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Corporate Accounting : PDF

   

Added on  2020-11-23

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Corporate Accounting

Table of ContentsEXECUTIVE SUMMARY.............................................................................................................4INTRODUCTION...........................................................................................................................1EQUITY AND LIABILITIES.........................................................................................................1(i) Item of equity and associated information about the companies:...........................................1(ii) Item of Liabilities and associated information about the companies:...................................2(iii) Comparative analysis............................................................................................................5CASH FLOW STATEMENT..........................................................................................................6(iv) Major items of cash flow statements....................................................................................6(v) Comparative analysis:............................................................................................................7(vi) Comparative analysis of selected companies along with proper insight..............................9OTHER COMPREHENSIVE INCOME STATEMENT................................................................9(vii) Items in comprehensive profit and loss statements of both company.................................9(viii) Reason why such items not been reported in Income Statement......................................10(ix) Comparative analysis:.........................................................................................................10(x) Comprehensive income to be included in evaluating the performance of manager............11ACCOUNTING FOR CORPORATE INCOME TAX.................................................................11(xi) Tax expenses shown in financial statements of selected companies:.................................11(xii) Effective tax rate................................................................................................................11(xiii) Deferred tax assets / liabilities and evaluation of changes:..............................................12(xiv) increase or decrease in the deferred tax assets or in the deferred tax liability reported byeach of your selected companies:..............................................................................................12(xv) & (xvi) Calculation of cash tax amount:............................................................................13(xvii) Difference between cash tax rate and book rate:.............................................................13CONCLUSION..............................................................................................................................14REFERENCES..............................................................................................................................15APPENDIX....................................................................................................................................16Tax expenses shown in financial statements of Thorn Ltd.:.....................................................28Tax expenses shown in financial statements of PAS Group.:...................................................28Tax expenses shown in financial statements of Reject Shop.:..................................................29

Deferred tax assets / liabilities :.................................................................................................29

EXECUTIVE SUMMARYThis report summarises different aspects of the corporate accounting along with variousrules and regulation that can assists in analysing performance of selected public limitedcompanies in retail sector i.e. Thorn Group, PAS Group and The Reject Shop Ltd. In order toanalyse, this report exhibits each item of equity and liabilities, items of cash flow statements,comprehensive income statement and tax calculation. This report also describes Cash Tax andBook tax and reasons of variation between them. A deep analysis is done in this report to getspecific outcomes so the effective decisions can be made in near future.

INTRODUCTIONCorporate accounting is a major division of accounting which mainly concerned with theaccounting aspects of a particular company. Process of corporate accounting includes finalisationof annual accounts, cash flow statements and change in equity (DeBusk, 2012). Corporateaccounting is about maintaining information related to finance in order to give direction forcompliance of regulations and policies. In this report three public limited companies i.e. Thorngroup ltd, Pas group ltd and reject shop ltd of Australia in retail sector is critically analysed byusing their three-year balance sheet, income statement, statement of changes in owner’s equityand cash flow statement, in the context of corporate accounting. Apart from this, accounting forcorporate income tax is also effectively discussed in this report. EQUITY AND LIABILITIES(i) Item of equity and associated information about the companies:Equity: In accounting terms Equity is difference between total assets and externalliabilities. In a limited company equity means shareholder's fund which includes share capital,share premium and Retained earning which includes profits after distribution of dividends.Following are the major items of Equity along with reasons of changes in equity during threeprevious years as stated in financial statement of selected companies, are as follows: Common stock: Common stock refers to ownerships within in a company. Commonstock includes securities, shares, bonds and debentures issued by company. Change incommon stock is found due to market conditions, economic conditions or dividenddistribution policy of company. In case of Thorn Group there is increase in commonstock due to issue of securities in market and in case of PAS Group and Reject Shop Ltdcommon stock has no changes. Holders of common stock or equity have right to appointdirectors by exercising their voting powers (Zadek, Evans and Pruzan, 2013). Retain earnings: Retained earnings is part of equity that contain amount remain afterproviding dividends to shareholders. This is net amount of profit available after dividenddistribution for company to pay their all-time debts. Due to increased net profit in 2017and 2018 Retained earnings of Thorn Group and Reject Ltd has increased respectivelywhere as in case of PAS Group there is negative retained earnings due to payment ofdividends.1

Reserve: Reserves are part of company's equity that includes amount of share premium,general reserves, capital reserves, debenture redemption reserves and other reservescreated by company as per requirements. Major change in reserves occurs due to sale ofany fixed assets, amalgamation, reconstruction etc (Edgerton, 2012). Reserves of ThornGroup has increased from 2016 to 2018 due to share premium whereas reserves of RejectShop Ltd have increased due to creation of general reserve and in case of PAS groupthere is decreasing negative reserve due to appropriation from Foreign currencytranslation reserve and Corporate reorganisation reserve.Following tables shows amount and comparative change in item of equity of Reject ShopLtd, PAS Group Limited and Thorn Group Ltd for three years: (Amount in millions)ItemsYearThorn GroupPAS GroupThe Reject Shop Ltd Common stock 201811715446201711515446201611015446Retained earning 201883-2996201792-2286201684-2386Reserve 20183.03-3920172.98-5320162.1-62(ii) Item of Liabilities and associated information about the companies:Liabilities: Liabilities shown in financial statement are divided in two major parts:Current Liabilities and Non-Current Liabilities. Liabilities refers to monetary or non-monetarydebts or obligation payable by company during the course of business. Current liabilities includedebts payable within one year, while long-term liabilities include debts payable for more thanyear. Current liabilities include Short-term debt, Accounts payable, deferred income taxes andother current liabilities and non-current liabilities includes Long-term debt, Long term provisionsand other long term liabilities (Edwards, 2013). Such current and non-current liabilities are statedin financial statement prepared by the company, some of them are discussed underneath:Accounts payable: Account payable or trade creditors refers to amount payable bycompany to its suppliers. Generally, term of accounts payable is less than one year.2

Following are the changes in accounts payable and reason of changes with respect to allthree companies:I.Thorn Group: There is decrease in accounts payable from 2016 to 2018 due totimely payment of credit purchases.II.PAS Group: There is increase in accounts payable in 2018 due to late payment ofaccount payable and increase in credit sales.III.Reject Shop Ltd: There is increase in accounts payable from 2016 to 2018 due toincrease in credit payment cycle period of company.Deferred tax liabilities: Deferred tax liability is amount of tax estimated or due for thecurrent period but has not yet been paid. Deferred tax liability includes amount thatcompany will, in the future, pay more income tax because of a transaction that took placeduring the current period. Changes in this in deferred tax liability arise due to amount oftax payable it may be short term or long term. Following are the changes in Deferred taxliabilities and reason of changes with respect to all three companies:I.Thorn Group: There is decrease in deferred tax liabilities in 2018 and increase in 2017due to increase in and decrease in financial lease receivables.II.PAS Group: There is increase in deferred tax liabilities from 2016 to 2018 due totemporary differences arising on investments except where PAS is able to control thereversal of the temporary differences and it is probable that the temporary differenceswill not reverse in the foreseeable future. III.Reject Shop Ltd: There is no deferred tax liability in Reject Ltd.Provisions: Provisions includes amount that is provided by company to pay futurecontingencies. Provisions are created by companies as per their internal policies and dueto contingent obligation (Hoskin, Fizzell and Cherry, 2014). Due to happening of suchcontingent event or obligation provisions is decreased or eliminated. Following are thechanges in amount of provisions and reason of changes with respect to all threecompanies:I.Thorn Group: There is decrease in amount of provisions in 2018 and increase in 2017 dueto Provisions used or reversed during the year and Provisions made during the yearrespectively.3

II.PAS Group: There is no change in amount of provision made for probable employeebenefits payments.III.Reject Shop Ltd: There is increase in amount of provision in 2018 due to creation ofprovision for shrinking expenses, onerous lease contract.Overdraft: Overdraft means withdrawal of amount from bank' current account even ifbank account shows zero or negative balance. Following are the changes in amount ofoverdraft and reason of changes with respect to all three companies:I.Thorn Group: There is increase in amount of overdraft in 2018 to meet the workingcapital requirements.II.PAS Group: there is overdraft facility availed by company from bank only in 2018 to payits day to day expenses. III.Reject Shop Ltd: There is no overdraft in Reject Shop Ltd.Long term borrowings or long term debt: It refers to amount borrowed for a periodexceeding 12 months from bank or other financial institution. Long term borrowingsinclude bank loan, mortgage bonds, debenture, or other obligations not due for one year.Companies are required to disclose its long-term debt in its financial statements alongwith interest rate and date of maturity. Increase in long term borrowings showsdependences of company on debts instead of equity or inability to pay debts. Followingare the changes in amount of Long term borrowings and reason of changes with respectto all three companies: Thorn Group: There is increase in amount of overdraft in 2018 to meet the workingcapital requirements.PAS Group: There is increase in amount of long term borrowings in 2018 to borrowingtaken for payment of lease incentives remain due.Reject Shop Ltd: There is increase in amount of long term borrowings from 2016 to 2018due to increase in borrowing taken for payment of rent escalation.Following tables assists in interpreting data of Reject Shop Ltd, PAS Group Limited andThorn Group Ltd for three years:ItemsYearThorn GroupPAS GroupThe Reject Shop Ltd Accounts payable2018101341201712112920161911284

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