Financial Statement Analysis and Tax Journal Entries

The assignment presents a detailed case study of corporate finance. It involves analyzing the income statement, balance sheet, and cash flow statement of a fictional company. The task also includes calculating deferred tax assets and liabilities, followed by preparing relevant tax journal entries to reflect these calculations in the company's books.

Corporate Accounting

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Problem-1.........................................................................................................................................3
(A)Profit & Loss Account............................................................................................................3
(B) Balance Sheet as on 30th June 2018......................................................................................3
(c) Statement Of Changes in Equity............................................................................................4
Problem-2.........................................................................................................................................4
(A) Current Tax Worksheet.........................................................................................................4
(B) Deferred Tax Worksheet ......................................................................................................5
( C ) Tax Journal Entries..............................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7
2

INTRODUCTION
Corporate accounting is used to keep the financial position of the business updated. The
main aim lies behind this to determine the value of the firm at a particular point of time. To
analyze the financial position various tools have been provided such as Profit & Loss statements,
Balance Sheet, Statements of Changes in Equity. These statements have been drawn for the
problems mentioned in the assignment.
PROBLEM-1
(A)Profit & Loss Account
Particulars Amount ($) Particulars Amount ($)
To Cost Of Sales 675000 Sales Revenue 1237500
To Administrative Expenses 397500 Other Income 9000
To Other Expenses 15000
To Income Tax Expense 75600
To provision for employee benefits 51300
To Dividends paid & Declared 45000
To Surplus 38400
1246500 1246500
Analyzing the above P&L Account it can be concluded that the company made a surplus of
$38400 which is almost 3% of the sales revenue(Konchitchki and Patatoukas, 2016).
(B) Balance Sheet as on 30th June 2018
Liabilities (In $)
Share Capital 450000
General reserves 37500
Retained Earnings 155100
Revaluation Surplus 210000
Surplus From P&L 38400
Mortgage Loans 375000
Bank Overdraft 103800
7% Debentures 120000
Interest Payable 4200
Accounts Payable 104250
Dividend Payable 15000
Current Tax Liability 78150
Provision For Employee Benefits 51300
3

Deferred Tax Liabilities 27600
Provision For Doubtful Debts 19200
TOTAL 1840800
Assets
Plant & Equipment (333750-63750) 270000
Land 330000
Buildings 570000
Goodwill (157500-15000) 142500
Inventory 131550
Accounts Receivable 87000
Cash (750+150000) 150750
Prepaid Insurance 10500
Deferred Tax Assets 14700
TOTAL 1840800
The changes made in the equities & liabilities of the company have been depicted from the above
balance sheet and the surplus from P&L have been added to the Equity .
(c) Statement Of Changes in Equity
Statement Of Changes In
Equity for the year ended 30th
June 2018
Share Capital Retained Earnings
Revaluation
Surplus Total Equity
Opening balance 300000 155100 127500 582600
Add-Issue for the year 150000 Nil 150000
Add-Increase In Revaluation
reserve 82500 82500
Less- Dividends 45000
Balance As on 30th June 2018 770100
This statement analyzes the changes made in the shareholders equity.
PROBLEM-2
(A) Current Tax Worksheet
Particulars (In $)
Accounting Profit 263000
ADD-
Annual Leave Expense 45000
4

Depreciation Expense – Plant 22500
Doubtful debts Expense 4500
Insurance Expense 7000
342000
Less-
Annual Leave Paid 52000
Tax Depreciation- Plant 15360
Doubtful Debts Paid 2000
Insurance paid 6500
Interest not yet received 1000
Taxable profit 265140
Current Tax Liability @ 30% 79542
From the above calculations we can conclude that the current tax liability for the year is $79542.
(B) Deferred Tax Worksheet
Particulars
Carrying
Amount Tax Base
Taxable
Temporary
Differences
Deductible
Temporary
Differences
Assets
Interest Receivable 1000 Nil
Accounts Receivable (net) 17500 Nil
Prepaid Insurance 4500 4500
Plant 82500 82500
Liabilities
Provision for Annual Leave 10000 10000
Total Temporary Differences 92500 4500
Deferred Tax Liabilities @
30% 1350
Deferred Tax Assets @ 30% 27750
Beginning Balances 10500 10800
TOTAL 38250 12150
From the above calculations we can conclude that the deferred tax assets and liabilities of the
company after taking tax considerations are $38250, $12150 (Balakrishnan , WATTS and Zuo
2016).
5

( C ) Tax Journal Entries
Profit & Loss A/C (Dr) 79542
To Current Tax A/C (Cr) 79542
(Current Tax has been charged from the profit & Loss A/C hence it is debited)
Profit & Loss A/C (Dr) 12150
To Deferred Tax Liability (Cr) 12150
(Deferred tax liability has been provisioned through P&L)
Deferred Tax Asset A/C (Dr) 38250
To Profit & Loss A/C (Cr) 38250
(Deferred tax assets created in past are credited to P&L A/c)
CONCLUSION
By the analysis have covered the basic foundations of corporate finance by conducting a detailed
and structured construction of the financial statements.
6

REFERENCES
Konchitchki, Y. and Patatoukas, P.N., 2016. From forecasting to nowcasting the
macroeconomy: A granular-origins approach using financial accounting data.Review of
Accounting Studies.
Balakrishnan, K., WATTS, R. and Zuo, L, 2016. The effect of accounting conservatism
on corporate investment during the global financial crisis. Journal of Business Finance &
Accounting.
Zhao, X. and Murrell, A.J., 2016. Revisiting the corporate social performance‐financial
performance link: A replication of Waddock and Graves.Strategic Management
Journal,37(11), pp.2378-2388.
Soyode, A. and Bande, B.O., 2016. Predicting Corporate Financial Troubles With Accounting
Ratios: Evidence from Nigeria.
Bishop, C., DeZoort, F.T. and Hermanson, D.R, 2016. The Effect of CEO Social Influence
Pressure and CFO Accounting Experience on CFO Financial Reporting Decisions.Auditing: A
Journal of Practice and Theory.
7