Tax Expenditures and Financial Reporting

The assignment analyzes income tax expenditures as presented in a firm's (BSA) annual report. It explains how current and deferred taxes are calculated, highlighting the differences between taxable profit and reported profit due to various income items and expenses. The analysis emphasizes temporary variances in asset and liability carrying amounts that contribute to deferred tax recognition.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
University Name
Student Name
Authors’ Note

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Table of Contents
Solution to Question i.................................................................................................................2
Solution to Question ii...............................................................................................................3
Solution to Question iii..............................................................................................................5
Solution to Question IV.............................................................................................................6
Solution to Question v................................................................................................................7
Solution to Question VI.............................................................................................................8
Solution to Question vii.............................................................................................................9
References:...............................................................................................................................11

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Solution to Question i
Essentially, there are three different items presented in the balance sheet statement of the
corporations and one of the important financial items is necessarily equity. There is not an
exception in case of the selected company BSA limited company. As per the balance sheet of
the company declared during the year 2016, there are necessarily three different items under
the segment equity and these include issued capital, retained earnings as well as reserves. In
actual fact, issued capital can be referred to as the business equity (Bhasin, 2015). Essentially,
business corporations mainly draw a specific proportion of the capital necessary for the
business concern. However, the enumeration of the issued capital is carried out by
multiplying total number of shares of chiefly stock outstanding by the par values of mainly
shares. As per the annual declaration of the company BSA limited, issued capital can be
observed to be $97592000 in 2016 as compared to the figure of 2015 that is $97592000.
Essentially, the key items under issued capital are necessarily issues of particularly ordinary
shares, costs associated to share issue as well as income tax associated to the share issue. The
following financial item under the section of equity includes reserves. In essence, under the
themes of financial accounting, reserve can be regarded as an element of the equity of the
company BSA limited company. As such, this can be referred to as the additional amount
apart from basic capital share. As per the annual declaration of the corporation presented in
the year 2016, there subsists an $1410000 in reserves in the year 2016 when compared to the
figure recorded in the year ago period, that is $1410000. In the company BSA limited
company, there exist three different elements of equity reserves that include reserve for
equity settled advantage, reserve for foreign currency translation together with research for
hedging. The subsequent item mentioned under the section equity of the firm BSA limited is
necessarily retained earnings. This stands for the total profit as well as losses of the

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corporation particularly calculated from the time of formation lessened by any dividend
disbursement to shareholders (Ramanna, 2014).
Solution to Question ii
Diverse types of expenses are incurred by business concerns that include selling expenditures
and administrative expenditures among many others. Essentially, one of such kind of expends
also include tax expenditure. Additionally, tax expenditure can be regarded as a major
accountability of the firm due to the federal, state as well as municipal governments of the
nation (Gitman et al., 2015). The enumeration of the tax expenditure is carried out by
multiplying the apt tax of the company by the earnings before taxes after factoring certain
key elements such as non-deductible items, tax assets/resources as well as liabilities (Mats
Andersson et al., 2016). As such, there exists no exception in case of the corporation BSA
Limited as the corporation also has tax expends. As per the annual declaration of the
corporation BSA Limited, the company has registered loss of $(3014000) from mainly
continuing operations specifically from income tax. In accordance with the directives of the
Australian taxation law, the rate of corporate tax for particularly Australian firm is 30%.
Founded on the rate of tax of 30%, the total tax expends of the firm BSA limited is $795000
in 2016 and $1564000. Essentially, this can be considered to be primary tax expends of the
corporation for the financial year 2016. Nevertheless, it can be hereby witnessed that there
has been decrease in the overall tax expenditure of the firm owing to the decrease in overall
earnings of the business corporation in the financial year 2016 as compared to the year 2015.

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Solution to Question iii
Based on the above discussion it can be hereby mentioned that the business entity BSA
Limited has registered a loss of $3014000 in the FY 2016. However, the profit was recorded
to be $ 5449000 in the FY 2015.
Furthermore, the annual report of the business concern mentions that the income tax expends
of the firm enumerated at the rate of 30% in the FY 2016. With the rate of 30%, the total
income tax expends of the corporation BSA Limited need to be ($904000) in the FY 2016
and $1632 in the FY 2015.
Essentially, the total benefit for the specific years that can be reconciled shows that loss/profit
of the firm from the continuing operations stands at ($3014000) in the FY 2016 as compared
to ($5439000). Essentially, the income tax enumerated at the rate of 30% stands at ($904000)
in the FY 2016 as compared to the year ago figure of $1632000. Moreover, a distinct
variance in the tax expenditure of the corporation BSA Limited can be observed in the
financial declaration of the corporation. Particularly, in case of BSA Limited, there are
certain financial items that can be either included or else excluded from the preliminary total
tax expenditure. Essentially, these financial items can be regarded as the reasons for the
variances in the total amount of tax expenditure (Schaltegger et al., 2017). Specifically in
case of BSA Limited, there is different financial items that have additional impacts on the
entire tax expends of the corporation. As per the annual financial declaration of the
corporation, the first and foremost item in this regard is the non-deductible expenditure that
can be analysed for the purpose of determination of taxable gains. The item that need to be
adjusted for include the allowances for research and development (Warren & Jones, 2017).
Also, adjustments are recognized in the present year in association to the current tax of prior
years and other and this amounts to ($29000) in the FY 2016 and ($18000) in the FY2015.

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Analysis of the financial statements of the firm therefore replicates the total income tax or
expends acknowledged in the present year associated to continuing operations stands at
($766000), while the same is $1546000 in the FY 2015.
Solution to Question IV
Deferred tax assets as well as liabilities can be referred to as two major notions of the tax
operation of business entities. As rightly indicated by Vishny & Zingales (2017), deferred tax
assets indicates towards a specific state of affairs in which the companies disburses taxes in
advance enumerated on particular financial assets/resources. Again, on the other hand,
deferred earning tax liabilities reflect a specific situation where variances can be observed in

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particularly profit as well as tax carrying value of the corporation. However, in case of the
business entity BSA Limited, it can be observed that the company has $7795000 as deferred
tax assets during the year 2016. However, the deferred tax liabilities are detected for
particularly taxable variances related to investments in specifically subsidiaries as well as
associates along with the interests that are in joint ventures. Taking into account specific
directives of accounting and rules of deferred tax liabilities or assets, it can be said that there
are specific reasons for the increase of deferred tax assets as well as liabilities (Robinson et
al., 2015). However, particularly in case of deferred tax assets, the reason might be the
surplus payment for depreciation by the corporation owing to the variances in the
depreciation and taxable rate of depreciation. As a result of surplus disbursement for
depreciation, the business entity BSA Limited will not have to make payments for additional
tax in subsequent year, thereby, it can be regarded as an asset. Essentially, for deferred tax
assets, the reason might ne the excess disbursement of depreciation by the corporation owing
to the variances in depreciation and taxable rate of depreciation. Owing to deferred tax
liabilities, it might have happened that because of temporary variances in profits of the
corporation, the corporation had to make comparatively less payments for taxes in the present
year (Tazik & Mohamed, 2014). Therefore, it is necessary for the corporation to pay the
amount in the subsequent years.
Solution to Question v
Current tax assets/resources or income tax that is payable can be regarded as an important
feature for the business corporation. As mentioned in the annual declaration of the business
concern BSA Limited, the corporation has illustrated about the current tax assets. As per the
financial statements of the firm BSA Limited, it can be seen that BSA Limited has not
declared about any amount for particularly present tax assets during the financial year 2016.

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Nevertheless, during the year 2016, the corporation recorded $795000 as firm’s deferred tax
in 2016 and $1546000 in 2015.
In business entities, it can be observed that there exists a basic variance between income tax
expends and income tax that is payable and certain specific causes can be held accountable
for this gap. The first reason is the existence of deferred tax assets. Essentially, there are
several instances where corporation disburses additional tax assets in comparison to deferred
tax assets that generate the variance. The following reason is the distinction between the
regulations of financial accounting and the regulations of tax accounting. In this regard, the
instance of depreciation can be stated (Maynard, 2017). Variances for depreciation can be
observed under the financial accounting in addition to tax accounting for varied depreciation
rate. Therefore, the total amount of depreciation payable can either be enhanced or lessened.
Therefore, these are the primary causes behind the variances between income tax payable and
income tax expends.
Solution to Question VI
Analysis of financial statements of the firm BSA Limited reveals the fact that the company
incurs tax expends, as mentioned in the income statement as well as statement of flow of
cash. As per the income statement, the corporation reflects the entire amount of tax expends
using the tax rate of particularly 30% on the earned profit from diverse continuing operations
before tax. Essentially, the income tax expenditure reflects the total sum of the payable
current tax as well as the deferred tax. Essentially, the current tax payable is mainly founded
on the overall taxable profit for the particular year. Essentially, the taxable profit varies from
the profit that is reflected in the consolidated statement of both profit and loss as well as other
comprehensive earnings statement. This is owing to different items of earnings plus
expenditures that are necessarily taxable or in other terms deductible in different other years

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along with items that are never taxable or else deductible (Sunder, 2016). In this perspective,
it hereby needs to be stated that the tax expends come under the flow of cash from operating
actions. Under this specific segment of cash flow statement, certain items of corporation’s
income statements are treated differently. This implies that certain changes occur in the
current assets as well as current liabilities of the firm. In the present case of BSA Limited,
disbursements for income tax can be regarded as a current asset. As mentioned in the
company’s statement of flow of cash, certain reductions in the elements of tax expends has
been mentioned that refers to the usage of cash. This implies that certain components of tax
expends have been stopped before taking into consideration consolidated statement. Because
of these reasons, the variances on tax expends can be observed in the statement of income
and statement of flow of cash (Weygandt et al., 2015). There are certain particular reasons for
this difference in the total amounts of income tax expends (Lisowsky et al., 2017).
Solution to Question vii
After observation of tax treatment in the financial assertions of BSA Limited, it can be stated
that there exists no element of doubt and confusion in the process of treatment of tax. BSA
has carried out by adhering to the directives as well as stipulations of the Australian Taxation
Law. Also, BSA has presented all the requisite illustrations as well rationalization of different
taxation matters such as rate of tax, diverse deferred tax assets as well as liabilities and
currant taxation liabilities among many others. Nonetheless, there are certain striking factors
in the treatment of taxation of the reporting entity BSA. The significant accounting policies
illustrated in the annual report of the corporation shows that tax assets as well as liabilities
(deferred) are associated to employee benefit arrangements and are recognized and
enumerated as per AASB 112 (for income taxes) and AASB 119 (for Employee Benefits)
(Tran, 2015). As per the annual report of the firm BSA, income tax expenditures reflect the

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total sum of the payable tax in the current period plus the deferred tax. For the current tax that
is payable by the firm is mainly founded on the calculated taxable profit for a particular year
(Hanlon et al., 2014). However, the taxable profit differs as presented in the reporting entity’s
consolidated statement of particularly profit or else loss as well as other comprehensive
income owing to different income items and expends that are necessarily taxable else wise
deductible. Fundamentally, the deferred tax is primarily recognized on the temporary
variances that exist between the carrying amounts of particularly assets as well as liabilities
presented in the consolidated pecuniary statements.

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