Analysis of Equity Items and Tax Expenses in Freedom Insurance Group Limited

HI5020 Corporate Accounting
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Table of Contents
Introduction..............................................................................................................................3
Discussion..................................................................................................................................4
Question 1 Analysis of Equity items...................................................................................4
Question 2. Analysis of Firms Tax Expense.......................................................................6
Question 3. Analysis of firms Tax Expenses on the basis of accounting income............7
Question 4. Analysis of Deferred Tax Asset/liability reported in the balance sheet......8
Question 5. Analysis of current tax asset and income tax payable..................................9
Question 6. Analysis of income tax expense and income tax paid.................................10
Question 7. Analysis of tax treatment..............................................................................11
Conclusion................................................................................................................................12
References...............................................................................................................................13
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Introduction
Freedom Insurance Group Limited was formerly known as the Freedom Insurance Group Pty.
Limited. It has just incorporated into a public limited company and was previously operating
as a privately held company. The company is operating in the competitive and risky
insurance business. The operations are growing and the company is managing above average
growth in the past few years. This report contains various aspects about the company based
on the latest annual report available to shareholders.
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Discussion
Question 1 Analysis of Equity items
The equity is the portion of the assets of a company which are owned by the ordinary
shareholders of the company. Freedom insurance group Limited has the following items in its
equity:
Contributed Capital – The amount represents the capital introduced by the shareholders in
the company. There can be two sources of finance for a company. It can choose to borrow it
from lenders or take it from public in return for issuance of shares. The amount received
against shares is termed as contributed capital. It represents the residual interest of the
shareholders in the company’s assets once it goes into liquidation.
FIGL has just incorporated into a public limited company and has issued new shares to the
public. It can be seen with the multiple increases in the contributed capital of the company. It
has increased from $8 Million to $32.59 Million. The amount represents the new shares
issued by the company. This has resulted in inflow of funds for the company.
Reserves – The amount which is set aside by the shareholders for use in emergency or for
keeping the regulatory requirements is called reserves. The reserves are held in the form of
surplus cash with the company or in the form of short term instruments which can be
liquidated easily. Also, the reserves can be for specific purposes like revaluation of a fixed
asset. However, in Insurance business the reserves are created to meet the regulatory
requirements of the APRA (Australian Prudential Regulatory Authority).
The reserves have decreased from $ 0.69 Mn to $0.049 Mn due to use in the share issue of
the company.
Retained Profits – The profits after all the expenses and appropriations belongs to the
shareholders. Excess of revenue over all expenses and tax thereon is appropriated towards the
shareholders. It can be held in the business for development purposes or it can be distributed
to the ordinary shareholders as dividends. However, if the company plans to expand
operations it may plan to stop giving dividends and retain the profits for use by the company.
Retained profits have increased from $7.79 Mn to $21.86 Mn. This indicates a growing
profitability for the company.
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