Corporate Accounting: AMA Group Limited

CORPORATE ACCOUNTING

EXECUTIVE SUMMARY
Corporate accounting helps for specific events of organization such as absorption,
amalgamation and preparation of consolidated financial statements. The present report had
considered retailing industry as AMA Group Limited and Adairs Limited with its different
elements of corporate accounting. Initially, it will discuss about owner's equity and comparative
analysis of capital structure of both selected organizations. In the similar aspect, it has shown
importance of other comprehensive income which are necessary for performance evaluation.
Further, it is conculded by stating effective tax rate and difference among cash and book tax rate.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
OWNERS EQUITY.........................................................................................................................1
1. Presenting each item of equity with its changes from past years............................................1
2. Presenting debt equity position of both organizations............................................................2
CASH FLOW STATEMENT..........................................................................................................4
3.Presenting items of Cash flow with its changes from past year...............................................4
4. Presenting comparative analysis of broad categories of cash flow.........................................5
5. Presenting insights about comparative analysis of both companies.......................................6
OTHER COMPREHENSIVE INCOME STATEMENT................................................................7
6. Presenting items related to other comprehensive income statement.......................................7
7. Presenting reason for not stating these items in income statement ........................................7
8. Presenting comparative analysis of other comprehensive income statements........................7
9. Presenting importance of OCI in performance evaluation......................................................9
ACCOUNTING FOR CORPORATE INCOME TAX....................................................................9
10. Represent tax expenses in the latest financial statements of both companies.......................9
11. Presenting effective tax rate................................................................................................10
12. Interpreting deferred tax assets and liabilities with reference of balance sheet..................10
13. Presenting change in deferred tax asset and liability..........................................................10
14. Presenting cash tax amount with application of book tax, DTA and DTL.........................11
15. Presenting cash tax rate.......................................................................................................12
16. Presenting difference between cash tax and book tax rate..................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Corporate accounting is a specialised accounting branch which deals with business entity
for preparing cash flow and financial statements, accounting with appropriate interpretation and
analysis of its outcomes. It also provides help for particular events such as absorption,
amalgamation and preparation of consolidated financial statements. The present report will
discuss about retailing industry as AMA Group Limited and Adairs Limited on basis of different
components of corporate accounting. Initially, it will articulate about owner's equity and
comparative analysis of debt equity position of both selected organizations. In the same series, it
will show comparative analysis of cash flow statement with each item and alterations from past
three consecutive years. This report will discuss about other comprehensive income statements
(OCI) and items which are included in this statement. In this context, movements from year 2015
to 2017 will be discussed and reasons for not including items of OCI in profit and loss account.
Further, this report will present accounting for corporate income tax which consists of effective
tax rate, cash tax rate and book tax rate with its differences.
OWNERS EQUITY
1. Presenting each item of equity with its changes from past years
AMA Group Limited
2015 2016
% change
in 2016 2016 2017
% change in
2017
Contributed
equity 74904 172149 129.83% 172149 181691 5.54%
Reserves 0 3059 0.00% 3059 3054 -0.16%
Retained
earning -26534 -28626 7.88% -28626 -22122 -22.72%
Total Group
Interest 48370 146582 203.04% 146582 162623 10.94%
Non-
Controlling
interest 0 197 0.00% 197 232 17.77%
Total Equity 48370 146779 203.45% 146779 162855 10.95%
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Interpretation: The above table is stating each element of equity as reserves, retained
earnings, contributed equity and non-controlling interest also impacts in some way. In year 2016
AMA group has introduced reserves and retained earnings as it was nil in previous year. From
year 2015 to 2016, whole total equity is raised by 203.45% due to major alterations in
contributed equity (Zeff, 2018). In the similar aspect, from 2016 to 2017, contributed equity and
total controlling interest increased which gives impact on total equity in a positive way as
10.95%.
Adairs 2016 2017
% change
in 2016 2017 2018
% change in
2017
Contributed
equity 180483 181035 0.31% 181035 183498 1.36%
Reserves -113031 -112333 -0.62% -112333 -112652 0.28%
Retained
earning 59533 75660 27.09% 75660 87016 15.01%
Total Equity 126985 144362 13.68% 144362 157862 9.35%
Interpretation: The above table is signifying each component of equity as reserves,
retained earnings and contributed equity. Its reserves were decreasing and rest both raised in less
proportion. The retained earnings were increased with 27.09% and total equity with 13.68% from
year 2015 to 2016. In the similar aspect, each component was increasing in year 2017 and
retained earnings was highest among all as 15.01%. The total equity was raised by 9.35% which
is smaller than previous year 2016.
2. Presenting debt equity position of both organizations
2017 AMA Group Adairs Group
Debt 40301 19.84% 41955 29.49%
Equity 162855 80.16% 100312 70.51%
Total 203156 100.00% 142267 100.00%
AMA Group Limited
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19.84%
80.16%
Debt
Equity
Interpretation: The above pie chart is depicting capital structure of AMA Group Limited
as it is highly financing through equity. The optimal capital structure of every firm is of 40:60
but this organization is not matching with this as it has debt of 19.84% and equity of 80.16%.
Adairs Limited
29.49%
70.51%
Debt
Equity
3

Interpretation: The above chart is showing debt equity of Adairs Limited, as it is highly
relying on equity as compared to debt. It is not a good indicator for organization.
Comparison of debt equity of both companies
Debt Equity
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
19.84%
80.16%
29.49%
70.51%
AMA group
Adairs
The above graph is depicting comparison of debt and equity of both organizations. Both
the firms have more equity from debt as it is expensive and time consuming. With context of
financing through equity will create ability to lose a certain amount of power related to
management decisions. Adairs Limited has high debt against AMA Group Limited. However, it
has more equity as compared to Adairs Limited (Edwards, 2018).
CASH FLOW STATEMENT
3.Presenting items of Cash flow with its changes from past year
The statement of cash flow is categorised in three parts such as operating, investing and
financing activities.
AMA Group Limited: With reference to operating activities it had considered payments
and receipts from suppliers, employees and customers as both (receipts and payments) are
increasing from past years. These activities also include interest received and paid along with
sum of income tax. In year 2017, it had received very less interest as it had paid less amount as
well for this aspect. The sum of cash flows from operating activities are decreasing by 64.67%
(Annual Report of AMA group, 2017).
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The cash used with context of investing activity reduced by 40.62% because of ridding
proceeds from business disposals and payments for intangible assets. These elements has not
given major impact on this variation as payments for purchasing equipment, property and plant
increased. It has huge reduction in amount for acquiring business. In the similar aspect, loans
from other investments remained positive in 2016 and vice versa in 2017.
The last category of cash flow is financing activity which plays important role in this
statement, as equity was raising in year 2016 but in 2017 it was NIL. The proceeds from
borrowing is increased in a high proportion and its repayments decreased massively. It has also
considered payments of dividend to its shareholders along with non-controlling shareholders.
Aggregately it was reduced by 93.02% from year 2016 to 2017.
Adairs Limited: The operating activity of this organization is increasing with 15.87%
because of positive change in receipts and payments to suppliers, customers and employees. The
major impact was due to increment in income tax payment from previous year. Simultaneously,
it had fully ridden payment of IPO transaction cost (Annual Report of Adairs, 2017).
In this organization, cash used with context of investing activity is only related to plant,
equipment and property's acquisition which is increasing from year 2016 to 2017 by 9.74%.
With context of financing activity, it had introduced payments of borrowing cost in year
2017 which was NIL in 2016. Further, Adairs Limited had paid approx. double dividend in
present year. The sum of both are giving more than 100% change in 2017.
4. Presenting comparative analysis of broad categories of cash flow
AMA Group Limited
2015 (base
year) 2016 %
2016 (base
year) 2017 %
Cash flow
from
operating
activity 7820 36761 370.09% 36761 12987 -64.67%
Cash flow
from
investing
10693 38207 257.31% 38207 22687 -40.62%
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activity
Cash flow
from
financing
activity 2972 22126 644.48% 22126 1545 -93.02%
Adairs Limited
2015 (base
year) 2016 %
2016 (base
year) 2017 %
Cash flow
from
operating
activity 31952 23857 -25.33% 23857 27644 15.87%
Cash flow
from
investing
activity 15296 10324 -32.51% 10324 11330 9.74%
Cash flow
from
financing
activity 31596 8294 -73.75% 8294 16677 101.07%
5. Presenting insights about comparative analysis of both companies
Particulars % 2016 (AMA) % 2016 (Adairs) % 2017 (AMA) % 2017 (Adairs)
Cash flow from
operating activity 370.09% -25.33% -64.67% 15.87%
Cash flow from
investing activity 257.31% -32.51% -40.62% 9.74%
Cash flow from
financing activity 644.48% -73.75% -93.02% 101.07%
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Interpretation: The above table is providing comparison among each category of cash
flow with both organizations. In year 2016, each category was increased by huge proportion in
AMA Group Limited. However, all categories of cash flow are decreasing by small proportion as
compared to AMA Group Limited in Adairs Limited. In the year 2017, situation was contrasting
previous year. Each activity was decreasing in AMA Limited and vice versa in Adairs Limited.
OTHER COMPREHENSIVE INCOME STATEMENT
6. Presenting items related to other comprehensive income statement (OCI)
AMA Group Limited: The items are categorised to profit OCI such as exchange
differences on translation of foreign operation (Annual Report of AMA group, 2016).
Adairs Limited: It has presence of items which are reclassified subsequently to loss or
profit which are movement with context of cash flow hedge. It has also stated income tax related
to other comprehensive income (OCI). Further, the most common element is of exchange
difference for foreign operation translation.
7. Presenting reason for not stating these items in income statement
The items of other comprehensive income statement are referred as very expansive view
of net income. The changes in net income are deemed with reference to its core operations.
These items are allowed and volatile for cash flow for context of shareholder's equity. Generally,
it considers losses, gains, expenses which are not realized in this aspect. The items which alters
equity of organization without involving owner's investment and creation of distribution. It does
not provide impact on net income and organization's retained earnings. The current year's item
will impact on changes for accumulating OCI which are referred as another component of
stockholder's equity.
8. Presenting comparative analysis of other comprehensive income statements
Adairs Limited
Year 2015 (Base) 2016
% change in
2016 2016 (base) 2017
% change in
2017
Profit 745 27172 3547.25% 27172 21017 -22.65%
Items classified for loss or profit
OCI from continuing operations
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Movement of
cash flow
hedge 2394 -1771 -173.98% -1771 346 -119.54%
Income tax
to OCI -718 531 -173.96% 531 -104 -119.59%
Exchange
differences
of foreign
translation 0 0 0.00% 0 -7 -0.07
Other
comprehensi
ve income 1676 -1240 -173.99% -1240 235 -118.95%
Total
comprehensi
ve income 2421 25932 971.13% 25932 21252 -18.05%
Interpretation: The above table is providing comparative analysis of OCI of Adairs
Limited from year 2016 to 2017 which is increasing by huge proportion. The movement of cash
flow hedge is reducing and similar flow in OCI. Aggregately, total comprehensive income was
2421 in 2015 because of less net profit which increased in 2016 so its change is of 971%.
Simultaneously, its net profit from year 2016 to 2017 was decreasing along with each element
such as movement from cash flow hedge, exchange differences and OCI as well. The company's
total comprehensive income was reduced by 18.05% in 2017.
AMA Group Limited
Year 2015 (Base) 2016
% change in
2016 2016 (base) 2017
% change in
2018
Profit 9090 7187 -20.94% 7187 17411 142.26%
Other comprehensive income
Items classified in loss or profit
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Exchange
difference of
foreign
currency
translation 0 11 0.00% 11 -6 -154.55%
Other
comprehensi
ve income 0 11 0.00% 11 -6 -154.55%
Total
comprehensi
ve income 9090 7230 -20.46% 7230 17405 140.73%
Interpretation: The above table is representing comparative analysis of AMA Limited
and in 2016 it had presence foreign currency translation reserve. With context of total
comprehensive income, it is decreasing by 20.46%. However, because of differences in net profit
and reduction in foreign operation translation had given major impact with increment of
140.73%.
9. Presenting importance of OCI in performance evaluation
Other comprehensive income or OCI consists of items that will have an effect on the
balance sheet amounts, but is not reported on company's income statement. OCI is comprised of
all revenues, expenses, gains and losses which are excluded from net revenue on income
statements. The items which are reported in OCI are only those which are not realised yet.
 OCI is very important in reporting unrealised gains and losses of net income which will
help an analyst get a more accurate measures of performance of company and its
investment.
 An other comprehensive income helps in classified realised and unrealised transactions in
income statements that will make the statements easy to understand to the readers (Urean,
2017). It will provide more transparency of financial performance of company.
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 Including Other comprehensive incomes in company's financial statements, there will be
requirenment of preparing another income statements to show unrealised transactions.
 Other comprehensive incomes are attempts to measure sum total of all that operating and
financial transactions that can change an interest of investors in a business. The
comprehensive income is not a part of net revenue, but are important to be prepared to
give the users more comprehensive picture of organisation as whole.
ACCOUNTING FOR CORPORATE INCOME TAX
10. Represent tax expenses in the latest financial statements of both companies
Income tax expense is referred as combination of current tax and deferred tax amount.
2017
AMA group Adiars Limited
Income tax expense 7994 7904
11. Presenting effective tax rate
2017
AMA group Adiars Limited
Income tax expense 7994 7904
earnings before tax 25405 28921
Effective tax rate 31.47% 27.33%
Interpretation: The above table is signifying effective tax rate of both organizations in
which AMA Group has shown highest because of fewer earnings before tax (Annual Report of
Adairs, 2016).
12. Interpreting deferred tax assets and liabilities with reference of balance sheet
Deferred tax asset (DTA): It is comprised in assets on balance sheet of organization
which might be applicable for decreasing taxable income. It is associated to situation where taxes
are overpaid by business in advance in this specified statement. The unabsorbed depreciation
and losses are carry forward for implying and set off against future taxable income as it is also
referred as timing differences and outcome in Deferred tax assets with reference to consideration
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of prudence. It always excludes permanent differences and only recognised with reasonable
extent of uncertainty of realisation. On every balance sheet date, business entity reassesses all
unrecognised DTA along with previous recognitions with availability of realised deferred tax
asset.
Deferred tax Liability (DTL): It is referred as balance sheet line item which is
accounted for extracting temporary differences among tax which will be extracted in future and
amount of tax which is paid. The main reason is of rules of accrual accounting, from which
organization is capable for deferring tax on its major income. The debt of unrealized tax
accounted in balance sheet is known as DTL. Generally, it is found on statements of financial
position on assets and liabilities. Its particular position is in liability side along with obligations
of long term debt. In the same series, if taxes are due then both DTL and cash account of
business entity will be decreased by same amount.
13. Presenting change in deferred tax asset and liability
AMA Group Limited
2015 (base
year) 2016
% change
in 2016
2016 (base
year) 2017
% change
in 2017
Deferred tax asset 1682 5227 67.82% 5227 7205 37.84%
Deferred tax
Liability 862 2622 67.12% 2622 3509 33.83%
Interpretation: The above table is stating deferred tax asset and liability of AMA Group
limited with its changes from past years. From year 2015 to 2016, its deferred tax asset and
liability both are increasing with constant percentage of approx. 67%. From year 2016 to 2017,
deferred tax asset is raising with 37.84% and DTL is increasing with 33.83%.
Adairs Limited
2015 (base
year) 2016
% change
in 2016
2016 (base
year) 2017
% change
in 2017
Deferred tax asset 7190 6725 -6.91% 6725 6029 -11.54%
Deferred tax 326 12453 97.38% 12453 12559 0.84%
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Liability
Interpretation: The above scenario is depicting change in DTA and DTL from past three
years. From year 2015 to 2016, DTA was alleviated by 6.91% but DTL was raised by huge
proportion of 97.38%. In year 2017, DTA was decreased by huge amount as of 11.54% and DTA
rose by 0.84%.
14. Presenting cash tax amount with application of book tax, DTA and DTL
AMA group
2016 2017
Total tax provision 6242 7994
Change in deferred tax increase (asset) -3545 -1978
Change in deferred tax decrease (liability) -1760 -887
Cash tax 937 5129
Adairs Limited
2016 2017
Total tax provision 11651 7904
Change in deferred tax increase 465 696
Change in deferred tax decrease 12127 106
Cash tax -11 8494
15. Presenting cash tax rate
AMA group
2016 2017
Total tax provision 6242 7994
Change in deferred tax increase (asset) -3545 -1978
Change in deferred tax decrease (liability) -1760 -887
Cash tax 937 5129
earnings before tax 13429 25405
Cash tax rate 6.98% 20.19%
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Adairs Limited
2016 2017
Total tax provision 11651 7904
Change in deferred tax increase 465 696
Change in deferred tax decrease 12127 106
Cash tax -11 8494
earnings before tax 38823 28921
Cash tax rate -0.03% 29.37%
Interpretation: In year 2016, AMA Group reflected effective cash tax rate and in 2017,
Adairs Limited had shown same.
16. Presenting difference between cash tax and book tax rate.
The term cash tax refers to tax paid to government authorities such as an internal revenue
services and is based upon an amount of income that is reported on a tax return each year. An
income that is reported and amount of cash tax paid is determined under a tax laws, it is mean
by which revenues are raised for government operations. It is a fund that has been issued to meet
tax obligations during a specific period of time.
The term “book tax” refers to taxes shown on a company’s financial statements.
Investors, shareholders and other users of these financial statements to understand the financial
performance of both public and private companies (Blaylock, Gaertner and Shevlin, 2017). The
amount of income and other items, including tax, shown on a company’s financial statements is
determined under standards governed by GAAP, it is designed to produce an accurate picture of
a company’s current financial results which will help to present a precised picture of company's
performance to outsiders like investors and shareholders so that they can compare financial
performance with other companies. In order to present a complete picture, a company’s books
will record a tax expense for its total potential cash tax liability, even if a portion of that cash tax
liability will be paid in next financial year..
CONCLUSION
From the above report, it had been concluded that corporate accounting very vital for
examining financial wealth and performance of organization. It has been shown from report that,
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it is considered as common method for comparative analysis. This report had reflected that both
organization are highly financing through equity. It had been articulated that each category of
cash flow statement is important for generating cash whether it is investing, operating or
financing. Generally, cash from operating activity is higher, as it could be observed from above
organization's statement. In the similar aspect, it had shown importance of other comprehensive
income which are necessary for evaluating performance evaluation. Further, it had been summed
by stating effective tax rate and difference among cash and book tax rate.
14

REFERENCES
Books and Journals:
Blaylock, B., Gaertner, F.B. and Shevlin, T., 2017. Book-tax conformity and capital
structure. Review of Accounting Studies. 22(2). pp.903-932.
Edwards, J. B., 2018. Journals. Journal of Corporate Accounting & Finance. 29(1). pp.151-153.
Urean, C. A., 2017. The Impact Of Income Inequality And Educational Inequality On Economic
Growth-A Literarure Review. Annals-Economy Series. 4. pp.59-65.
Zeff, S. A., 2018. An Introduction to Corporate Accounting Standards: Detecting Paton's and
Littleton's Influences. Accounting Historians Journal. 45(1). pp.45-67.
Online:
Annual Report of Adairs. 2016. [Online]. Available through :
<http://investors.adairs.com.au/DownloadFile.axd?file=/Report/ComNews/
20161012/01788598.pdf>.
Annual Report of Adairs. 2017. [Online]. Available through :
<http://investors.adairs.com.au/FormBuilder/_Resource/_module/51fbMLwe2UG-
5KJ3qHCF4w/file/Adairs-2017-Annual-Report.pdf>.
Annual Report of AMA group. 2016. [Online]. Available through :
<https://amagroupltd.com/wp-content/uploads/2016/11/appendix-4e-and-annual-report-
2016.pdf>.
Annual Report of AMA group. 2017. [Online]. Available through :
<https://amagroupltd.com/wp-content/uploads/2017/09/2017-Full-Year-Results-Presentation-
20170920-1.pdf>.
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