Corporate Accounting and Tax Management Analysis

The report analyzes the corporate accounting practices of Wesfarmers, a profitable company with a strong market presence. It examines the company's ability to manage tax obligations efficiently and determine its current financial position based on annual reports. The analysis reveals that Wesfarmers is doing well in the market, capturing a good market share and attracting a large number of customers and external stakeholders.

Corporate Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1) Listing of each items of equity................................................................................................1
2) Firm’s tax expense in its latest financial statements...............................................................3
3) Company tax rate times your firm’s accounting income........................................................3
4) Deferred tax assets/liabilities..................................................................................................4
5) Current tax assets or income tax payable recorded by company.............................................6
6) Income statement same as the income tax paid shown in the cash flow statement................6
7) Interpretation...........................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8
APPENDEX.....................................................................................................................................9

INTRODUCTION
Corporate accounting deals with the processes like preparation of balance sheet, financial
reports and records, cash flow statements etc. In present time accountant of companies uses
special concept of accounting that help them to prepare financial accounts, cash flow statements,
analysis and interpretation of financial result and accounting. This help them in making effective
decision such as amalgamation, absorption, preparation of consolidated statements. To
understand the importance of corporate accounting the company selected is “Wesfarmer Ltd”
that is listed on ASX.
In this project, identification and interpretation of each item of equity is done. Firm tax
expense in latest financial statements, comment on deferred tax assets liabilities is reported and
reason for their reporting is analysed. This report also shows current tax assets or income tax
payable recorded by company, reason why the income tax expenses shown in the income
statements are the same as in the cash flow statements.
MAIN BODY
1) Listing of each items of equity
Equity items:
The item that are listed on equity are consider to be owner capital worth that is being
derived from the total liabilities and assets that they carry them within company. In general,
these types of account and their description shows the amount actual owner's equity that depend
on the nature of firm’s operation. From the annual report of “Wesfarmers Ltd” the data is taken
from which following information is collected. Thus there are assorted types of equity account
that are combined together in order to make total shareholder equity. Some examples of equity
are common stock, issued capital, contributing surplus, retained earnings, reserved share and
additional paid-up capital. These items are discussed below as per the annual statements
maintained by company (Wesfarmers Ltd.):
 Issued capital: It refers to the actual number of shares that have been issued by the entity
to its shareholder (DeBusk, 2012). In accounting terms, the allotted share or share
subsequently held by the existing shareholder are known as issued capital. From the
annual report 2017-18 of “Wesfarmers Ltd” it has been observed that issued capital for
year 2017 was $22268 that had grown up to $22277 in year 2018. There is an increase in
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number of shareholders during the year of 2018 because respective company is growing
at a fast pace and give better result on investment to following shareholder. “Wesfarmers
Ltd” is one of the leading company thus it holds good market share and generate huge
profit throughout the year. Thus, board of director also decide to increase the rate of
return on investment that has also increased the issued capital.
 Reserved share or common stock: This is considered to be the security of share an
entity has set aside for a particular administrative reason that shows the ownership.
Reserved share consists of bonds, debenture, securities etc. From the balance sheet of
“Wesfarmers Ltd” the amount of common stock increase form ($26) in year 2017 to
($43) in year 2018. The primary reason of fluctuation among the value of common stock
is basically due to the changes in amount of dividend and interest income obtained by the
company during an accounting year (Edgerton, 2012).
 Retained earnings: These are termed as the profit that a company has earned to date
after deducting any dividend or any other distribution that have been paid to investor
during an accounting year. Manager hold this in order to reinvest in company business or
to write off any outstanding debts. From the annual report of “Wesfarmers Ltd” 2017-18
it has been observed that balance of retained earning has decreased from $1509 to $176.
The main reason for the reduction in retained earnings is that company may have
repurchase of company stock, paid some loans form retained amount or there has been
loss for the company during an accounting year.
 Reserve: These are considered to be the types of gains that have been incurred by
company in order to meet any kind of future contingencies. It is observed that capital
under this account is being procured either from selling price of fixed assets or from total
shareholder equity. The balance sheet of “Wesfarmers Ltd” shows the balance of reserve
during year 2018 $344 and in year 2017 it was $190. There is increase in the balance
because company is doing well in the market and earning huge profit. Therefore, they
maintain sufficient amount into reserve to handle unexpected situation.
Items Year Wesfarmers Ltd
Issued capital 2017 22,268
201822,277
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Reserved share 2017 (26)
2018 (43)
Retained earning 20171509
2018176
Reserve 2017190
2018344
2) Firm’s tax expense in its latest financial statements.
Tax expenses are the liability for an organisation and it is calculated by multiplying the
appropriate tax rate of an individual or business by the income received or generated before
taxes, after factoring in such variables as non-deductible items, tax assets, and tax liabilities.
Whereas financial statements are considered to be important document for company as they use
to display the actual financial position and strength to internal manager and external shareholder.
Accountant of company us to prepare kind of financial statements such as cash flow statements,
balance sheet, income statements and statements of equity.
There are various types of tax expenses such as: current taxes and deferred taxes are
recorded by the accountant of Wesfarmers in financial statements in order to take valuable
decision. Current tax assets and liabilities can be identified at the amount assumed to be
recovered form or paid to taxation authorities as per the tax laws and rates and its effect can be
seen in the profits of organisation. Deferred taxes are those which are provided using the full
liability method. In this assets can be considered for all deductible temporary gaps, carried
forward unused tax assets and losses. In the financial statements of Wesfarmers, it can be seen
that in the year 2017 income tax reported in the income statement was $m 1169 which has been
increased in the year 2018 that is $m 1246. In the financial year 2017 income tax reported in
equity was $m 15 but in the financial year 2018 it has been increased that is $m 72 (Edwards,
2013).
In the financial year 2017 income tax on profit before tax was $m 1169 but in the
financial year 2018 it is $m 1246 which shows that it has been increased. In the financial year
2017 net deferred tax assets was $m 971 but in the financial year 2018 it is $m 692 which shows
that it has been reduced. In the financial year 2017 deferred tax expenses was $m (7) but in the
year 2018 it is $m (29) which shows that it has been increased.
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3) Company tax rate times your firm’s accounting income.
Tax expenses refers to the tax amount that can be owed in a period. So, major elements of
tax expenses of Wesfarmer Ltd. are current and deferred income tax expenses, income tax
reported in equity, on profit before tax, deferred tax assets, deferred tax liabilities and expenses.
Company tax rate times are calculated through revenue divide by earnings before interest and
income tax expenses. According to the Wesfarmer Ltd. Annual report 2018, the revenue is 66883
and EBIT is 4061. Therefore, the formula to calculate the company tax rate times is:
Tax rates times = Revenue/EBIT = 66883/4061 = 16.46 times.
So, the figures of company tax rates times and accounting income is not same. As
accounting income is profit which have been complied with the use of accrual accounting basis
whereas rate which imposed on net income of Wesfarmer Ltd (Hoskin, Fizzell and Cherry,
2014). The tax rate times and reporting tax expenses are not same are not because tax rate of
previous year and current year are not same and the tax rate time are different then tax expenses.
Both cannot be same as tax expenses are computed by multiplying effective tax rate with taxable
income whereas tax rate times is calculated by dividing revenue from EBIT.
4) Deferred tax assets/liabilities.
Deferred tax assets and liabilities: - It is an accounting term which is shown in balance
sheet, it recorded when tax is paid more than its actual amount of tax. It creates when current
year's tax is not paid in the same financial year. It carries forward the unused tax assets and
unused tax losses. Deferred tax liabilities occur when taxable income is lesser than the amount
which is already listed in income statement. It shows the difference between income and
expenses. Deferred tax measured at tax rates on that particular year where assets are
accomplished or liabilities are set off. These assets and liabilities can affect the company's cash
flow as well as yearly profit. Income and expenses are not always recorded in the financial
statements to deduct the amount for the purpose of tax. Tax accounting and financial accounting
is not same that's why the result of taxable income and net income is different. Adjustment of
these taxes is made at the end of current year and at the time of closing books (Huseynov and
Klamm, 2012).
From the balance sheet: According to Wesfarmer financial statements, deferred tax
assets items is decreased in the year 2018 from $1693m to $1365m. Due to change in the
borrowings, trading stocks, provisions, employee benefits, derivatives and fixed assets. Other
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side deferred tax liability items are also decreased from $722m to $673m. Because of change in
derivatives, accrual income, intangible assets and depreciation. Below mention table shows the
change in deferred assets and liability.
Deferred tax assets 2018 $m 2017 $m
Provisions 250 338
Employees benefits 427 417
Accrued and other
payables
130 141
Borrowings 103 143
Derivatives 5 53
Trade stock 90 98
Fixed stock 273 432
Other insignificant
balance
87 71
TOTAL 1365 1693
Deferred tax liabilities 2018 $m 2017 $m
Accelerated depreciation 212 253
Derivatives 155 148
Accrued income 159 155
Intangible assets 106 107
Other insignificant
balance
41 59
TOTAL 673 722
Reasons for recording deferred tax:
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Deferred tax recorded due to the timing difference between book profit and taxable profit.
Some items are allowed and disallowed to apply for tax purpose. These differences called timing
difference and it is classified into two parts. First one is temporary and another one is permanent.
Temporary includes the difference between book income and taxable income which is
compensate in next year. Permanent includes those difference which in not able to compensate in
next consequent year. It will generate temporary difference in the company's accounts and create
deferred tax liability. If book profit is higher than taxable profit so company can pay less tax in
current year and pay higher tax in future. Because of that difference, accountant have to create
deferred tax liability account. On the other hand, if book profit is less than taxable profit so
company pay high tax in current year and in future, they pay low tax (Schaltegger, Burritt and
Petersen, 2017). Due to this reason organisation have to create deferred tax assets account.
Timing difference also includes carry forward losses and un-reflected depreciation.
Another reason to create deferred tax liability is that, when an organisation sale it's
product on credit bases. In that case amount is received in the future but due to the accounting
rules, company acknowledge as full income. But according to tax laws, it recognizes full income
when instalment is fully made. It will generate temporary difference in the Wesfarmer company's
accounts and create deferred tax liability.
5) Current tax assets or income tax payable recorded by company.
Current tax assets are measured at that amount which is expected to be recovered from
authorities of taxation at tax laws and rates are enacted by balance sheet date. Yes, income tax
payable is recorded in 2018 annual report of Wesfarmer Ltd. Income tax payable is recorded in
balance sheet of company under current liabilities. Income tax expenses refers to an income
statement accounts which firm utilise to record state and federal costs of income tax. Income tax
payable is considered as a liability account which is shown in balance sheet and Wesfarmer Ltd.
Utilise it to record amount of income tax which is owe by company owe but but still not paid to
suitable taxing authority. According to the 2018 annual report of Wesfarmer Ltd. Income tax
payable is 299 and income tax expenses is (1246) and this is the amount which is not paid really
considered as an expected amount (Schaltegger, Etxeberria and Ortas, 2017).
Company need to give a full disclosure about this both the amount of tax expenses and
tax payable are not same because tax expenses is that amount which company expect to pay
whereas tax payable are real amount that is decided by government. This is shown in the income
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statement and tax payable is recorded under liability account in balance sheet. It is use to record
that amount of income tax which is owe but as yet not paid to the authority of tax.
6) Income statement same as the income tax paid shown in the cash flow statement.
Income statement that is used for reporting financial performance of company upon a
particular accounting periods. It is essential for every company to prepare this statement as it
shows the profitability of firm. Cash flow statement shows the changes occurred in balance sheet
accounts and also effects of cash and cash equivalents. Income tax is which government imposed
on income produced by people or businesses with their legal power. In Wesfarmer Ltd. income
statement of 2018, the income tax expenses are (1246) and in cash flow statement, income tax
paid is 1308. Income tax is included in both the statements that is income statement as well as
cash flow statements. Income tax amount is not same in both the statements because in income
statement, expenses of income tax is included. In this those amount is mentioned which is not
actually been paid. It is an estimated amount which have been formed to cover what firm require
to pay. But in cash flow statement paid income tax is considered which is the actual or real
amount that Wesfarmer Ltd. owes in taxes. Whether it is of any periods previous or present. In
income statement only the current periods amount is included that's why their amount is different
is both the statements (Raiborn and Sivitanides, 2015).
7) Interpretation
After observing the financial statements of Wesfarmer Ltd, it is clearly stated that the
income to the company increases at a faster rate, this can be seen through the difference between
year 2017 and 2018 of the income tax reportable. Also, it can be verified by income tax payable
on the profit before tax by the company in these two year which is $ 1169m and $ 1246m
respectively. This is interesting to see that there is decrement in deferred tax assets, this shows
that either company received the refund of excess amount paid in previous year or it may set off
through deferred tax liabilities. This is very surprising to see that there is a vast decreasing in
borrowings of company, derivatives in one year period. This is also surprising that how fixed
assets are decreasing suddenly, which is $ 432m in year 2017 and $ 272m in year 2018. there
should be need to evaluate certain area to make company more profitable such as fixed assets,
deferred assets and deferred expenses and others important area. There is necessary to evaluate
those amount that is mentioned and which is not actually been paid. It is an estimated amount
which have been formed to cover what firm require to pay.
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CONCLUSION
From the above project report, it has been articulated that corporate accounting is used by
an organisation in order to analyse the financial strength of the company. Company Wesfarmers
are profitable and earn sufficient amount of profit during the time that help to maintain, capture
large market share at global level. After making proper analysis, it has been said that Wesfarmers
ltd is more reliable and efficient when it comes to managing tax obligations. Form the annual
different items have been interpreted that help to determine the actual current position of
respective company. Company is doing well in market and capture good market share that help
to attract large number of customer and external stakeholder.
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REFERENCES
Books and Journal:
DeBusk, G. K., 2012. Use lean accounting to add value to the organization. Journal of Corporate
Accounting & Finance. 23(3). pp.35-41.
Edgerton, J., 2012. Investment, accounting, and the salience of the corporate income tax (No.
w18472). National Bureau of Economic Research.
Edwards, J. R., 2013. A History of Financial Accounting (RLE Accounting). Routledge.
Hoskin, R. E., Fizzell, M. R. and Cherry, D. C., 2014. Financial Accounting: a user perspective.
Wiley Global Education.
Huseynov, F. and Klamm, B.K., 2012. Tax avoidance, tax management and corporate social
responsibility. Journal of Corporate Finance. 18(4). pp.804-827.
Raiborn, C. and Sivitanides, M., 2015. Accounting issues related to Bitcoins. Journal of
Corporate Accounting & Finance. 26(2). pp.25-34.
Rogoff, K. S., 2017. The Curse of Cash: How Large-Denomination Bills Aid Crime and Tax
Evasion and Constrain Monetary Policy. Princeton University Press.
Schaltegger, S., Burritt, R. and Petersen, H., 2017. An introduction to corporate environmental
management: Striving for sustainability. Routledge.
Schaltegger, S., Etxeberria, I. Á. and Ortas, E., 2017. Innovating corporate accounting and
reporting for sustainability–attributes and challenges. Sustainable Development. 25(2).
pp.113-122.
Uyar, A., 2016. Evolution of corporate reporting and emerging trends. Journal of Corporate
Accounting & Finance. 27(4). pp.27-30.
Watson, L., 2015. Corporate social responsibility research in accounting. Journal of Accounting
Literature. 34. pp.1-16.
Zadek, S., Evans, R. and Pruzan, P., 2013. Building corporate accountability: Emerging practice
in social and ethical accounting and auditing. Routledge.
Online
Annual reports of Wesfarmers. 2018. [Online] Avaliable Through:<
https://www.wesfarmers.com.au/docs/default-source/asx-announcements/2018-annual-
report.pdf?sfvrsn>.
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