Corporate Accounting Analysis: Landmark & Abacus

This assignment delves into a comparative analysis of corporate accounting practices employed by LandMark White Limited and Abacus Property Group. It examines various aspects such as deferred tax liability, cash tax amount calculation, and the determination of cash tax rates. The report utilizes balance sheets and income statements from both companies' annual reports to provide insights into their financial performance and tax strategies. Ultimately, it aims to evaluate the effectiveness of management in both organizations based on their corporate accounting practices.

Corporate Accounting

EXECUTIVE SUMMARY
This report contains information about corporate accounting which is used to create and
analyse the financial statement of a company which can be either a business entity or lawful
business. In this project, description about companies which are selected is mentioned along with
their equity items and cash flow items. It also describes about the importance of financial
statement of a company. By using financial statements one can identify the debt as well as equity
position of the company. It also help in identifying the amount of cash inflow and cash outflows
transactions performed by an organisation throughout the year. Further using financial statement
tax expenses can also be listed which includes current tax liabilities.

INTRODUCTION
Corporate accounting is that branch of accounting which is focused to preparation of
financial statements of companies. These corporations include any business entity which runs a
lawful business. In this project report, two companies are chosen in order to better understand
this topic. These companies are Abacus Property Group and LandMark White Limited. Both of
these companies operates in real estate industry and deals with property construction. In this
project report, annual reports of these two organisations are analysed and interpreted with the
aim of ascertaining their equity and debt position, cash flow performance and taxation position
of the organisation. Financial reports and accounts which are prepared by the accountants of a
company includes income statement, balance sheet and cash flow which are further analysed by
management of the company (Bennett, 2013).
TASK 1: OWNERS EQUITY
Listing equity items and their changes
Owner's equity is the amount of investment which is contributed by the owner in the
business. Owner's equity of an organisation can be ascertained by deducting the total assets from
total liabilities. Changes in equity items is mentioned below of the past three years:
Issued capital – This capital is the amount or value which is obtained through sale of
company's shares. When a company issues shares and earn a amount from it, that value is known
as issued capital (Epstein, 2018). In the case of LandMark White Limited, issued capital is in
increasing trend. In the year of 2015, this capital was amounting 6008000, 6050000 in 2016 and
33773000 dollars in 2017. Reason of this change is fluctuations in the share price and issuance of
shares by the company every year. According to the annual reports of Abacus Property Group,
shares amounting 1581156 issued in the year of 2017, 1523878 in 2016 and 1514015 in 2015.
From this data it can be said that this company is consistent when it comes to share capital
because of issuing a similar number of shares every year.
Reserves – These are the funds which are reserved by the company in order to save them
for future contingencies and plans (Reserves, 2018). The amount in reserves is considered as the
net worth of the organisation which is earned from the sale of shares. In the case of LandMark
White Limited, there are no reserves in the year of 2017. But in the year of 2016 and 2015,
company managed to save a amount in reserves and the value of these reserve were recorded as
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322000 and 62000. The reason behind these deviations is profit which has earned by the
organisation and the expenses which are needed to be paid from those profits. Abacus Property
Group is showing completely different results from above company. According to the income
statement of this company, reserves are continuously growing as in the year of 2015, these
reserves were reported as 7572, 15158 in 2016 and 20695 in 2017. The main reason behind this
increasing trend is growing profits and proper management of expenses.
Retained earnings or losses – These incomes or losses are transferred from the profit
and loss account to the retained earnings account at the end of an year. These incomes and losses
shows the profits of an organisation which is determined through ascertaining the difference
between dividends for shareholders and retained earnings (Feng, 2011). According to the annual
report of Abacus Property Limited, company is facing retained losses in the year 2015 and 2016
that is 114438 and 23054. In the year of 2017, this organisation has earned retrained earnings of
164248 dollars because in this year they earned more profits from business operations due to
which they are able to manage more retained earnings. From the income statement of LandMark
White Limited, it has been seen that this company is more efficient when it comes to maintaining
retained earnings as this company has earned amount of 605000 in 2015, 1229000 in 2016 and
1279000 in 2017. The reason behind high retained earnings of this company is that they prefer to
contribute less towards to the dividend.
Comparative analysis of debt and equity position
Debt equity position of a company reflects the understanding that in what period a
company is able to pay off their all the debts using the amount of their equities. In order to
analyse the debt equities position of both the companies which are selected, debt equity ratio can
be ascertained. Debt equity ratio of a company is calculated by comparing total liabilities from
total shareholder's equity. Comparative analysis of debt equity position is mentioned below:
2015 2016 2017
LandMark White
Limited
0.46:1 0.47:1 0.55:1
Abacus Property
Group
0.49:1 0.57:1 0.34:1
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Ideal debt equity ratio for this industry is considered to be 2:1. By analysing position of
both the companies it has been seen that there is no much difference when it comes to debt
equity ratio. From the point of financial position, it can be said that LandMark White Limited has
better debt equity position than Abacus property group. The reason behind this above statement
is that LandMark White Limited has increasing trend in debt equity ratio that means they are
putting efforts in order to increase their debt equity ratio. On the other hand Abacus property
group has fluctuated debt equity ratio.
TASK 2: CASH FLOW STATEMENTS
Listing items of cash flow statements and their changes
Cash flow statement is a financial statement which has all cash inflows and outflows for
an accounting period (Zadek, 2013). Items present in cash flow statement of both the companies
are mentioned below:
Interest received – This item is included in the operating activities of both the
companies (Fisher, 2012). According to this item, interest is a cash inflow which is needed to be
received by an organisation which are due to from credit amount. From the cash flow statement
of Abacus Property Group, interest valued at 2502000 is received in 2015, 642000 in 2016 and
1329 in 2017. The amount of interest fluctuates due to credit sales amount which is provided by
the company to their debtors. In the case of LandMark White Limited, 21000 was received in
2015, 8000 in 2016 and 15000 in 2017. These deviations are the result of credit sales.
Income tax paid – Income tax is an expense which is required to be paid by an
organisation against the income earned by the company. It is recorded as a cash outflow in the
operating activity of CFS. In the case of LandMark White Limited, liability of income tax was
recorded as 486000 in 2015, 555000 in 2016 and 822000 in 2017. From the CFS of Abacus
Property Group, it has determined that 11122 paid as income tax expense in the year of 2015,
8524 in 2016 and 2944 in 2017. The reason behind the fluctuations in CFS of both the companies
are the value of income which is earned as income tax expense is directly related with income of
a company.
Purchase of investments – This item is a capital expense which is faced by an
organisation when they purchase new investments such as properties, stocks and many more.
These investments helps an organisation to attain profit. Purchase of investments are recorded as
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a cash outflow in investing activity. From the CFS of Abacus Property group, it has been
observed that this expense is valued as 210821 in 2015, 158637 in 2016 and 141049 in 2017.
According to the CFS of LandMark White Limited, purchase of investments are valued as
575000 in 2015, 140000 in 2016 and 14215000 in 2017. The reason behind this varied amounts
is fluctuated amount of profit which is available for purchase of investments.
Repayment of borrowings – This item is also a cash outflow but is recorded in
financing activity in CFS (Gallhofer, 2011). The fluctuations in its value over the years is the
result of requirement of additional value which can be used in organisational operations. From
the cash flow statement of Abacus Property Group, it has been observed that this expense is
valued as 238150 in 2015, 43107 in 2016 and 260130 in 2017. Whereas from the annual reports
of LandMark White Limited, it has been seen that there was no such expense in 2015 and 2016
but in 2017, a expense of 7000 was recorded as in this year there were more requirements of
borrowings.
Comparative analysis of activities of cash flow statements
CFS is an accounting statement which reflects all cash inflows and cash outflows which
occurs in a company. These cash flows are classified into operating, investing and financing.
Comparative analysis of these companies on the basis of all three activities is conducted below:
Operating activities Investing activities Financing activity
2015 These activities are the
operations which are
conducted for the normal
course of business. It
includes certain items such
as interest, cash receipts and
many more. From the CFS
of LandMark White Limited,
it has been seen that
company has earned 324000
in 2015. Whereas in the case
of Abacus, these activities
These are the operations
which are conducted by the
company to increase the
value of their amount. In the
case of LandMark White
Limited, this activity has to
bear amount of 788000.
From the CFS of Abacus,
this investing activities
results in major expenses of
31178.
Financing activity are the
operations which are
conducted in order to pay
capital expenses. LandMark
White Limited, has
transacted this expense as
1034000 and Abacus Group
has recorded this expense as
111264.
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helped in earning 119332.
2016 In this accounting year,
Abacus Group has recorded
operating activities as
earnings of 91535 and the
other company has also
transacted it as earnings of
2452.
Investing activities such as
purchases and payments of
investment has resulted as
heavy expenses of 577000
for LandMark White
Limited and the other
company also has to bear
expenses of 191980.
Financing activities such as
payment of dividend is
included in this type of
activities. From the CFS of
Abacus Group, these
activities resultant in cash
inflow of 105716 and on the
other hand, LandMark White
Limited has to bear expenses
of 993000.
2017 Cash inflow of 4717000
earned by LandMark White
Limited and 116231 from
other company.
Abacus Property Group has
earned cash inflow of
171079 but in the case of
other company, they has to
face expenses of 17391000.
Despite of major expenses,
LandMark White Limited
managed to gain 17319 and
Abacus Property has to bear
expenses of 274844.
Comparative analysis of both the companies
LandMark White Limited Abacus Property Group
From the above comparative analysis, it has
been observed that this company has efficient
management team which look after its
financing activities due to which they are able
to earn profit from financing activities than the
other company.
From the cash flow statement of this company
it has been seen that this company is earning
more from operating activities but has to bear
heavy expenses from investing and financing
operations.
TASK 3: Other comprehensive income statement
Listing of items from comprehensive income statement
Comprehensive income statement is a part of financial statement which is prepared to
record incomes and losses which are not realised yet by the organisation (Hillier, 2011). Items
which are listed on this statement are listed below along with their changes over the three years:
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Comprehensive income – After evaluating annual reports items of comprehensive
income statement are mentioned below of both the companies. The only item which is
mentioned in the comprehensive income statements is net comprehensive income of an year.
After analysing comprehensive statement of LandMark White Limited, it has been seen that in
the year of 2015, comprehensive income of 779000 is received. 1659000 in 2016 and 1626000 in
2017 is received. The reason behind the fluctuations of this amount is increase in the value of
non realised income.
From the comprehensive statement of Abacus property Group, it has been analysed that
this company has also a considerable amount of comprehensive income. Total comprehensive
income determined from revaluation of assets and foreign exchange translation adjustment items
in the year of 2015 is 130079, 201567 in 2016 and 302611 in 2017. The reason behind the
variations in the amount of comprehensive income is the fluctuations in the income which is
earned by realising the assets and revaluation of assets.
Rationale of comprehensive income statement
Comprehensive income statement refers to a accounting statement which has items which
are not realised by the company yet. These items are unrealized which generally holds losses or
gains for available security over its sales. The items of comprehensive income statement are
generally not included in income statement of a company as it includes items which are not exist
in real. This statement includes various items such as derivatives, foreign currency, pension plan
etc. These items are based on assumptions, therefore they are not beneficial for company (Jones,
2011).
Comparative analysis
LandMark White Limited Abacus Property Group
From the comprehensive income statement of
this company it has been analysed that a huge
amount is received from this statement which
is more than the other company. The reason
behind ample of this amount is huge value of
non realisable assets.
In the case of this organisation, there is less but
considerable amount is earned from the
comprehensive income statement. This amount
is earned due to revaluation of their capital
assets.
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From the above comparative analyses, it has been evaluated that if comprehensive
statement income is mentioned in typical income statement, then the value of profit attributable
will be increased which can reflect misstatements in the financial reporting of an organisation.
Evaluation
Managers of the company are their personnel assets which helps in achieving the
organisational objectives such as profit maximisation. Amount which is mentioned in
comprehensive income statement is not reflecting any usual incomes but the incomes which are
not realised by the organisation yet. This items are recorded and reported in annual report as
these items helps in evaluating performance of managers and management. Main aim behind
including these incomes and expenditures in the form of comprehensive income statement is to
determine efficiency of management and its employees.
TASK 4: Accounting for corporate income tax
Listing tax expenses from financial statements
Tax expenses of an organisation includes current tax liabilities (Kim, 2012). From the
income statement of LandMark White Limited current tax liabilities which are recorded valued
as 159000 in 2015, 397000 in 2016 and 1367000 in 2017. These tax liabilities are the income tax
expenses which are needed to be paid by an organisation. These expenses are directly related
with the income of the company.
From the income statement of Abacus Property Group, it has been observed that this
company has gained income tax rebate of 1684000 in 2016. Besides this year, they has paid
income tax expense amounting 6644000 in 2015 and 10140 in 2016. The reason behind earning
the rebate for income tax in the year of 2016 is payment of advance income tax.
Calculation of effective tax rate
Effective tax rate is the rate which should be adopt by an organisation so that they can
pay their tax liability effectively (Leventis, , 2013). The rate which is ascertained can be
calculated by comparing total income and tax expense which is incurred by the company. This
determination is mentioned below:
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From the above determination, it is clear that LandMark White Limited has more
effective tax rate than the other company. The evidence for the above statement is the low
income expense of this organisation.
Deferred tax assets and liabilities reported in balance sheet
Deferred tax assets are assets which are used to record in the balance sheet of an
organisation in order to reduce the deferred tax liabilities (Schaltegger, 2017). From the balance
sheet of LandMark White Limited, it can be said that deferred tax assets of 463000 is recorded in
the year of 2015, 562000 in 2016 and 1279 in 2017. Deferred tax liabilities amounting 8700 is
transacted in the year of 2017. The reason behind recording deferred tax liability is to reduce the
amount of tax liability.
By analysing annual report of the company it has been determined that there is no tax
liability in the case of Abacus property Group. The reason behind recording this tax liability is to
record the expenses which are due and has to paid.
Evaluation of deferred tax liability
By examining annual report of LandMark White Limited, it has been observed that
deferred tax liability is increased from 30000 in 2015 to 46000 in 2016 and decreased again in
2017 as 16000. From the balance sheet of Abacus Property Group, it can be said that deferred
tax liability is decreased from 10490 in 2015 to 9535 in 2016 and increased again with 10358 in
2017.
Ascertainment of cash tax amount using book tax amount
Cash tax is calculated using total book tax. Formula which is used: Total of income tax
payable + deferred tax payable.
Abacus Property Group LandMark White Limited
2015 13819 189000
2016 100420 443000
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2017 110980 1383000
Determination of cash tax rate
Cash tax rate is calculated using formula of: income tax payable/cash tax payable*100
Abacus Property Group LandMark White Limited
2015 24.09 84.13
2016 0.5 89.62
2017 0.67 98.84
From the above analysis it can be said that LandMark White Limited has higher cash tax
rate due to their high taxation liabilities.
Evaluation of cash tax rate
Cash tax rate of an organisation is different from the book tax rate as book tax rate is
typically provided by the governmental regularities which is 30% in the case of both the above
companies (Watson, 2015). Whereas, cash tax rate is calculated by the organisation itself in
order to ascertain what is the suitable tax rate on which they should be liable to pay tax. By
analysing the tax rates of selecting companies, it has been seen that Abacus Property group can
attain profit if they used cash tax rate.
CONCLUSION
From the above project report, it can be said that corporate accounting is the most
significant process of an organisation from which they can analyse their financial statements as
such balance sheet, income statements and cash flow statements. After evaluating the
performances of both the companies it has been seen that LandMark White Limited has more
effective management team which effectively controls their functions such as tax management
and equity management.
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APPENDIX
Financial statements of LandMark White Limited
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Financial statements of Abacus Property Group
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