Corporate Accounting: Concepts and Analysis

This report provides an overview of corporate accounting, covering topics such as accounting profit, taxable profit, deferred tax assets and liabilities. It evaluates the tax expense of a selected company and identifies the deferred tax assets and liabilities reported in the balance sheet. The report also discusses the recognition criteria for deferred tax assets and liabilities.

Corporate Accounting

Abstract
This report summarised that corporate accounting is essential
for the organization which cover several aspects regarding
financial reporting. This assessment covers several topics which is
required to understand by the managers for reporting purpose or
produce financial statements for stakeholders.

Abstract............................................................................................2
INTRODUCTION...........................................................................1
MAIN BODY...................................................................................1
1. Explain the concept of accounting profit, taxable profit
and the other following terms..................................................1
2. Explain the recognition criteria of deferred tax assets
and deferred tax liability...........................................................3
3. Evaluate their firm’s tax expense in its latest financial
statements..................................................................................4
4. Selected company’s tax rate times in the firm’s
accounting income....................................................................6
5. Identify the deferred tax assets or liabilities that are
reported in the balance sheet articulating the possible
reasons why they have been recorded..................................7
6. Find that, there any current tax assets or income tax
payable recorded by your company and evaluate that Why
is the income tax payable not the same as income tax
expense....................................................................................11
7. Is the income tax expense shown in the income
statement same as the income tax paid shown in the cash
flow statement? If not, why is the difference.......................12
8. Evaluate the concepts of temporary difference and
permanent difference. Identify any permanent differences

that your company may have................................................14
9. What do you find interesting, confusing, surprising or
difficult to understand about the treatment of tax in your
firm’s financial statements.....................................................15
CONCLUSION.............................................................................16
REFERENCES............................................................................17

INTRODUCTION
Corporate Accounting is a particular financial reporting
branch that deals with corporate accounting, preparing their
accounting reports and cash flow statements, analyzing and
interpreting the sales figures of corporations and accounting
for particular events such as amalgamation, uptake and
consolidated time to prepare (Edwards, 2013). Investors are
particularly curious to know the company's financial
resilience in which they should have bought a certain stock.
Corporate accounting is thus performed to interact to them
that the firm's assets and liabilities. This report is based on
the ASX listed company that is Wesfarmer Ltd which is
Australia based Conglomerate Company. This assignment
covers the several topics such as accounting profit, taxable
profit, differed tax liabilities and assets. In addition, all the
treatment of this accounting aspect discussed with the help
of financial statement.
MAIN BODY
1. Explain the concept of accounting profit, taxable profit and
the other following terms
Accounting profit: It is the net profits of a corporation,
measured on the basis of GAAP (Generally Accepted
Accounting Principles). This contains the basic company
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expenses, such as overhead costs, depreciation, debt, and
taxation. It is used to calculate the overall profit which helps
the investor to make their investment related decisions.
Taxable profit: It is the amount used to estimating
income taxes. Taxable income may vary from recorded
profits for a variety of reasons that might be greater or
lesser. Financial statements on companies often differentiate
between profits before tax (PBT) and profit after tax (PAT).
Taxable temporary difference: It is the difference
among the value of balance sheet in asset or liability, and its
tax base. One temporary difference could be either
deductible or taxable (DeBusk, 2012). A temporary
deductible contrast is the yield amounts which can be
subtracted when evaluating taxable profit or loss in the long
term. A temporary taxable variation is a temporary
difference, which in future yields chargeable amounts when
assessing taxable profit or loss.
Deductible temporary difference: temporary
deductible gap is a conditional discrepancy which may yield
sums which can be excluded in the future when assessing
taxable income or loss. A temporary difference is created
between the balance sheet carrying value of an asset or
liability, and its tax base. For such deductible temporary
discrepancies a deferred tax benefit is acknowledged
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because there is expected to be a taxable income available
that can be balanced against the deductible variations.
Deferred tax assets: It is the items in a balance sheet
of a company which may be included in the long term to
decrease taxable income are termed deferred tax assets.
The condition can arise when a company's balance sheet
has highly paid taxes or paid income tax in advance. Those
taxes are ultimately taken in the form of tax savings to the
company. So, extra tax to the industry is known an asset
(Hoskin, Fizzell and Cherry, 2014). A deferred tax benefit is
the reverse to a deferred tax obligation and will increase a
corporation's income tax rate.
Deferred tax liability: It is a tax appraised or due for
the current cycle but not yet paid. The revocation stems from
the timing difference between when the tax is accumulated
and then when the tax is paid. A deferred tax payment
documents the fact that the corporation must pay further
income tax in the future due to a trade that happened during
the present time, such as a receivable for selling in
instalments.
2. Explain the recognition criteria of deferred tax assets and
deferred tax liability
With regard to timing discrepancies due to unabsorbed
depreciation or carry forward risks, Differed tax assets is
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only accepted if technological confidence occurs in the
future. It means that DTA can only be realized when the firm
accurately forecasts sufficiently potential taxable profits
(Edgerton, 2012). This virtual confidence check must be
done on balance sheet date every year and, if the
requirement is not fulfilled, then DTA / DTL will be written off.
At the time of estimating potential taxable revenue only
companies and technical earnings but not other levels of
revenue will be included (Rogoff, 2017). Deferred tax
liability will be a typical example of depreciation. When the
rate of depreciation per Income Tax Act is greater than the
rate of deduction per corporation act (usually in the early
phases), the business will end up having to pay less tax for
the present period. It might create deferred tax liability for
variability affects in books in which there are no DTA or DTL
implicit understanding for. So, e.g. Fines and fines for tax
purposes which are part of book income but are rarely
required. Therefore the generated disparity would be a
permanent disparity.
3. Evaluate their firm’s tax expense in its latest financial
statements
In an organizational context, tax expenses are liability
which are required to calculate by the multiplying person's or
company' suitable tax rate after receiving or generating
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income before taxes, after taking into account in different
factors such as non - taxable items, tax assets and tax
liabilities. Financial reports are deemed significant document
for the firm when they're used to show internal managers
and external shareholders the real financial position and
strength. Business accountant can compile financial
statements including cash flow accounts, balance sheets,
revenue accounts and asset statements.
There are many different classifications of tax
payments, such as: existing taxes and accrued taxes are
reported in financial statements by the Wesfarmers auditor
to take important decisions (Huseynov and Klamm,
2012). Differed tax assets and liabilities could be defined in
the value that is expected to be collected or charged to tax
office in compliance with tax laws and rules, and their
influence can be reflected in company income. Deferred
taxation is those enforced using the full technique of liability.
In case of assets, deferred taxes assets and losses may be
regarded for all unused tax differences which carry forward
in the future.
In case of Wesfarmers' financial reports, it has been
observed that income tax published in the profit &
loss statement for the period of 2017 was $ 1169
million which was enhanced during the year 2018 that is
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$ 1246 million (Annual reports of Wesfarmers. 2018). The
income tax noted in the 2017 financial year was $ 15
million but in 2018 it was increased and remained at $ 72
million.
In addition, income tax on PBT was $ 1169 million in
2017 but it was increased in 2018 that is $ 1246 million. In
the balance sheet, deferred tax assets were $ 971 million
was in 2017 but this is $ 692 million in the 2018 financial
year which demonstrates the reduction in the overall figures.
Deferred tax expenditures were $ (7) million in 2017 but it is
$ (29) million in the 2018 which indicates the growing
figures.
4. Selected company’s tax rate times in the firm’s accounting
income
Tax expenses contribute in the tax which can be due
over a financial period. Key aspects of Wesfarmer Ltd's tax
expenses are, present and accrued income tax payments,
income tax declared in assets, income before tax, DTA, DTL
and other expenditures. Tax periods for businesses are
determined by calculating income between interest and
taxation expenditures by earnings. According to the financial
reports of Wesfarmer Ltd, revenue for the 2018 year
was 66,883 million and earning before interest and tax that
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is EBIT was 4061 million. The method of calculating the
corporation tax rate times is mentioned below:
Tax rates = Revenue / EBIT = 66883 / 4061 = 16.46
times
But, the corporate tax periods and financial income
estimates are not the same. As financial reporting income is
profit that has been met using full accrual basis. While the
rate imposed on Wesfarmer Ltd's net income (Schaltegger,
Burritt and Petersen, 2017). The tax rate periods and
monitoring tax expenses are not the same because
preceding and current year tax rates are not the same but
the tax rate time will be different than income taxes.
Everything could not be calculated by comparing effective
tax rate with tax liability, whereas tax rate periods are
determined by calculating income from EBIT.
5. Identify the deferred tax assets or liabilities that are
reported in the balance sheet articulating the possible
reasons why they have been recorded
Deferred tax assets and liabilities: that's an
accounting method which shown in the balance sheet and it
is documented when tax is paid in large amounts of its actual
tax proportion. It generates when taxes for the existing year
are not compensated in the same fiscal year. It takes the
remaining tax revenue and remaining tax liabilities forward.
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Deferred tax obligations arise when net revenue is smaller
than the number already reported on the statement of
income. It emphasizes the change between revenue and
expenditures. Deferred tax, calculated at tax rates for the
single year in which profits are obtained or losses are
covered. Such assets and liabilities will affect the financial
performance as well as the operating income of the
company.
Every type of income and expenditure are not recorded
in the income statement for the purpose of deducting amount
for tax. Income tax and corporate finance are not the same
that is why the tax liability income and net income results
differ. These taxes are adjusted at the end of the current
year and when books close.
Balance sheet: In this financial statement, deferred tax
assets elements drop from $ 1693 million to $1365 million in
2018 due to adjustments in borrowings, selling stocks,
contracts, employee insurance, options and fixed assets,
according to Wesfarmer's financial report (Raiborn and
Sivitanides, 2015). Another side deferred tax liabilities items
are also reduced from $ 722 million to $673 million owing to
valuation adjustments, accrual profits, intangible assets and
depreciation. Below mentioned table represents the
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differences in deferred assets and liabilities throughout the
period from 2017 to 2018.
Deferred tax assets (DTA) 2017 ($’ Million) 2018 ($’
Million)
Borrowings 143 103
Employees benefits 417 427
Provisions 338 250
Fixed stock 432 273
Derivatives 53 5
Other insignificant balance 71 87
Trade stock 98 90
Accrued and other payables 141 130
TOTAL 1693 1365
Deferred tax liabilities (DTA) 2017 ($’
Million)
2018 ($’
Million)
Accelerated depreciation 253 212
Intangible assets 107 106
Accrued income 155 159
Other insignificant balance 59 41
Derivatives 148 155
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TOTAL 722 673
Reasons for recording deferred tax:
Deferred tax reported because of the disparity in
duration between the book income and taxable profit. A few
other items are permitted to charge for tax purposes and are
forbidden. Such variations are called variations in pacing,
and are divided into two sections. The first would be
transitory and the next is long lasting (Schaltegger,
Etxeberria and Ortas, 2017). Temporary includes the
difference between book revenue and taxable revenue that
will be compensated for next year. Permanent requires the
disparity that cannot be offset in the next year. It will create
provisional difference in the records of the business, and
develop deferred tax liability. If net income is higher than
taxable profit, then in the present year the corporation will
pay less tax and in the future pay more tax. Regardless of
the disparity, accountants must establish deferred account
for tax liability. In the other hand, if net income is less than
gross profit as a result of which businesses charge massive
tax in the present year and in the future, they charge low
taxes. Organization has to create deferred tax assets
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account for this purpose. The distinction in scheduling also
involves take forward failures and unthinking depreciation.
Another reason for creating deferred tax liability is
that, this is a product on credit bases when an institution's
sale. In that case, the quantity will be earned in the long term
but the corporation acknowledges as full money due to the
accounting standards. But it considers maximum profit as
the instalment in the series is completely rendered as per tax
regulations. This should create temporary differentiation in
the balances of the Wesfarmer Company, and create
deferred tax liability.
6. Find that, there any current tax assets or income tax
payable recorded by your company and evaluate that
Why is the income tax payable not the same as income
tax expense
In an organizational context, current tax assets are
recorded at that sum that is expected to be realized under
tax laws by tax office, and taxes are adopted by date of the
balance sheet. Indeed, income tax due is reported in
Wesfarmer Ltd's 2018 Annual Report. Corporate tax liability
is reported within current liabilities in business balance
sheet. Corporate tax expenses mentioned in the income
statement accounts that are used by companies to
document income tax state and federal costs. Income tax
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payable is known as an element of liabilities that is reflected
in the balance sheet of Wesfarmer Ltd. Using it to document
the amount in taxes owed but not yet paid to the proper
taxing authority by the corporation.
As per the Wesfarmer Ltd's 2018 Annual
Report, income tax payable was $ 299 million, and income
tax expenses are (1246) million, but this is the number that is
not actually considered to be anticipated to be paid (Uyar,
2016). Corporation need to form a full disclosure on this
amount of tax expenditures and tax payable are not always
the same because tax expenditures are the value that the
business wishes to pay while tax payable is the actual
amount which government decides. This can be seen in the
statement of revenue, and the tax payments made is
measured in the balance sheet underneath the account of
liability. It is valuable to document the amount in taxes owed
but not yet payable to the tax department.
7. Is the income tax expense shown in the income statement
same as the income tax paid shown in the cash flow
statement? If not, why is the difference
In the profit and loss statement of the company is used
for reporting purpose and identifying the firm's financial
position for the specific financial period. Preparing this
accounting report is important for each company because it
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demonstrates the firm’s productivity as well as
overall performance. Cash flow statement represents the
balance of different items in from balance sheet of
the company or changes in the cash and cash equivalents
as well. Income tax is levied by the govt on profits generated
by persons or businesses with their constitutional
jurisdiction. In the 2018, income statement of Wesfarmer
Ltd., income tax expenditures are recorded as (1246)
million and income tax payable is 1308 million in cash flow
statement. Income tax should be included in both
income statement as well as cash flow statements.
Income tax proportion is not the same in both
documents, since income tax expenditures are shows in the
income statement. Those amounts are mentioned in this
which are not did pay. It is approximated amounts that were
created to support what the company needs to pay. But the
true or real quantity that Wesfarmer Ltd. earns in taxes is
regarded in cash flow statement as paid income tax. Just the
current amount of periods was included in income statement,
and that is why the amount is separate in both the
declarations.
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8. Evaluate the concepts of temporary difference and
permanent difference. Identify any permanent
differences that your company may have
Temporary differences are split into temporary taxable
differences and temporary deductible differences. Taxable
temporary differences are transient gaps at the time
of calculating the taxable income when the related balance
sheet element is retrieved or resolved, results in a taxable
sum in future (Zadek, Evans and Pruzan, 2013). Temporary
deductible variation are short term differences that result in a
long term reduction or exemption of taxable income
whenever the appropriate balance sheet object is healed or
decided to settle.
Because they're not same, permanent gap do not result
in deferred tax assets or liabilities. Examples of assets that
result in lifelong discrepancies are revenue or cost items
which are not permitted under tax legislation and tax
deductions on other purchases that explicitly decrease
taxation. Both lasting differences may result in a discrepancy
between the effective tax rate of a corporation and the
standard tax rate. It is also observed that, there is no
permanent difference in the financial statement of the
selected organizations.
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9. What do you find interesting, confusing, surprising or
difficult to understand about the treatment of tax in your
firm’s financial statements
It has been observed the Wesfarmer Ltd's financial
statements, it is explicitly indicated that the company's
income rises with faster rate and it can be seen through to
the taxable value reported in the financial statement of 2017
and 2018 financial year. That could also be examined by the
firm's income tax due on the earnings before tax among two
year period which is approximately $ 1169 million and
$ 1246 million (Watson, 2015). This is fascinating to see that
decrease in deferred tax assets, which shows that either
business receives the reimbursement of the surplus amount
paid in the past year or it can offset via deferred tax
liabilities.
This is very shocking to see a massive decrease in
corporation borrowings, derivative products over a period of
one year. It's also surprising that how fixed assets of the
company suddenly decrease, that is $ 432 million in 2017
and reduces in 2018 and remained at $ 272 million. All
aspects should be evaluated to make businesses more
competitive, such as capital assets, invested income and
accrued expenditures and other relevant areas. It is
essential to review those amounts which are listed and
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which are not started paying. That is an approximate sum
that was generated to cover what the organization wants to
pay for.
CONCLUSION
It has been observed that organization uses corporate
accounting to analyze the profitability of a company. With the
help of producing financial report, organizations able
to evaluate the profit margin for the specific time period.
It helps to maintain, obtain huge market share in
the worldwide. After careful review, Wesfarmers ltd was said
to be quite effective and efficient when it comes to handling
tax liabilities. Shape the yearly different items that help to
assess the real current status of the respective organization
have also been described.
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REFERENCES
Books & Journals
Edwards, J. R., 2013. A History of Financial Accounting
(RLE Accounting). Routledge.
Rogoff, K. S., 2017. The Curse of Cash: How Large-
Denomination Bills Aid Crime and Tax Evasion and
Constrain Monetary Policy. Princeton University
Press.
Hoskin, R. E., Fizzell, M. R. and Cherry, D. C., 2014.
Financial Accounting: a user perspective. Wiley
Global Education.
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.
Huseynov, F. and Klamm, B.K., 2012. Tax avoidance, tax
management and corporate social responsibility.
Journal of Corporate Finance. 18(4). pp.804-827.
Schaltegger, S., Burritt, R. and Petersen, H., 2017. An
introduction to corporate environmental management:
Striving for sustainability. Routledge.
Raiborn, C. and Sivitanides, M., 2015. Accounting issues
related to Bitcoins. Journal of Corporate Accounting &
Finance. 26(2). pp.25-34.
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.
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Zadek, S., Evans, R. and Pruzan, P., 2013. Building
corporate accountability: Emerging practice in social
and ethical accounting and auditing. Routledge.
Watson, L., 2015. Corporate social responsibility research in
accounting. Journal of Accounting Literature. 34.
pp.1-16.
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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