Analysis of CBA Annual Report

Running head: ANALYSIS OF CBA ANNUAL REPORT
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Analysis of CBA Annual Report
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ANALYSIS OF CBA ANNUAL REPORT 2
Analysis of CBA Annual Report
Question 1
a) The income tax included in the income statement comprises of corporate income tax
expense which is $ 3,960 million and the policyholder tax expense which is $ 32 million
b) The income tax expense has been reported by CBA bank as a current liability. This is
because it is an expense which is supposed to be paid in a period which is less than one
year ("Annual reports", 2018).
c) The temporary difference in accounting can be brought about by differences in the
amount of tax expenses in a particular income statement. Temporary accounts occur as a
result of differences between the taxable income and the pretax book income. The
difference is referred to as the timing difference (Abdallah, 2017). Items which have
resulted to temporary accounts can be attributed to be the rental income and deferred tax
liability.
d) Income tax is reported in the income statement as an expense. CBA bank in the financial
year 2017 paid total income tax of $3992 million ("Annual reports", 2018).
e) Deferred tax assets arise when revenue for the tax has already been paid but has not been
used. Deferred tax liability arises when the company has to pay tax which is due. In the
year 2017, CBA had the deferred tax asset of $ 962 million and the deferred tax liabilities
of $ 1780 million.
f) Current tax liability may not be equal with income tax expense for the period because
current tax liability may have been settled partly with the deferred tax assets hence
reducing the total amount of the tax liability. Income tax expense, on the other hand,
comprises of all the income tax that has been incurred by a company in the particular

ANALYSIS OF CBA ANNUAL REPORT 3
period of income (Shirkar, 2018). In the case of CBA bank, the current tax liability is $
1450 million and the income tax expense is $ 3960 million.
Question 2
a) The functional currency is the currency of the economy in which a company operates.
CBA's functional currency is in Australian dollars. The guidelines a company will
consider in determining its functional currency includes: the currency that is influences
the prices of products and services, consider the currency which influences labor, raw
material and other costs that are used in providing goods and services, consider the
currency by which the financing operations are generated, Consider the currency that
affects the economic transactions of an entity and lastly consider the currency of the
country which determines prices of goods through its competitive prices and also
regulations.
b) The foreign currency is expressed in the form of functional currency where the entity
operates at the date by which the translation is made using the prevailing market
exchange rates in the exchange market and is the recorded in the statement of
comprehensive income. The assets and liabilities which resulted from the translation of
currency by CBA were reported using the spot rate and the difference was reported in the
income statement. CBA recorded all the translation exchange difference in the translation
reserve account. It also translated the revenues and expenses using the average rate of
exchange for the period that ended 30th June 2017.
c) Foreign currency risk is the risk that there is a possibility of a difference between the
actual amount in the financial statements and the translated figures hence affect the cash
flows of a given reporting entity (Adams & Hartsfield, 2010). Steps taken by CBA to

ANALYSIS OF CBA ANNUAL REPORT 4
manage the foreign exchange risk includes; Foreign currency is being translated by
managers using prevailing rates in the dates in which transactions take place, managers’
report the gains and losses from those translations in the statements of comprehensive
income and lastly the exchange differences that arise from such translations are
accounted for as distinct commodities of equity.
d) The balance of the foreign currency translation reserve arises from either loss or gain
from the statement of cash flow. CBA bank reports this as reserves and recognized those
gains or losses in the statement of cash flows.
e) Investment in subsidiary was A$ 310000
ONOYOKO LTD
Statement of financial position
As at 30th June 2017
S$
A $
Current assets
Inventory 205000 15375
Monetary assets 195000 146250
Total current assets 400000 161625
Noncurrent assets
Land 100000 85000
Buildings 120000 10200
Plant and equipment 110000 93500