=en&hash=C46CD0D73E513450DA3914840026B78A9BC0ADC0
[Accessed on: 25 May, 2018].
Annual report. 2017. AGL Energy. [Online]. Available at:
http://agl2017.reportonline.com.au/sites/agl2017.reportonline.com.au/files/
full_financial_annual_report.pdf [Accessed on: 25 May, 2018].
Harris, P. 2013. Corporate Tax Law: Structure, Policy and Practice. Cambridge University
Press.
Jury, T. 2012. Cash Flow Analysis and Forecasting: The Definitive Guide to Understanding and
Using Published Cash Flow Data. John Wiley & Sons.
Klammer, T. 2018. Statement of Cash Flows: Preparation, Presentation, and Use. John Wiley &
Sons.
Nikolai, L. 2009. Intermediate Accounting (Book Only). Cengage Learning.
Sullivan, M. 2012. Corporate Tax Reform: Taxing Profits in the 21st Century. Apress.
Weil, R., Schipper, K. and Francis, J. 2013. Financial Accounting: An Introduction to Concepts,
Methods and Uses. Cengage Learning.