Corporate Accounting: Analysis of Owner's Equity, Cash Flow Statement, and Accounting for Taxation of Myer Holdings Limited and Kathmandu Holdings Limited

This study analyzes the annual reports of Myer Holdings Limited and Kathmandu Holdings Limited, focusing on owner's equity, cash flow statement, and accounting for taxation. The debt-equity position of the companies is also evaluated.

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Corporate Accounting
Name of the Student:
Name of the University:

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Table of Contents
Corporate Accounting................................................................................................................1
Introduction................................................................................................................................3
Owner’s Equity..........................................................................................................................3
Equity items of Myer Holdings Limited................................................................................3
Equity items of Kathmandu Holdings Limited......................................................................4
Analysis for the debt equity position of the selected companies...........................................4
Cash Flow Statement..................................................................................................................4
Other comprehensive income.....................................................................................................8
Other comprehensive income statement’s items of Myer Holding Limited..........................8
Other comprehensive income statement items of Kathmandu Holding Limited...................9
Comparative analysis.............................................................................................................9
Performance evaluation by other comprehensive income.....................................................9
Accounting for corporate income tax.......................................................................................10
Tax expenses........................................................................................................................10
Effective tax rate..................................................................................................................10
Deferred tax assets/ liabilities..............................................................................................10
Change in Deferred tax liabilities........................................................................................11
Calculation of cash tax rate..................................................................................................11
Reasons for the difference between the cash tax rate and book tax rate..............................11
Conclusion................................................................................................................................11
Reference List..........................................................................................................................12

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Introduction
In this study, the annual report of two companies trading in Australian Securities Exchange
has been taken to carry out the study. The two companies which has been taken are
Kathmandu Holdings Limited and the other one is Myer Holdings Limited. The code in
which the company is traded in the Australian Stock Exchange is KMD and MYR for
Kathmandu Holdings Limited and Myer Holdings Limited respectively. This research paper
analyses and interprets the cash flow statement, owner’s equity and accounting for taxation of
the two companies. Analysis of owner’s equity helps to understand how the book value of the
equity of the owner has changed over a specific period of time (Coleman, Cotei and Farhat,
2016). Cash flow statement of an organization helps to understand the cash inflow and
outflow of the organization through various activities. Finally, the statement related to
accounting for taxation helps to find out various tax related information of companies.
Owner’s Equity
Equity items of Myer Holdings Limited
Retained Earnings –The accumulated profits of any organization is known as the retained
earnings. Myer Holdings Limited has an amount of $16,426,000 as contributed capital at the
end of 2016 and the end of 2017 it has a contributed capital of $49,276,000. The change in
the contributed capital is due to the profit, which has been generated by Myer Holdings
Limited in 2017.
Contributed Equity –When the shareholder pays a particular amount to get hold of the share
of that organization it is known as contributed equity. Contributed equity includes additional
paid up capital as well as paid up share capital. At the end of 2016 Myer Holdings Limited
has an amount of $739,329,000 as contributed capital whereas at the end of 2017 the
contributed capital declined to the amount of $73,329,000. The reason behind the decline of
the contributed capital is due to the issue of share capital and acquisition treasury amounting
to $187000 and $196,000 respectively.
Reserves – Any organization keep or retain a portion of the accumulated profit for further
expenses that a company may incur in the near future. At the end of 2016 the reserves of
Myer Holdings Limited were -$11,056,000 whereas at the end of 2017 the amount Myer
Holdings Limited has reserved is -$8,67,000. It can be concluded that the change in the
reserve from 2016 to 2017 due to various reasons including the share scheme provision of
employees and other comprehensive income.

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Equity items of Kathmandu Holdings Limited
Contributed equity –From the annual report of Kathmandu Holdings Limited it has been
found that at the end of 2016 the contributed capital, which has been incurred by the
company, amounts to $200,191,000 whereas at the end of 2017 the contributed capital
changed to $200,209,000. It can be concluded that the increase in the contributed capital from
2016 to 2017 is due to the share capital issue (Kathmandu Holdings Limited, 2017).
Reserves – At the end of 2016 the reserves of Kathmandu Holdings Limited amounts to -
$24,541,000 whereas at the end of 2017 it amounted to -$23,002,000. The change in this
reserve is due to share based payment reserves (Kathmandu Holdings Limited, 2017).
Retained earnings- At the end of 2016 the retained earnings of Kathmandu Holding Capital
were $149,893,000 and at the end of 2017, the retained earnings changed to $136,033,000.
The change in retained earnings has occurred due to change in the profit of the organization
and due to the dividend payments.
Analysis for the debt equity position of the selected companies
An ideal format of the debt and equity of a company should be in such a way where the debt
of the company should be lower as compare to the equity of the company. More debt
involves more payment of loan, which decrease the profit of any organization. In the table
below, the debt-equity of both the company has been shown and the analysis is being done
accordingly.
Table 1: Debt and Equity
Myer Holding Limited Kathmandu Holding Limited
Debt 42.89% 25.50%
Equity 57.11% 74.50%
From the above table it can be concluded that the debt-equity ratio of Myer Holding Limited
is more as compared to the debt – equity ratio of Kathmandu Holding Limited. Thus, it can
be said that Myer Holding Limited is earning more profit than Kathmandu Holding Limited.
Cash Flow Statement
Table 2: Items of Myer Holdings Limited
Items of cash flows Change in items and reason for the changes
Payment to employees and suppliers. It is the The cash outflow has decreased by an amount of

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cash outflow of the organization $170,816,000. This has occurred due to the
disruption in the payment of employees and
suppliers.
Receipts from customers are also one of the
important cash flow component. It represents
the cash inflow of the organization.
The cash flow statement shows that there is a
decline in cash inflow amounting to $169,26,000
which says that there is a reduction in the total
sales of the organization.
Another component is payment of interest. It
reveals the cash outflow of the organization
because interest is being paid by the
organization on the principal amount of loan
being borrowed (Chen and Teng, 2015.).
There is a decline in cash outflow amounting to
$5,729,000 during the period.
Intangible assets are that asset of a company
which is abstract in nature for example
goodwill of the organization. Payment made
for the intangible assets of the organization
also includes cash outflow.
The cash outflow has increased by &12,326,000.
This occurred due to more purchase of intangible
assets by the company.
Payment of Tax is necessary for every
organization so this also falls under the cash
outflow because money is being paid by the
organization.
Cash flow has increased by an amount of
$7,390,000. It shows that the company has to pay
more amount of taxes in the current year.
Purchase of plant, factory equipment,
buildings and property. This also indicates
cash outflow of the organization.
In this aspect the cash outflow has increased
amounting to $47,973,000. It means that the
company has purchased more number of fixed
assets including plant, equipment etc in the
current year.
Other income. This is the operating income of
the organization and this is the cash inflow of
the organization.
In the current period a decline in the cash inflow
has been seen amounting to $71,000. It means that
the company has not earned any operating
income.
Dividend payment. It is the cash outflow of
the organization because dividend is paid by
the organization to its shareholders.
The cash dividend payment of the company has
increased by an amount of $32,850,000. Thus, it
means that the cash outflow of the company has
increased.
Cash inflow due to the lease and other
investing incomes.
The company has seen an increase in cash inflow
by $14,902,000 because more number of lease

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and contributions was received on that particular
year.
Investment in associates leads to cash outflow
of the organization.
There has been a decrease in cash outflow
amounting to $7,714,000.
Receive of interest is also considered to be the
cash inflow of the company.
The company has witnessed a decline in cash
inflow amounting to $7,714,000 because the
interest earned is less in that particular year.
Repayment of debt or other borrowing is
considered to be the cash outflow of the
organization.
In that period there is a decline in the cash outflow
of the organization amounting to $290,000,000.
This means the company has lowered the amount
of borrowing from any other entity.
Payment made on treasury shares. It also
indicates the cash outflow of the organization.
In the current period the company has seen an
increase in the cash outflow amounting to
$196000. This means that the company has
purchased more number of treasury shares in the
current financial year.
Transaction costs which are proceeded from
the issue of shares. It indicates cash inflow of
the organization because cash is received
when the shares of the company is issued by
any other entity.
According to the cash flow statement there exists
decline in the cash inflow amounting to
$212,011,000. This indicates there has been no
issue of the company’s share by any other entity
or individual in the current year.
Other: Cash inflow of the organizations is
mentioned here due to other financing
activities.
In the current period the company has seen
decline in the cash inflow amounting to $26000.
This means the cash receipts of the organization
has decreased as compared to the previous year.
Table 3: Items of Kathmandu Holding Limited cash flow statement
Items of Cash flows and explanation Increase or decrease in various items of cash
flows and the reason for these changes

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Refunds from the income tax. It is considered
to be the cash inflow.
In the current period the company has seen a
decline in the cash inflow amounting to
$1,357,000. This means that the company has
received no significant amount of refund in tax
in the current year.
Company receives interest and this is the cash
inflow for the organization (Choudhary,
Koester and Shevlin, 2016.).
In the current year, there has been an increase
in the cash inflow amounting to $2000. This
occurred due to the higher amount of interest
being incurred.
Payment of tax- It is the cash outflow of the
organization because the company has to pay a
significant amount of tax each year (Campbell,
2015).
In the current period the company has seen a
decline in the cash outflow amounting to
$2,117,000. This means that the company has
paid less amount of tax as compared to the
previous year.
Payments made to suppliers and to the
employees.
It has been seen that the company has
witnessed a decline in the cash outflow
amounting to $23,154,000. This means that the
payment to suppliers and employment has
decreased.
Payment of Interest- It is considered the cash
outflow because payment has to be made by the
organization itself.
The company has seen a decline in the cash
flow amounting to $667,000. The reason
behind this is the increase in the rate of interest
of the organization.
Purchase of Fixed assets like land, building and
factory equipment etc. This involves cash
outflow of the organization (Hribar and
Yehuda, 2015).
According to the cash flow statement there has
been a decline in the cash outflow of the
organization amounting to $9,310,000. This
means the company has purchased less number
of fixed assets as compared to the previous
year.
Repayment of loan- Loan which is taken by the
organization should be repaid and this involves
cash outflow of the organization.
The cash flow statement of the company has
seen an increase in the cash flow amounting to
$35,875,000. This means that the company has
repaid the loan in the current year, which it has
borrowed in previous years.

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Payment of dividend- The company has to pay
dividend to those who take company’s share
and invest in the company (Wu, et al., 2016).
This is cash outflow because the company has
to pay cash to its shareholders.
It has been that in the current year that the cash
outflow of the company has increased
amounting to $8,060,000. This means that in
the current year the company has to give more
number of dividends as compared to the
previous year.
Proceeds related to advances of loan- This
indicates the cash inflow of the organization
because the loan advances are borrowed by the
organization (Mohanram, 2014).
The cash flow statement has seen an increase in
the cash inflow amounting to $27,283,000. This
indicates the company in higher amount
borrows the loans.
Sale of fixed assets- The sale of fixed assets of
the company includes sale of land, property,
plant, factory equipment etc. This involves cash
inflow of the organization because the
company is getting money by selling the assets
(Campbell, Downes and Schwartz, 2015).
It has been seen that there is a decline in the
cash inflow amounting to $4000. This
happened because the company has sold lesser
number of fixed assets in the current period.
Other comprehensive income
This kind of income statement shows the earnings and expenses which is not realized even at
the end of the financial year. This generally happens if the transaction has not occurred
(Black, 2016).
Other comprehensive income statement’s items of Myer Holding Limited
In the other comprehensive income statement of this company the two statements has been
shown. They are the difference in the exchange on foreign transaction and the second one is
cash flow hedges. They are not being shown in the income statement of the company. The
meaning of cash flow hedge is the value of future cash inflow and outflow, which can be,
incurred ore received by the organization in the future period of time. In a cash flow
statement, the increase and decrease of the cash inflow and cash outflow is identified. In case
of cash flow hedge organization cannot shown it in to the income statement as profit or loss
because the amount is not realized at the end of the financial year.
On the other hand, the difference in exchange for the foreign transaction reveals or shows the
gain or loss incurred by the organization due to the change in the value of currency of various
nations in respect to the value of Australian currency. Organization record this as future

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foreign exchange receivable increased or future foreign exchange payable decreased.
However, it cannot be recorded in the profit and loss statement of the organization if the
amount is not realized at the end of the financial year.
Other comprehensive income statement items of Kathmandu Holding Limited
The cash flow hedge reserves of the organization movement are the exposure of the value
change of the future cash inflow and outflow of the organization. In the current year the
organization recognized the income amounting to $209000. It can be concluded that this
amount cannot be mentioned in the profit and loss statement of the organization if the amount
is not realized at the end of the financial year.
Comparative analysis
Table 4: Comparative Analysis on comprehensive income statement
Kathmandu Holding Limited Myer Holding Limited
Difference in exchanges on
translation of foreign
operations
$209000 $547000
Cash Flow hedges $209000 $329000
Total comprehensive income $418000 $876000
From the comparative analysis of both the company it can be identified that both the
company has similar items when it comes comprehensive income statement but it can also be
seen that the comprehensive income of Kathmandu Holding Limited is less than as compared
to the comprehensive income of Myer Holding Limited.
If these items of comprehensive income are shown in the profit and loss statement of both the
organization, then the profit which is attributable to the shareholder of the organization along
with that retained earnings will also increase.
Performance evaluation by other comprehensive income
The other comprehensive income statement of the organization helps to increase the available
information to make a change regarding the appropriateness of the investment (Gazzola and
Amelio, 2014). It also helps to make decisions by the management department of the
organization. So, it is very important to consider the comprehensive income statement of an
organization when the management department of the organization formulates the
performance evaluation of the organization.

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Accounting for corporate income tax
Tax expenses
Tax expenses are calculated by multiplying the appropriate tax rate of an individual or
business by the income received or generated before taxes, after factoring in such variables as
non-deductible items, tax assets, and tax liabilities. Recent year 2017, the tax expenses of the
Myer Holdings are $18,274,000 until 30 June 2017 ((Myer holding limited, 2017). Next, the
Kathmandu Holdings limited for the same year 2017 until 30 June 2017 is $16,395,000
(Kathmandu Holdings Limited, 2017).
Effective tax rate
Below here tabulated rates of the effective tax of Myer Holdings Limited and Kathmandu
Holdings
Table 5: Calculation of Effective tax rate and PBT
Myer holding limited
Kathmandu holding
limited
Income tax expenses $ 18,274,000.00 $ 16,935,000.00
Profit before tax $ 30,213,000.00 $ 54,974,000.00
Effective tax rate 60.48 % 30.81 %
Hence can be concluded that Kathmandu Holding limited have lower effective tax rate than
Myer Holdings limited, since its effective tax rate is much higher.
Deferred tax assets/ liabilities
Tax assets and tax liabilities are two different entities, which occur at certain point of time
when required. An asset on a company's balance sheet that may be used to reduce any
subsequent period's income tax expense. Deferred tax assets can arise due to net loss
carryover. Deferred tax liabilities generally arise where tax relief is provided in advance of an
accounting expense/unpaid liabilities, or income. Recently both the companies showed
deferred tax liabilities. Myer Holding limited of $9,817,000 and Kathmandu Holdings limited
of $84,574,000. Kathmandu Holdings limited acquired timing differences due to its
properties and its executive brand (Kathmandu Holdings Limited, 2017). Myer Holdings
limited acquired timing differences due to its beneficial factors and highly reserve amenities
(Myer holding limited, 2017).

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Change in Deferred tax liabilities
Deferred tax liabilities Myer holding limited Kathmandu holding limited
At the end of year 2016 $ 88,444,000.00 $ 33,247,000.00
At the end of year 2017 $ 84,574,000.00 $ 34,027,000.00
Calculation of cash tax rate
Myer Holding Limited Kathmandu Holding Limited
Cash Tax amount $27,795,000 $14,613,000
PBT $30,213,000 $54,974,000
Cash tax rate 92% 26.58%
From the above table, it can be inferred that Myer holding limited is having higher cash tax
rate than the other.
Reasons for the difference between the cash tax rate and book tax rate
Myer Holding Limited Kathmandu Holding Limited
Effective tax rate 60.48% 30.81%
Cash tax rate 92% 26.58%
Cash tax rate varies from the effective tax rate because it is considered the liability portion
whereas effective tax shows the tax expenses of the organization (Gordon, et al., 2017).
Effective tax on the other hand, affects the sum of income tax expenses made by the firm as
per the norms of the tax authorities for that particular period and the amount of deferred taxes
for that year (J. Lewellen and K. Lewellen, 2016).
Conclusion
From this research paper the items which generates the cash inflow and the cash outflow of
the organization has been analyzed. The research paper has also helped to understand the
topic of owner’s equity and its importance while carrying out the business operations. In this
study the analysis on the comprehensive income statement of the organization is also done.
The research paper has discussed about various important topic like cash flow hedging andits
importance in a company. An analysis is being done on the deferred tax liabilities, effective
tax rate of both the selected companies.

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