Corporate Accounting Analysis- PDF

Running head: CORPORATE ACCOUNTING
Corporate accounting
Name of the Student
Name of the University
Author Note

CORPORATE ACCOUNTING
Table of Contents
Requirement i)............................................................................................................................2
Requirement ii)...........................................................................................................................3
Requirement iii).........................................................................................................................3
Requirement iv)..........................................................................................................................4
Requirement v)...........................................................................................................................5
Requirement vi)..........................................................................................................................5
Requirement vii).........................................................................................................................5
Requirement viii).......................................................................................................................6
Requirement ix)..........................................................................................................................6
Requirement x)...........................................................................................................................7
Requirement xi)..........................................................................................................................8
References list:.........................................................................................................................10
Appendix:.................................................................................................................................12

CORPORATE ACCOUNTING
Requirement i)
Analysis of cash flow statement:
The cash flow of Gazal Corporation limited has been segmented into three parts that
is cash flow from operating activities, cash flow from financing activities sand cash flow
from investing activities. Items reported under cash flow from operating activities include
payment from customers, payment to suppliers, interest received, income tax paid and
interest and other cost of finances paid. It can be seen that net cash flow from operating
activities has reduced significantly from $ 5531000 in year 2016 compared to $ 14000 in year
2017. The reason attributable to this fall is that payment from customers has reduced
drastically and there has been increment in income tax paid.
Items under cash flow from financing activities include proceed from share issue,
proceed from borrowing, dividend paid and repayment from borrowing. The net cash used in
financing activities reduced from $ 82485000 in year 2016 as against 2812 in year 2017. This
is so because there has been reduction in amount that is repaid on borrowing in the current
year.
Items reported under cash flow from investing activities include purchase of property,
equipment and plant, purchase of intangibles, proceeds from sale of building, equipment and
plant, proceeds from sale of discontinued operations, income tax paid non discontinued
operations and dividend from joint ventures. Net cash flow generated from investing
activities in year 2016 stood at $ 70090000 to ($7135000) in year 2017 indicating net cash
used in investing activities. Total amount of cash and cash equivalent in year 2017 is
recorded at $ 2610 compared to $ 12540 in year 2016 depicting a considerable decline.

CORPORATE ACCOUNTING
Requirement ii)
Comparative analysis of three different categories of cash flow:
Particular 2015 2016 2017
Net cash flows from operating activities 3288 5,531 14
Net cash flows used in investing
activities -5573 70,090
-
7,135
Net cash flows used in financing
activities 15468
-
82,485
-
2,812
The above table shows a comparative analysis of three different categories of cash
flow. It can be seen that the net cash flows from operating activities has declined significantly
since year 2016 from $ 5531000 to $ 14000 in year 2017. However, there was increment in
cash flow from 3288000 in year 2015 to $ 5531000 in year 2016. Now, looking at the figures
of net cash flow from investing activities, it can be seen that company used net cash from
operating activities in year 2017 and 2017 respectively. However, in year 2016, there was net
cash flow of amount $ 70090000. Net cash flow was used from financing activities in year
2017 and 2016 as against year 2015 when net cash flow was generated.
Requirement iii)
The items that have been recorded in the comprehensive income statement involves
profit reported after tax, items that are reclassified and items that are not reclassified
subsequently to the profit and loss along with total income for the period. Items that are
reclassified subsequently to profit and loss includes income tax on comprehensive income
items, exchange differences on translation of foreign exchange, comprehensive income from
joint venture, cash floe hedges and loan and gains taken on equity (Henderson et al. 2015).
Some of the items that are not reclassified are revaluation of land and building at fair value
and income tax on items of other comprehensive income.

CORPORATE ACCOUNTING
Requirement iv)
Revaluation of land and building at fair value means that such assets are reclassified
at the fair value where the date of revaluation is less subsequent to accumulated depreciation
impairment.
Exchange difference is the difference that occurs due to the translation of a given
number of currencies in one unit to another currency at different exchange rates.
Income tax on the items of comprehensive income is the amount of tax that is paid by
entity on items such as expenses, revenue, losses and gains that is mentioned after excluding
the net income reported on income statement.
Requirement v)
The profit and loss statement of company depicts the performance in terms of net loss
or gain realized at the end of any reporting period. However, the statement of comprehensive
income includes the loss and gains that are unrealized. All the items of income and expenses
are recorded in the profit and loss statement except those that are recognized in the statement
of comprehensive income.
Requirement vi)
The income tax expense is reported in the income statement of Gazal Corporation
limited and the amount of income tax expense recorded in the financial year 2017 and 2016
stood at $ 1501 and $ 1550. There is reduction in the income tax payment by reporting entity
in year 2017. Income tax expense recorded in year 2015 stood at $ 914. It is suggested by
figure that income tax expense has increased initially and it declined subsequently.

CORPORATE ACCOUNTING
Requirement vii)
The corporate tax rate that is applicable to company is at the rate of 30%. Total
amount of accounting income reported by company in year 2017 and 2016 stood at $
1223000 and $ 58789000 indicating a considerable decline in the amount of accounting profit
generated. The taxation rate when applicable to the accounting profit reported comes to $
3669 (30% of $ 1223000) and $ 17637 (30% of $ 58789000). It can be seen from the
computation that the total amount of income tax paid as reported in the income statement is
different from the accounting income times the applicable taxation rate of company. From the
figures, it can be inferred that the amount if corporate tax paid by reporting entity in both the
years is less than the accounting income times the tax rate. This is so because the amount of
accounting profits and taxable profits are significantly different.
Requirement viii)
The balance sheet of Gazal Corporation limited depicts the total amount of deferred
tax liabilities under the heading noncurrent liabilities. It can be seen that there is no deferred
assets recorded in the balance sheet at the reporting date. Total amount of deferred tax
liabilities recorded in year 2017 and 2016 stood at $ 10932 and $ 8525. It is indicated by the
figure that there is increase in amount of deferred tax liabilities in year 2017 (Gazal.com.au
2018).
Recognition of deferred tax liabilities are done when such income tax liability arises
from goodwill recognition or from any liabilities and assets that are not affecting either the
taxable profit or accounting profit. Measurement of deferred tax liabilities are done at the tax
rate after the liability is settled or assets are realized. The reason why it is recorded under the
balance sheet is that it accounts for the temporary differences between tax that is paid today
and tax that will be paid in future and this forms a part of liability and hence recorded there.

CORPORATE ACCOUNTING
The amount of deferred tax liabilities and deferred tax assets recorded in the balance
sheet are subject to change with the change in the rate of income tax. Amount of deferred tax
assets and deferred tax liabilities are readjusted for reflecting the tax that is incurred when the
reversal occurs due to the change in tax rate. Such change in taxation rate helps in depicting
the timing differences and adjustments to previous balance are disclosed as reduction or
addition in the component of deferred tax of the income tax expenses.
Requirement ix)
Yes, there is an income tax payable recorded by Gazal Corporation limited in the
recent financial years. The amount of income tax payable recorded by company stood at $
835 in year 2017 compared to $ 13880 in year 2016 (Gazal.com.au 2018). It can be seen that
there is considerable fall in amount of income tax payable in recent year. There is difference
between the income tax payable and income tax expense reported.
The reason is attributable to the fact that income tax expense is calculated and treated
using the accounting rules and it is reported in the income statement. On other hand,
computation of income tax payable is based on rules and taxation standard and hence it
appears on the liability side of balance sheet until the amount of tax is paid (Meade and Li
2015).
Requirement x)
The total amount of income tax paid comprise of income tax paid on investing
activities and income tax paid on operating activities. Total amount of income tax paid in
year 2017 is recorded at $ 14965 compared to $ 2441 in year 2016. On other hand, the
amount of income tax expense in the financial year 2017 and 2016 stood at $ 1501 and $
1550 (Gazal.com.au 2018). From the figures, it is suggested that total amount of income tax

CORPORATE ACCOUNTING
paid in both the years is less than the amount of income tax expense. The amount of income
tax expense is usually higher than the amount of income tax paid and this is attributable to the
fact that the two systems of accounting eventually depreciate the same value with only timing
factor creating such difference. The difference in amount of income tax paid and income tax
expenses are attributable to the difference in accounting treatment of accounting rules and
taxation rules (Powers et al. 2016).
Requirement xi)
The treatment of tax in the financial statements of Gazal Corporation limited seems to
be quite interesting as there is proper and segregated disclosure of the accounting treatment
relating to income tax. Treatment and adjustment of the income tax such as income tax
expense, income tax payable, deferred income tax liabilities and income tax payable on
comprehensive income are presented in different financial statements according to the rules
of accounting (Auerbach and Hassett 2015). It has been ascertained from the analysis of the
annual report of company that all the Australia capital gain tax losses have been utilized by
the group. The statement of comprehensive income depicts the amount of income tax that is
paid on items of other comprehensive income. Amount of income tax payable is presented
under the liability side of balance sheet. Cash flow statement on other hand depicts the
amount of income tax that is paid on operating and investing activities (Dyreng et al. 2017).
Therefore, it can be seen that there is proper segregation of all the items relating to income
tax that is quite an interesting fact.
Moreover, a tax consolidated group has been formed by Gazal Corporation limited
that was effective from 1st July, 2003 and the group is head entity of the tax consolidated
group. In order to allocate the income tax liabilities to the wholly owned subsidiaries,
members of the group have entered into an arrangement of tax sharing. The allocation of

CORPORATE ACCOUNTING
income tax liabilities are done based on the formula that is set out in the agreement.
Agreements that is providing for the allocation of the liabilities pertaining to income tax
between entities should the entity default on its obligations of income tax payment
(Gazal.com.au 2018). The possibility of default is remote at the balance date. Furthermore,
the members of tax consolidated group accounts for the effect of tax. As per the agreement,
the current tax is allocated to the members of tax consolidated group along with allocating the
deferred tax to the members of tax consolidated group (Gazal.com.au 2018). Such allocations
are on done in accordance with the principles of AASB 112 Income taxes. Under the tax
funding agreement, allocation of taxes is recognized as a decrease or increase in the accounts
of inter company subsidiaries with the tax consolidated company of Gazal corporation
limited. In addition to this, the tax treatment of hedging transactions has been observed with
changes with the legislation in place.

CORPORATE ACCOUNTING
References list:
Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. American
Economic Review, 105(5), pp.38-42.
Bergner, S.M. and Heckemeyer, J.H., 2017. Simplified tax accounting and the choice of legal
form. European accounting review, 26(3), pp.581-601.
Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
Dagwell, R., Wines, G. and Lambert, C., 2015. Corporate accounting in Australia. Pearson
Higher Education AU.
De Simone, L., 2016. Does a common set of accounting standards affect tax-motivated
income shifting for multinational firms?. Journal of Accounting and Economics, 61(1),
pp.145-165.
Dyreng, S.D., Hanlon, M., Maydew, E.L. and Thornock, J.R., 2017. Changes in corporate
effective tax rates over the past 25 years. Journal of Financial Economics, 124(3), pp.441-
463.
Gazal.com.au. (2018). Gazal. [online] Available at:
http://www.gazal.com.au/asx_announcements.html [Accessed 23 May 2018].
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial
accounting. Pearson Higher Education AU.
Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting discretion
under IFRS: Goodwill impairment in Australia. Journal of Contemporary Accounting &
Economics, 12(3), pp.290-308.

CORPORATE ACCOUNTING
Keightley, M.P. and Sherlock, M.F., 2014. The corporate income tax system: Overview and
options for reform.
Lee, T.A. and Parker, R.H. eds., 2014. Evolution of Corporate Financial Reporting (RLE
Accounting). Routledge.
Li, Z., Wang, L. and Wruck, K., 2017. Accounting-Based Compensation Contracts, the Cost
of Borrowing, and the Structure of Corporate Debt Contracts. Working Paper Chapman
University.
Meade, J.A. and Li, S., 2015. Strategic corporate tax lobbying. The Journal of the American
Taxation Association, 37(2), pp.23-48.
Oxner, K.M., Oxner, T.H. and Phillips, A.D., 2018. Impact of the Tax Cuts and Jobs Act on
Accounting for Deferred Income Taxes. Journal of Corporate Accounting & Finance, 29(2),
pp.12-21.
Powers, K., Robinson, J.R. and Stomberg, B., 2016. How do CEO incentives affect corporate
tax planning and financial reporting of income taxes?. Review of Accounting Studies, 21(2),
pp.672-710.
Stein, M.J., Salterio, S.E. and Shearer, T., 2017. “Transparency” in Accounting and
Corporate Governance: Making Sense of Multiple Meanings. Accounting and the Public
Interest, 17(1), pp.31-59.
Toder, E. and Viard, A.D., 2016. Replacing corporate tax revenues with a mark-to-market tax
on shareholder income. National Tax Journal, 69(3), p.701.
Wahab, N.S.A. and Holland, K., 2015. The persistence of book-tax differences. The British
Accounting Review, 47(4), pp.339-350.

CORPORATE ACCOUNTING
Appendix:
Particulars 2015 (in
000)
2016 (in
000)
2017 (in
000)
Cash flows from operating activities:
Receipts from customers (inclusive of GST) 295639 126998 75656
Payments to suppliers and employees (inclusive of GST) -2,88,849 -1,19,494 -73,282
Interest received -198 224 50
Interest and other costs of finance paid -1,997 -697 -635
Income taxes paid on operating activities -1,307 -1,500 -1,775
Net cash flows from operating activities $
3,288.00
$
5,531.00
$
14.00
Cash flows from investing activities:
Purchases of property, plant and equipment -4,083 -2,836 -2,335
Proceeds from sale of buildings, plant and equipment $
86.00
138 249
Purchase of intangibles $ -
175.00
$ -
271.00
$ -
1,624.00
Proceeds from sale of discontinued operations $
10,484.00
$
74,000.00
$
5,765.00
Income taxes paid on disposal of discontinued
operations
0 $ -
941.00
$ -
13,190.00
Dividends from joint venture $ -
11,885.00
$
-
$
4,000.00
Net cash flows used in investing activities $ -
5,573.00
$
70,090.00
$ -
7,135.00
Cash flows from financing activities:
Proceeds from share issue $
290.00
300 600
Proceeds from borrowings 35,000 0 27,000
Repayment of borrowings $ -
10,000.00
-55,000 $ -
2,500.00
Dividends paid $ -
9,822.00
$ -
27,785.00
$ -
27,912.00
Net cash flows used in financing activities $
15,468.00
$ -
82,485.00
$ -
2,812.00
Net increase/(decrease) in cash and cash equivalents $
13,184.00
$ -
6,864.00
$ -
9,933.00
Cash and cash equivalents at beginning of year $
6,163.00
$
19,348.00
$
12,540.00
Effects of exchange rate changes on the balance of cash
held in foreign currencies
$
1.00
$
56.00
$
3.00
Cash and cash equivalents at end of year $
19,348.00
$
12,540.00
$
2,610.00

CORPORATE ACCOUNTING
References list: