Corporate Accounting: Cash Flow, Other Comprehensive Income Statement, and Corporate Income Tax

This article discusses the cash flow statement, other comprehensive income statement, and accounting for corporate income tax of Qantas Airways. It includes a comparative analysis of cash flows, items included in the other comprehensive income statement, and the tax accounting policy followed by the airline.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
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Table of Contents
Cash flow statement:........................................................................................................................2
Requirement (i):...........................................................................................................................2
Requirement (ii):..........................................................................................................................3
Other comprehensive income statement:.........................................................................................5
Requirement (iii):.........................................................................................................................5
Requirement (iv):.........................................................................................................................5
Requirement (v):..........................................................................................................................5
Accounting for corporate income tax:.............................................................................................6
Requirement (vi):.........................................................................................................................6
Requirement (vii):........................................................................................................................6
Requirement (viii):.......................................................................................................................6
Requirement (ix):.........................................................................................................................7
Requirement (x):..........................................................................................................................8
Requirement (xi):.........................................................................................................................8
References:....................................................................................................................................10

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Cash flow statement:
Requirement (i):
By evaluating the annual report of Qantas Airways in 2017, certain items are observed to
be inherent in various sections of the cash flow statement of the airline. From the operating
activities, the main items are cash payments to and receipts from the suppliers and customers
respectively, interest earned and paid, dividend obtained and payment of income tax. The sales
that are made on credit and the payments are collected later on could be termed as receipts from
the customers (DeFusco et al. 2015). There is fall in this item from $17,320 million in 2016 to
$16,947 million in 2017 due to the fact that it has extended additional time to the debtors. On the
contrary, fall in supplier payments is inherent in 2017 as well, since Qantas has to clear its stocks
from the last year for liquidating them into cash. Interest earned and paid could be defined as the
amounts that Qantas has made from loans provided and loans undertaken. As a portion of the
collected loans is repaid, interest paid is observed to increase over the year (Investor.qantas.com
2018). The short-term as well as long-term receipts are taken into account as interest received
and this item has increased in 2017, as additional amounts are collected from the loans provided.
The main items classified under cash flows from investments include the amount incurred
for purchasing property, plant and equipment and the amount earned for disposal of property,
plant and equipment. On the contrary, these assets fetch economic advantages to the
organisation, which are classified in the form of proceeds (Kroes and Manikas 2014). Another
item listed under this section includes aircraft operating lease refinancing. This is a type of

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refinancing loan, which Qantas has used for minimising the monthly payment and rate of
interest. This amount is observed to decrease from $778 million in 2016 to $651 million in 2017.
Certain items are deemed to be inherent in the cash flows from financing activities of
Qantas Airways, as per its annual report in 2017. These items constitute of payments for buyback
of shares, capital returns and treasury shares, proceeds from and repayments of borrowings and
dividends paid to shareholders and non-controlling interests. The buyback of shares is an
initiative, in which an organisation purchases its own shares from the market, as the management
believes that the shares are undervalued (Bollerslev, Xu and Zhou 2015). A fall in this item could
be identified from the latest annual report of Qantas from $500 million in 2016 to $366 million
in 2017. The capital return denotes the principal payments back to the capital owners, which go
beyond the growth of a business organisation. No such payments have been made by Qantas in
the year 2017, while the capital return payments amounted to $505 million in 2016. Treasury
stock is a type of stock kept aside for obtaining funds or paying for future investments (Robinson
and Sensoy 2016). In case of Qantas, increase in this item could be observed from $75 million in
2016 to $198 million in 2017, as they would be issued for raising additional funds in future.
The proceeds from borrowings have been $419 million in 2017, while no such payments
were observed in 2016. On the other hand, the payment of borrowings has fallen from $807
million in 2016 to $453 million in 2017. This is because the airline has limited its loan payments
and adequate amount has been received from the provided loans. Finally, it has been observed
from the annual report of Qantas Airways that the organisation has made payments to the
shareholders and other non-controlling interests in 2017, while no such payments are observed in
2016.

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Requirement (ii):
For conducting comparative assessment of the cash flow statement of Qantas Airways in
2017, the figure below is depicted:
2017 (in million $) 2016 (in million $) 2015 (in million $)
(3,000)
(2,000)
(1,000)
-
1,000
2,000
3,000
4,000
2,704
(2,046) (1,923)
(944)(854)
(1,825)
(1,218)
Comparative Analysis of Cash Flows of CSR
Limited
Cash Flow Operating Activities Cash Flow Investing Activities Cash Flow Financing Activities
From the above figure, increase in net cash flows from operations could be deemed to be
observed as increased from $2,048 million in 2015 to $2,819 million in 2016; however, it has
declined again to $2,704 million in 2017. This section is observed to be increased due to increase
in customer receipts and dividend obtained.
For the investing cash flows of Qantas Airways, cash outflows have increased massively
from $944 million in 2015 to $1,923 million in 2016 and the increase is inherent to $2,046
million in 2017. The reason is that additional investments are made for buying fixed assets like
machinery and other equipment for carrying out the airline operations. On the other hand, lease
refinancing could be identified as another reason due to which this section has been on the
increasing scale over the years.

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In relation to financing cash flows of Qantas Airways, increasing trend could be observed
as well like that of investing cash flows from 2015 to 2016; however, declining trend could be
observed in 2017. This is due to the fact that it has minimised its borrowing repayment in 2017
and no dividends have been incurred for non-controlling interests. All these causes are primarily
responsible for decrease in financing cash outflows in the year 2017.
Other comprehensive income statement:
Requirement (iii):
The main items that are included in this statement include foreign currency translation
reserve, cash flow hedge reserve and income tax benefits.
Requirement (iv):
With the help of foreign currency translation reserve, it becomes possible for Qantas
Airways to exchange the currency used by the foreign subsidiary to the currency that is used by
the parent subsidiary for the purpose of financial reporting (Brigham et al. 2016). The intention
is to report profits or losses in the currency of the parent entity. Cash flow hedge reserve is used
for reducing the exposure due to the considerable differences in the positions of assets and
liabilities of Qantas Airways. Income tax benefits are obtained based on the consideration of the
various items disclosed in the other comprehensive income statement (Lee 2014).
Requirement (v):
There are various reasons that Qantas Airways prepare the other comprehensive income
statement. One of them is that the users are provided with crucial information for various income
aspects. Moreover, a holistic and fair overview of different items could be obtained from the

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other comprehensive income statement. Due to these causes, certain items are not disclosed in
the income statement of Qantas Airways (Ramsey 2018).
Accounting for corporate income tax:
Requirement (vi):
As identified after critical evaluation of the annual report of Qantas Airways in 2017, the
airline has been obliged highly in carrying out its tax accounting policies, as laid down in the
Australian taxation law. The prevailing corporate rate of tax in Australia has been 30% over the
years. It has been identified from the income statement of the airline that the taxation expense
has been $1,424 million in 2017 and $789 million in 2016.
Requirement (vii):
The tax accounting policy that Qantas Airways follows discloses the difference between
the reported tax expense and the tax expense that would have been incurred by following the
standard tax rate for the airline. Certain causes are deemed to be inherent that they do not
resemble each other. The part of net income received from the joint venture agreements is the
major influential dynamic, as the excess payment of tax is attuned to the real tax expenses (Guay,
Samuels and Taylor 2016). The non-taxable income associated with the disposal of property is a
primary cause because of this difference due to which additional tax payment has been made in
both the years. The underpayment and overpayment of corporate tax in 2016 and 2017 is another
cause behind the difference, as Qantas Airways is required to spend the deficit corporate tax
payment; however, it would be possible to earn benefits from excess payment of corporate tax
(Robinson et al. 2015).

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Requirement (viii):
In compliance with the annual report of Qantas Airways in 2017, sufficient disclosures
are carried out in relation to deferred tax assets and deferred tax liabilities. For the airline,
deferred tax assets are deemed to decline considerably from $333 million in 2016 to $39 million
in 2017. However, it has not reported any deferred tax liability in both the years 2016 and 2017.
There are many reasons to include deferred tax assets, as their disclosures are considered
relevant for the users of the financial statements of a business organisation (Woellner et al.
2016). For Qantas, the reporting of these assets is made, as it has incurred taxes in advances
more than the amount to be incurred actually and these prepaid tax payments are taken into
account as assets. Moreover, Qantas has minimised its depreciation expense due to the
differences in the policies that are needed for developing the profit and loss statement of the
airline. Therefore, the depreciation amount falling short is considered as liability (Freebairn
2015).
Requirement (ix):
After evaluating the latest annual report of Qantas Airways, the airline has mentioned
about income tax payable or current tax assets in the same. It has mentioned about the current tax
liabilities in its annual report as well. However, no realisation in terms of monetary value has
been made by Qantas Airways for current tax assets and current tax liabilities in both the years
2016 and 2017. Hence, there is no similarity that could be identified between the tax paid and tax
payable, as per the latest annual report of the airline. This is because it has not considered a
number of items in current tax assets, which are taken into account in order to arrive at the
overall income tax expense. They are current tax assets, current tax liabilities and deferred tax
expense (Bennedsen and Zeume 2017). Thus, deferred tax expense occupies a certain part of the

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income tax expense of the airline or the case might be that it has not spent the overall expenses in
adherence to the income tax regulation. Thus, considerable reasons could be held responsible
that income tax expense and income tax payable do not match with each other (Taylor,
Richardson and Taplin 2015).
Requirement (x):
It has already been evaluated that the Qantas Airways has reported income tax expense of
$1,424 million in 2017 and $789 million in 2016. On the other hand, the reported income tax
expense in the cash flow statement has been nil in both the years. This implies clearly the
variation between the two disclosed amounts. In such instance, it is to be mentioned that the
amount of corporate tax disclosed in the profit and loss statement is the sum of money spent in
the present accounting year of the airline and the payment needs to be cleared in the future year
(Graetz and Warren 2016). On the other hand, the income tax payment in the cash flow statement
comprises of the statement of the past year and tax payments made in advance. By taking into
account all these reasons, there is significant difference observed in income tax expense in the
cash flow statement and profit and loss statement of Qantas Airways (Wilde and Wilson 2017).
Requirement (xi):
In accordance with the evaluation of the revealed financial information, there is absence
of surprising or confusing components could be inherent in the tax treatment of Qantas Airways.
The reason is that the airline has delivered all essential clarifications and descriptions regarding
tax expense in the form of financial notes disclosed in the annual report. Moreover, the financial
statement users would not face issues in obtaining an overview of the taxation policies of Qantas
Airways, as it has conformed to the prevailing rules and standards laid out in the Australian
taxation law. The organisation has to spend lower amount of depreciation, since the rules are

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varied while developing the income statement. Hence, the amount of depreciation, which is
short, is considered as the form of liability. Lastly, it becomes possible for the users in forming a
critical overview of deferred tax assets and deferred tax liabilities and income tax treatment after
critical interpretation of the tax operations of the airline.

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References:
Investor.qantas.com., 2018. Qantas | 2017 Annual Report. [online] Available at:
http://investor.qantas.com/annual-report-2017/ [Accessed 31 May 2018].
DeFusco, R.A., McLeavey, D.W., Pinto, J.E., Anson, M.J. and Runkle, D.E., 2015. Quantitative
investment analysis. John Wiley & Sons.
Kroes, J.R. and Manikas, A.S., 2014. Cash flow management and manufacturing firm financial
performance: A longitudinal perspective. International Journal of Production Economics, 148,
pp.37-50.
Bollerslev, T., Xu, L. and Zhou, H., 2015. Stock return and cash flow predictability: The role of
volatility risk. Journal of Econometrics, 187(2), pp.458-471.
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liquidity in private equity. Journal of Financial Economics, 122(3), pp.521-543.
Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial Managment:
Theory And Practice, Canadian Edition. Nelson Education.
Lee, T.A. ed., 2014. Cash Flow Reporting (RLE Accounting): A Recent History of an Accounting
Practice. Routledge.
Ramsey, E.D., 2018. A Comprehensive Review of Accounting through Case Studies (Doctoral
dissertation, The University of Mississippi).
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269.
Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial
statement analysis. John Wiley & Sons.

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Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law
2016. OUP Catalogue.
Freebairn, J., 2015. Who Pays the Australian Corporate Income Tax?. Australian Economic
Review, 48(4), pp.357-368.
Bennedsen, M. and Zeume, S., 2017. Corporate tax havens and transparency. The Review of
Financial Studies, 31(4), pp.1221-1264.
Taylor, G., Richardson, G. and Taplin, R., 2015. Determinants of tax haven utilization: evidence
from Australian firms. Accounting & Finance, 55(2), pp.545-574.
Graetz, M.J. and Warren, A.C., 2016. Integration of corporate and shareholder taxes.
Wilde, J.H. and Wilson, R.J., 2017. Perspectives on Corporate Tax Avoidance: Observations
from the Past Decade.