Analysis of Taxation in GBST Holdings Limited

This report analyzes the taxation policies of GBST Holdings Limited, focusing on equity items, tax expenses, deferred tax assets/liabilities, and discrepancies between income tax expense and income tax paid. It also discusses insights gained from examining the firm's tax expense.

HI 5020- Corporate Accounting
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Table of Contents
Introduction......................................................................................................................................3
i) From your firm’s financial statement, list each item of equity and write your understanding
of each item. Discuss any changes in each item of equity for your firm over the past year
articulating the reasons for the change........................................................................................4
ii) What is your firm’s tax expense in its latest financial statements?.........................................5
iii) 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...................................................................6
iv) Comment on deferred tax assets/liabilities that are reported on the balance sheet
articulating the possible reasons why they have been recorded..................................................7
v) Is there any a current tax asset or income tax payable recorded by your company? Why is
the income tax payable not the same as income tax expense?....................................................8
vi) 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?................................................9
vii) 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?.............................................................................................................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12
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Introduction
In any company there are various aspects which are to be noted and most important among them
is accounting. Under this it will be needed that all the transactions which are taking place shall be
recorded in most appropriate manner. It shall be noted that all the policies and procedure which
have been formulated shall be followed so that it will be possible to attain the objectives which
have been set. In this report the various points in respect of taxation will be used in context of
GBST holdings limited. By the help of this, understanding will be developed that whether
company is complying with all the requirements in best manner. It is required that understanding
shall be obtained about all the policies and that will be made possible with the help of the report
presented here under.
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i) From your firm’s financial statement, list each item of equity and write your
understanding of each item. Discuss any changes in each item of equity for your firm over
the past year articulating the reasons for the change.
In the statement of financial position, there are various elements which are incorporated and one
of them is equity. Under this several components are included and the main which have been
used in the given organization are as follows:
Issued capital: Under this, the capital which is issued by the company in form of shares is
included. By the help of this funds are raised and all the shareholders will be receiving the right
with them by which they can participate in the meetings and vote in respect of any matter. The
total issued capital in given case is recognized at $39473. The change which has been noted
under this is due to the shares which are issued in relation to performance rights (Baker & Xuan,
2016). All of them will be entitled to dividends which are declared by the company.
Reserves: In organization, several operations are carried out and in respect of some funds are
kept aside. So this amount will be known as a reserve and they are prepared for a particular task.
The total reserves which are made under the current case are ($4153). This amount can be
bifurcated in two reserves which are equity remuneration reserve of $2015 and foreign currency
translation of ($4358).
Retained earnings: When a company does not distribute all of its earnings and saves some of
the amounts to be used in the coming period will be known as retained earnings (Maag, 2015).
They can be used for any purpose whenever the need arises. The total amount which is held by
GBST in this regard is $29563 (GBST Holdings Limited, 2017).
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ii) What is your firm’s tax expense in its latest financial statements?
In the income statement which has been prepared, there is the tax credit which has been
represented amounting to $1962. This means that instead of bearing the expense company is
receiving the benefit of the tax credit in the current year (Gobetti & Orair, 2017). This is due to
the deferred tax credit which is available with it. The total amount comprises of current expense
of $1421 and then in this deferred tax is added amounting to 3103. The provision in the prior
period was made in excess and that has to be reversed amounting to $280. Due to all of these
reversals, there is net credit amount which is shown in financial statements by GBST holdings.
All of these calculations are made after considering laws that are specified in this regard and the
net income will be identified after inclusion of all this in gross earnings.
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iii) 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.
The income which is calculated by the company as per accounting rules is different from that of
taxable income. Same is the case with the given company. The amount of the tax as per other law
is $1507 which is calculated on the basis of 30% tax rate (GBST Holdings Limited, 2017). In
this amount, various adjustments are made to overcome the difference of income which exists
due to timing difference or some other reasons. Research and development expenditure,
contribution to employee option and difference in the tax rates in relation to subsidiaries are
some of the major changes which have been made. In addition to the deferred tax and prior
period tax adjustments have also been made to arrive at the final amount which has been
recognized by the company in the financial statements (Jaya, 2016). There are some items which
are deductible but have not been made and for that alteration are made so that both the accounts
can be reconciled. After all of this $1962 is the credit amount which is identified.
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iv) Comment on deferred tax assets/liabilities that are reported on the balance sheet
articulating the possible reasons why they have been recorded.
In every company, there are certain temporary differences which exist and due to this only
deferred assets and liabilities are required to be recognized. It is necessary to recognize all of
them in the financial statements which are prepared by the company (Lucia, et. al., 2014). Under
this, the tax rate which will be applied shall be to date when asset or liability was settled. In the
given case deferred tax asset is identified at $8778 in which various elements are involved such
as provisions amounting to $2352 and the tax allowances have been made in respect of various
assets. There was also a tax loss which has been considered amounting to $1554. Liabilities are
recorded at $810 in which only tax allowance in respect of intangibles and plants have been
included. They have been shown on the balance sheet. The main reason because of which they
are prepared is to make a balance with the temporary difference which arises or if there is any tax
loss which has been used then in respect of them deferred asset and liabilities are identified. All
of them which are determined can be taken into use at any other time in future (GBST Holdings
Limited, 2017). This will be beneficial for the company as the advantage of this will be received
by it.
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v) Is there any a current tax asset or income tax payable recorded by your company? Why
is the income tax payable not the same as income tax expense?
In the company, there is the recognition of current tax liability which has been made and it
amounts to $385. There is the difference in the amount which is recorded as tax expense and the
amount which will be payable. This is because the laws which are used by the company are
different than those which are applicable for the purpose of taxation (Shamki, 2014). The amount
which is identified by the company is not same and in order to make them balance with each
other tax payable is recognized. This is the liability which will be met by the company in
addition to the one which has been identified in books. For the calculation of this value, it is
needed that tax as per accounting and taxation laws, both shall be determined and then the
difference which arises among them shall be identified as the payable amount in the statement of
financial position. At the expense, only the amount which is allowed in respect of current year
will be considered.
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vi) 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?
The amount which is identified in the income statement as an expense and which has been
charged in cash flow statement are different. In cash flow amount of $515 is recognized. There is
the deviation and main reason is that only that part which company is able to meet in cash in the
current year will be entered in cash flow and rest will not be shown. There are various
transactions which took place and several ways are there to meet the obligation but only those
which involve cash will have to be entered in cash statement (Wang, et. al., 2016). Total liability
which has to be borne by the company in respect of tax will be there as an expense but it is not
necessary that all of that will be met by the company in the current period and that too in cash so
the variation in values arises. In case there is a shortage of cash so there may be the chance that
payments are not made and in such condition no amount will be present in cash flow statement.
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vii) 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?
Tax is a very important aspect of any business and it is required that proper evaluation shall be
made in this regard. For this purpose, it is required that all the policies which are framed by the
company in this respect shall be identified and proper knowledge about them shall be gained. It
has been identified that all the tax expense which are related to equity will not be charged from
the income statement and they will be recognized directly with the amount of equity (Robinson,
et. al., 2016). The amount which is recognized as deferred tax will be considering the manner in
which recovery of that amount will be made by the management. There is a tax consolidated
group and all the entities which are owned by company and itself are part of it. GBST will be the
one who will be leading the group and all other will be under it. Due to this, there will be single
tax system and they all will be treated as a single entity under tax laws. The company is different
from others as in the given case it is having the tax credit in place of tax expense. By the help of
this company is receiving benefit and its overall income which is available for distribution is
increased (GBST Holdings Limited, 2017). These are some of the aspects which have been
identified. In addition to them, it is also determined that proper policies are followed by the
company and all the rules which have been made in this regard are complied with. All the
deferred taxation and other tax expenses are recognized by the company. All the disclosures in
respect of all the strategies and calculations have been made in the correct manner. Due to this,
all the information is made available and that will be used for further references.
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Conclusion
The report that is presented above shows the manner in which accounting in respect of tax is
required to be made in the company. All the policies which have been undertaken are recognized
together with the amounts that are charged by the company for tax purpose. There are various
differences which exist in expense and liability and that of the amount paid which is determined
in the report. The reason because of which this situation is arising is also identified and
mentioned in the report. The company is managing its obligations in an appropriate manner and
this can be said as there is tax credit which is present and its benefit is received by GBST
holdings limited. It can be noted that proper disclosures have been made about all the factors and
amounts which are involved and are important to be noted.
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References
 Baker, M., & Xuan, Y. (2016). Under New Management: Equity Issues And The Attribution Of
Past Returns. Journal Of Financial Economics, 121(1), 66-78.
 Gbst Holdings Limited, (2017). Annual Report 2017. [Online] Gbst Holdings Limited, 35-65.
Available At: Https://Www.Gbst.Com/Wp-Content/Uploads/2017/09/Gbst-2017-Annual-
Report.Pdf [Accessed: 18 January 2017]
 Gobetti, S. W., & Orair, R. O. (2017). Taxation And Distribution Of Income In Brazil: New
Evidence From Personal Income Tax Data. Revista De Economia Política, 37(2), 267-286.
 Jaya, T. E. (2016). Earnings, Leverage, And Deferred Tax On Tax Penalties And Fines (Case
Study In Indonesia).
 Lucia, P. P., Lavinia, C., & Marcel, P. (2014). Accounting–Taxation Report In Terms Of
Deferred Taxes On Assets Revaluation. Annals-Economy Series, 6, 30-34.
 Maag, E. (2015). Earned Income Tax Credit In The United States. Journal Of Social Security
Law, 22(1), 20-30.
 Robinson, L., Savor, P., & Sikes, S. (2016). Do Investors View Income Tax Expense As Less
Value-Relevant Post Fin 48?.
 Shamki, D. (2014). Owners’ Equity And Accounting Information Relevance. Procedia-Social
And Behavioral Sciences, 164, 194-200.
 Wang, Y., Butterfield, S., & Campbell, M. (2016). Deferred Tax Items As Earnings Management
Indicators. International Management Review, 12(2), 37.
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