Corporate Accounting: Analysis of Cash Flow Statement, Tax Implications, and Deferred Tax Liabilities

This report discusses the financial data of JB Hi-Fi Company to examine the cash flow statement; strategic program and deferred tax implications from which the company suffers. It includes analysis of cash flow statement, comparative analysis of the all three main flow of activities, tax implications, and deferred tax liabilities.

RUNNING HEAD: Corporate Accounting
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Name of the student-
Topic- Corporate Accounting
University name

Corporate Accounting
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Table of Contents
Introduction...........................................................................................................................................3
Answer to question-1.............................................................................................................................3
Answer to question-2.............................................................................................................................4
Comparative analysis of the all three main flow of activities............................................................4
Answer to question no-3........................................................................................................................4
Answer to question no-4........................................................................................................................5
Answer to question no-5........................................................................................................................5
Answer to question no-6........................................................................................................................6
Answer to question no-7........................................................................................................................6
Explain, why this is with reason............................................................................................................7
Answer to question no-8........................................................................................................................7
Answer to question no-9........................................................................................................................9
Why the income tax payment is not same with the income tax payable............................................9
Answer to question no-10......................................................................................................................9
Answer to question no-11....................................................................................................................10
Conclusion...........................................................................................................................................11
References...........................................................................................................................................12
Appendix.............................................................................................................................................14
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Introduction
Due to the impositions of new regulations and changing policies of taxation, it is required for
every organisation to use proper and planned strategies and program. In this report, we will
discuss the financial data of JB Hi-Fi Company to examine the cash flow statement; strategic
program and deferred tax implications from which the company suffers. This company has
been operating its business with the changes in the International Accounting Disclosure.
Every company is required to vary its reporting frameworks to maintain the balance between
the domestic and international accounting disclosure.
Answer to question-1
Analysis of the Cash flow statement
The cash flow statement shows the flow of cash in the business. It reflects that from which
sources the cash originated and where it has been used. It is a statement which gives a
description of cash incoming and outgoing. Every organization has various sources from
which they produce the cash and also have several places in which they deploy the cash. The
statement of cash flow reflects the resources and applications of the cash fund for a given
period of time. The concept of cash flow does not depend on the fact that the flow of cash is
related to the given period or not (Pulker, Scott, and Pollard, 2018).
The non-cash operating activities of the company have increased to AUD$ 191 million in
2017, in comparison to the previous year when it was AUD$ 34 million only. That increase
reflects that the operating income/expenses and depreciation have increased over the years.

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The company has purchased the plants and machinery in year 2017. Due to which it has an
increase in the investment activities, which has also increased the outflow of cash in the
business. Also the company had brought an issue of shares for AUD$ 396 million to its
shareholders, which results into an increase in the inflow of cash in the business. It
strengthens the financial activities of the company (JB HI-FI, 2017).
The company has paid the dividend for AUD$ 119 million, which leads to a rise in the cash
outflow and also it reflects the distribution of profits in the current year.
Conclusively, the evaluation of the cash flow statement shows an increase of AUD$ 21
million since last five years.
Answer to question-2
Comparative analysis of the all three main flow of activities
JB HI FI LTD (JBH) Statement of CASH FLOW
Fiscal year ends in June. AUD in millions
except per share data.
2017-
06
2016-
06
2015-
06
2014-
06
2013-
06
Net cash provided by operating activities 191 185 180 41 156
Net cash used for investing activities -886 -52 -44 -38 -38
Net cash provided by (used for) financing
activities 716 -131 -130 -28 -91
Free cash flow 142 133 137 5 121
The above mentioned table depicts the variations in the cash flow in last five financial years.
These changes are happened due to the inflow and outflow activities in the business. The
variation in the outflow of cash is the result of investing activities and the inflows changed
due to the financial activities (JB HI-FI, 2017).
Answer to question no-3

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The statement includes various items such as interest expenses, provision for tax, gross profit
and operating expenses etc.
JB HI FI LTD (JBH) Cash Flow Flag INCOME STATEMENT
Fiscal year ends in June. AUD in millions except per
share data.
2017-
06
2016
-06
2015-
06
2014-
06
2013-
06
Revenue 5628 3954 3652 3484 3308
Cost of revenue 4398 3089 2854 2745 2610
Gross profit 1230 865 798 739 699
Operating expenses
Sales, General and administrative 1434 1006 931 884 839
Other operating expenses -472 -361 -334 -336 -318
Total operating expenses 963 644 597 548 521
Operating income 268 221 201 191 178
Interest Expense 11 4 6 9 10
Other income (expense) 2 1 1 0 1
Income before income taxes 259 218 196 183 168
Provision for income taxes 87 66 59 54 51
However there are some items which are nit recorded in the cash flow statement but affect the
cash flow of the company. These items are non-cash items such as provision for income tax
and depreciation.
Answer to question no-4
As per my understanding, the income statement of the company consist the items related to
the revenue income and expenditure. It includes the total income; interest charged form the
profit; provision for taxation and taxation accounting. The earning per share is the earning
remained for the shareholders (JB HI-FI, 2017).
Answer to question no-5
The income statement includes various items in it such as gross profit, total revenue,
operating expenses, provision for taxation and interest expenses. There are some items like
accrued expenses and advance made to the clients are the expenses, which shown in the cash

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flow statement but have not been included in the profit & loss account of the company. The
items are included in the cash flow statement irrespective of the facts that they belong to the
same year or not (JB HI-FI, 2017).
Answer to question no-6
Tax is an imposition on the income from the business. It is an obligation which is charged by
the government over the profits of the company. JB Hi-Fi Company has charged with the tax
of AUD$ 65.6 million in year 2017, which is lower as compared to the last year’s tax
payment which was AUD$ 86.6 million (Hanlon, M., Maydew, E.L. and Saavedra, D., 2017).
Particular(AUD $ in million) 2016 2017
Income tax expenses 86.8 65.6
The management of the company has increased the interest expenses by introducing more
debt funding in the company to decrease its tax liability.
Answer to question no-7
The annual report of the company shows that the company’s tax rate time described in the
expenses is not the similar to the tax payment actually made by the company as per its
income statement.

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Explain, why this is with reason
The tax paid by JB Hi-Fi Company for AUD$ 65.6 million in year 2017 includes the current
year’s tax and the deferred tax payment for the last year as well. The computation of tax as
per the times expenses described in the income statement than the company will charged with
the tax liability of AUD$ 77.7 million (Rubinstein, and Vettori, 2018). As the profit of the
company is AUD$259 million on which the tax rate of 30% applicable for the calculation of
tax liability (Phillips, Pincus, and Rego, 2013).
 The treatment of tax in the income statement is different as per the accounting rules,
standards and regulations of the taxation
 The tax expenses in the income statement are included on the basis of the income tax
regulations. On the other hand the computation of tax liability on the basis of
company’s tax rate times expenses is depends on the accounting regulations.
 Two reason due to which the tax payment varies:
1. It may be possible that the revenue and expenses is not allowed under the taxation
rules but at the same time they are included in the profit & Loss account as per the
accounting regulations.
2. The accounting rules and income tax regulations have different policies for the
recording of expenses like depreciation, bad debts and other charges (JB HI-FI, 2017).
Answer to question no-8
The provision for future taxation is considered as deferred tax liability. The company has
deferred tax liabilities of AUD$ 8.2 million as per its balance sheet. This is a kind of tax
which is due for the same period but has not yet been paid. The amount of deferred tax is
carried forward till the time when company has earned the sufficient amount to pay off the

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deferred tax and to realise the deferred assets. Company’s balance sheet has shown the
deferred tax liability in its liability side. The recording of deferred tax liability is also differs
on the basis of the accounting approaches and income tax regulations. When that difference
results into the higher payment of tax by the company then such amount paid in access is
considered as the deferred tax assets. On the other side, if the company paid less payment of
tax due to the difference of both approaches then the same would be considered as the
deferred tax liability.
JB Hi-Fi Company has recorded the deferred tax liability in its accounts which means it has
paid less tax to the government (Kubick, T.R., Lynch, D.P., Mayberry, M.A. and Omer, T.C.,
2016)
Particular (AUD $ million) 2017 2016
Deferred tax liabilities 8.2 0

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Answer to question no-9
The company recorded in its books the income tax due for the current year and the current
assets tax. In 2017, the company has AUD$9 million of current tax assets, which was
AUD$4.9 million in the year 2016.
The tax due for the payment or payable tax liability on the company is the amount as per the
income tax rules (Rubinstein., and Vettori, 2018).
JB Hi-Fi Company has made deferred tax payment of AUD$ 8.5 million.
Particular(AUD $ in million) 2016 2017
Income tax payable 4.9 9
Why the income tax payment is not same with the income tax payable
The income tax payment and payable differs due to the reason that the income tax is charged
on the profits of the company but the income tax payable includes the outstanding tax
liability which will be paid by the company at an uncertain time in the future. It is also
recorded in the balance sheet of the company at the liability side (Pomeranz, 2015).
Answer to question no-10
The statement of cash flow includes all the flows of cash whether inflow or outflow
irrespective of the fact that the flow of cash belongs to the same year or not
(Pomeranz,00202015).

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As per the cash flow statement of the company the company has paid AUD$98.5 million for
the payment of the tax liability, which also includes the entire tax payments. The income tax
expenses shown in the income statement are not the same with the income tax payment
recorded in the cash flow statement.
Reason
The cash flow statement includes all the tax payment made by the company in the current
year, without considering the fact that the flow belongs to which year but the tax charged on
profits is considered as per the income tax rules.
Answer to question no-11
Treatment of the Tax
Interesting thing
The excess amount of tax paid by the company as per the income tax rules is considered as
idle money which might be used by the company in any other earning activity.
Due to the changing rules and taxation regulations it can be difficult for the companies to
evaluate the proper and accurate tax payments (Robinson, Stomberg, and Towery, 2015).
Surprising thing
The thing which makes us surprise is, that a company cannot record both deferred tax assets
and deferred tax liability in its books at the same time.

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Difficulty in recorded the entire tax amount
The company with deferred tax assets blocks high amount of cash of its business. Due to
which sometimes it also lost the opportunities in lack of funds. The main difficulty form
which the company suffers is the recording of the deferred tax assets and liability both
(Towery, 2017).
Conclusion
Due to the difference between the domestic and international reporting framework, the
companies has the deferred tax liabilities and deferred tax assets in its books. Conclusively
we can state that to avoid the grievances in the taxation accounting the company should
follow the proper regulations and rules of taxation and should also use a proper reporting
framework.

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References
Hanlon, M., Maydew, E.L. and Saavedra, D., 2017. The taxman cometh: Does tax
uncertainty affect corporate cash holdings?. Review of Accounting Studies, 22(3), pp.1198-
1228.
JB HI-FI, 2017., Annual report., [Online]., Available from
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_JBH_2016.pdf
[Accessed 14th May, 2018].
Kubick, T.R., Lynch, D.P., Mayberry, M.A. and Omer, T.C., 2016. The effects of regulatory
scrutiny on tax avoidance: An examination of SEC comment letters. The Accounting
Review, 91(6), pp.1751-1780.
Phillips, J., Pincus, M. and Rego, S.O., 2013. Earnings management: New evidence based on
deferred tax expense. The Accounting Review, 78(2), pp.491-521.
Pomeranz, D., 2015. No taxation without information: Deterrence and self-enforcement in the
value added tax. American Economic Review, 105(8), pp.2539-69.
Pomeranz, D., 2015. No taxation without information: Deterrence and self-enforcement in the
value added tax. American Economic Review, 105(8), pp.2539-69.
Pulker, C.E., Scott, J.A. and Pollard, C.M., 2018. Ultra-processed family foods in Australia:
nutrition claims, health claims and marketing techniques. Public health nutrition, 21(1),
pp.38-48.
Robinson, L.A., Stomberg, B. and Towery, E.M., 2015. One size does not fit all: How the
uniform rules of FIN 48 affect the relevance of income tax accounting. The Accounting
Review, 91(4), pp.1195-1217.
Rubinstein, F., and Vettori, G. G. 2018. Taxation of Investments in Bitcoins and Other
Virtual Currencies: International Trends and the Brazilian Approach

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Towery, E.M., 2017. Unintended consequences of linking tax return disclosures to financial
reporting for income taxes: Evidence from Schedule UTP. The Accounting Review, 92(5),
pp.201-226.

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Appendix
JB HI FI LTD (JBH) Statement of CASH FLOW
Fiscal year ends in June. AUD in millions
except per share data.
2017-
06
2016-
06
2015-
06
2014-
06
2013-
06
Cash Flows From Operating Activities
Other non-cash items 191 185 180 41 156
Net cash provided by operating activities 191 185 180 41 156
Cash Flows From Investing Activities
Investments in property, plant, and equipment -49 -52 -42 -36 -35
Property, plant, and equipment reductions 0 0 0 1 1
Acquisitions, net -837 -2 -3 -4
Net cash used for investing activities -886 -52 -44 -38 -38
Cash Flows From Financing Activities
Long-term debt issued 450 54
Long-term debt repayment -30 -40 -26
Common stock issued 396 6 3 22 1
Repurchases of treasury stock -13 -5 -26
Cash dividends paid -119 -93 -87 -77 -65
Other financing activities -11 0 -1 0 -1
Net cash provided by (used for) financing
activities 716 -131 -130 -28 -91
Effect of exchange rate changes 0 0 0 1 1
Net change in cash 21 3 6 -24 28
Cash at beginning of period 52 49 43 67 40
Cash at end of period 73 52 49 43 67
Free Cash Flow
Operating cash flow 191 185 180 41 156
Capital expenditure -49 -52 -42 -36 -35
Free cash flow 142 133 137 5 121
Supplemental schedule of cash flow data
Cash paid for income taxes -98 -66 -60 -61 -40
Cash paid for interest -9 -4 -6 -7 -9

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