Corporate Accounting- Financial Statement Analysis of Baby Bunting Group Ltd: 2015 to 2017

This report emphasizes on critical analysis of different financial statements of Baby Bunting Group Ltd for three years from 2015 to 2017. The report focuses on cash flow statement, other comprehensive income statement and accounting of corporate income tax with critical analysis of its different heads to highlight significant changes for last three years in those domains.

Corporate Accounting- Financial Statement Analysis of Baby Bunting Group Ltd: 2015 to 2017
1

Executive Summary
This report will emphasize on an Australian corporate about their audited financial statement.
The comparison will be done on different types of reports for last three years to understand the
financial condition of the company. The area of concentration will be on cash flow statement,
other comprehensive income statement and income tax accounting of the company. A critical
analysis will feature different aspects of those reports for the considered three years.
Key words- cash flow, Corporate Income tax, comprehensive income statement
2

Table of Contents
Introduction.................................................................................................................................................4
Cash Flow statement analysis......................................................................................................................5
Comparative analysis of broad categories cash flow...............................................................................7
Other comprehensive income statement....................................................................................................8
Accounting for corporate income tax........................................................................................................12
Reasons behind differences of income tax payment.............................................................................13
Deferred tax..........................................................................................................................................13
Current Tax liability................................................................................................................................16
Income tax – payment shown in cash flow and expense booked in income statement........................17
Overall observation about tax treatment..............................................................................................18
References:................................................................................................................................................19
3

Introduction
The subject of this report will be critical analysis of different financial statements of any
Australian company with ASX listing. For this purpose, the chosen company is Baby Bunting
Group Ltd of Victoria. The company is enlisted in ASX in 2015 with its ASX code BBN and
GICS Industry Group – retailing. (ASX, 2018) This report will emphasize on comparison of
audited financial report of the company for three years from 2015 to 2017. Main areas of
concentration will be cash flow statement, other comprehensive income statement and
accounting of corporate income tax with critical analysis of its different heads to highlight
significant changes for last three years in those domains. (Bunting, 2016) Cash flow statement
will be analyzed with the identification of the reason for such changes. Moreover, a comparative
analysis of cash flow statement with its broad category headings like operating activities,
investing activities and financing activities will be done with proper evaluation for the specified
period. Other comprehensive income statement will be analyzed in respect of its components
with their nature and the reason behind those components not being featured in income
statement. For corporate income tax, an analysis of tax expense of the company for considered
three years as per financial statement with its similarity as per corporate tax rate, discussion on
deferred tax treatment as per balance sheet, the amount of tax paid and the amount showed in
different financial statements along with other critical aspects of income tax accounting of the
4

company. This report will end up with some obdervations to make this report complete in all
aspect.
Cash Flow statement analysis
Cash flow statement analysis of Baby Bunting Group Ltd extracted from the audited financial
statement of 2015, 2016 and 2017 is given below:
Consolidated Statement of Cash Flows
2017 2016 2015 variance variance
N
ote $’000 $’000 $’000
2016>201
5
2017>201
6
Cash flows from
operating
activities
Receipts from
customers
304,09
0
258,41
8
196,89
9 31.24 17.67
Payments to
suppliers and
employees
-
285,01
7
-
242,85
1
-
188,58
3 28.78 17.36
Income tax paid -5,513 -6,213 -2,673 132.44 (11.27)
Interest received 17 20 18 11.11 (15.00)
Finance costs
paid -406 -420 -880 (52.27) (3.33)
Transaction costs
for listing – -1,876 –
Net cash from
operating
activities 23(a) 13,171 7,078 4,781 48.04 86.08
Cash flows from
investing
activities
5

Payments for
plant and
equipment and
intangibles 9,10 -7,352 -6,185 -6,047 2.28 18.87
Proceeds on sale
of plant and
equipment 1 6 25 (76.00) (83.33)
Net cash used in
investing
activities -7,351 -6,179 -6,022 2.61 18.97
Cash flows from
financing
activities
Proceeds from
issue of shares 15,19 – 28,717 1,532 1,774.48
Transaction costs
for issue of
shares – -1,754 –
Dividends paid 16
-
11,558
-
16,117 – (28.29)
Proceeds
from/(Repayment
of) borrowings 4,800 -7,950 -100 7,850.00 (160.38)
Net cash (used
in)/provided by
financing
activities -6,758 2,896 1,432 102.23 (333.36)
Net
(decrease)/increa
se in cash and
cash equivalents -938 3,795 191 1,886.91 (124.72)
Cash and cash
equivalents at
beginning of the
financial year 7,363 3,568 3,377 5.66 106.36
6

Cash and cash
equivalents at
end of the
financial year 23(b) 6,425 7,363 3,568 106.36 (12.74)
Observations:
a) Cash flow from operating activities is mainly constituted by items of operations. For this
company, operation is retailing business. Hence cash inflows from operating activities are
receipts from customers and interest received from deposits. Out of that cash, different
operating expenses are paid. The operating expenses are under the heads of payment to
supply chain associates and employees, income tax, finance cost and transaction cost for
listing. All receipts are maintaining the trend with normal growth in revenue. For
payments, also parity remains in payment to suppliers and employees and interest paid
for borrowings termed as finance cost. Transaction cost for listing is featured in 2016.
b) Cash flow from investing activities is constituted by procurement and sale of long-term
assets including intangibles.
c) Cash flows from financing activities are constituted by items like proceeds from issue of
shares, respective transaction costs, payment of dividends and proceeds from borrowings.
Out of them, proceeds from share issue and borrowings increase the cash; while payment
of dividend and transaction costs for share issue decreases the same.
d) Net impact of this financial information has constituted year-wise net cash flow of the
company. Adding this to the opening cash balance, cash and cash equivalent of the
company at the end of the year is being derived.
7

Comparative analysis of broad categories cash flow
Given below the comparative analysis of cash flow from operating, investing and finance
activities for 2015, 2016 and 2017 with variance:
2017 2016 2015 variance variance
N
ote $’000 $’000 $’000 2016>2015 2017>2016
Net cash
from
operating
activities 23(a) 13,171 7,078 4,781 48.04 86.08
Net cash
used in
investing
activities -7,351 -6,179 -6,022 2.61 18.97
Net cash
(used
in)/provided
by
financing
activities -6,758 2,896 1,432 102.23 (333.36)
Evaluation:
 Cash flow from operating activities had shown steady increase with variance of 48% in
2016 in respect of 2015 (Bunting, 2015)and 86% in 2017 in respect of 2016.
 Cash invested in investing activities showed increase with variance of 3% in 2016
compared to 2015 and 19% in 2017 compared to 2016.
 Net cash generated from financing activities showed increase in 2016 in respect of 2015
by 102% while a decrease was observed in 2017 by 333% in 2017 compared to 2016.
Other comprehensive income statement
8

The financial reporting of any company normally projects performance of a company through
profit or loss and other comprehensive income statement. As per IAS 1, Presentation of Financial
Statements profit or loss is defined as the net effect of total income less respective expenses
without items of other comprehensive income or OCI. (Coach, 2017) Other comprehensive
income is comprised of components of income and allied expenses with the consideration of
reclassification adjustments and not identified in profit or loss as per requirement and permission
of IFRS. (Tools, 2018) The definition of total comprehensive income is derived as ‘the change in
equity during a period resulting from transactions and other events, other than those changes
resulting from transactions with owners in their capacity as owners’. (accaglobal, 2016)
Other comprehensive income is constituted by those gains, revenues, losses and expenses under
GAAP (Tools, 2017) and IFRS which are not included in net income featured in the income
statement and are treated in income statement after net income. Revenues, gains, expenses and
losses feature in OCI with the condition of unrealized status. The example of such happening is
sale of any investment. Hence the investments in financial instruments with the tendency to
change its value of such instruments, the respective change in gain or losses can be treated under
the head of OCI. These instruments can be realized with respective gains or losses when the
same would be sold. Accounting treatment of post-sales of such instruments should come from
OCI then to make it part of net income in income statement. (accountingtools, 2017)
Items normally treated as components of other comprehensive income are:
o Gains or losses due to foreign exchange translation
o Gains or losses from unrealized holding on investments classified as ready for sale
o Gains or losses related to pension plan
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o Prior service costs or credits for pension
Normally OCI gives the concept of more comprehensive understanding of the financial status
of the business entity although it makes the reader more confused with its complexity to the
income statement.
In the case of Baby Bunting Group Ltd financial reports for the financial years 2015 to 2017,
nothing has been featured as other comprehensive income and hence there is no scope of
discussion related to this subject in this article. Given below the statement of profit or loss
and other comprehensive income statement of the company for the specified period to justify
the claim of non-existence of OCI in Baby Bunting financial report for the period:
Consolidated Statement
of Profit or Loss and
Other Comprehensive
Income
2017 2016 2015
$’000 $’000 $’000
Revenue 278,027 236,840 180,175
Cost of sales -182,735 -155,678
-
118,314
Gross profit 95,292 81,162 61,861
Other revenue 17 21 45
Store
expenses -56,762 -48,305 -37,833
Marketing
expenses -4,919 -3,983 -3,054
10

Warehousing
expenses -3,748 -3,540 -3,316
Administrative
expenses -11,753 -10,895 -8,073
IPO
transaction
costs
expensed – -1,876 –
Finance costs -432 -397 -807
Change in fair
value of
interest rate
swap 205
Profit before
tax 17,695 12,187 9,028
Income tax
expense -5,448 -3,853 -2,988
Profit after tax 12,247 8,334 6,040
Other
comprehensive
income for the
year – – –
Total
comprehensive
income for the
year 12,247 8,334 6,040
Profit for the
year
attributable to:
Equity holders
of Baby
Bunting Group
Limited 12,247 8,334 6,040
11

Earnings per
share
From
continuing
operations
Basic (cents
per share) 9.7 7 6.2
Diluted
(cents per
share) 9.6 7 6.2
Accounting for corporate income tax
This subject will have different issues to discuss, which are being narrated below point-wise.
a) As per the latest audited financial statements of Baby Bunting group Ltd, given below
the tax expenses for 2015, 2016 and 2017 (Bunting, 2017) extracted from profit or loss
and comprehensive income statement with variance of corporate income tax payment:
2017 2016 2015 variance variance
$’000 $’000 $’000 2015>2016 2016>2017
Income
tax
expense -5,448 -3,853 -2,988 28.95 41.40
b) The payment status of corporate income of Baby Bunting Group Ltd is given below
with the derivation of income tax payable figure:
2017 2016 2015
12

$’000 $’000 $’000
Profit
before tax
from
continuing
operations 17,695 12,187 9,028
Income tax
expense
calculated
at 30%
(2015-
2017:30%) -5,308 -3,656 -2,708
Non-
deductible
expenditure -140 -197 -280
Income tax
expense
recognized
in profit or
loss -5,448 -3,853 -2,988
Reasons behind differences of income tax payment
o It is found that standard rate of corporate income tax payable by Australian corporate
bodies on taxable profits under Australian tax law is calculated @ 30% on profit
before tax from continuing operation for the period of 2015 to 2017.
o The impact of corporate income tax on non-deductible expenditure from income tax
perspective had made changes in the corporate income tax payment for the period. In
2015, it is featured as 280 m$, followed by 197 m$ in 2016 and 140 m$ in 2017 as
classified in the segment of income tax on non-deductible expenditure.
Deferred tax
13

In the audited financial statement of Baby Bunting Group Ltd, following figures are
derived and certified by auditor for three years under consideration- 2015, 2016 and
2017:
25-Jun-
17
26-Jun-
16
28-Jun-
15
$’000 $’000 $’000
Deferred
tax
assets 3,434 3,361 2,071
Occurrence of deferred tax as asset happens when book profit is less than the taxable
profit of any business identity. (tax, 2018) In case of this company, the annual financial
report emphasizes deferred tax with its recognition on temporary differences between the
carrying amount of liabilities and assets featured in the consolidated financial statement
with the respective tax bases used in computing taxable profit. Deferred tax liability is
normally recognized for all temporary differences of taxable items, while deferred tax
asset is normally recognized for all temporary difference, which is deductible. In case of
this company, the components forming deferred tax as asset are given below for three
years:
Recognised
in other Reclassified
Recognised compreh- Recognised from equity
Opening in profit ensive directly in to profit Acquisitions Closing
balance or loss income Equity or loss /disposals Other balance
2015 – Consolidated ($’000) ($’000) ($’000) ($’000) ($’000) ($’000) ($’000) ($’000)
Employee benefits 435 144 – – – – – 579
Non-deductible accruals 133 77 – – – – – 210
14

Non-assessable lay by
gross profit 128 (275) – – – – – (147)
Inventories 385 74 – – – – – 459
Gift vouchers 184 57 – – – – – 241
Operating lease provision 644 85 – – – – – 729
Interest rate swap 61 (61) – – – – – –
Total 1,970 101 – – – – – 2,071
Recognised Reclassified
Recognised in other Recognised from equity
Opening in profit or comprehen- directly in to profit or Acquisitions Closing
balance loss sive income equity loss /disposals Other balance
2016 – Consolidated ($’000) ($’000) ($’000) ($’000) ($’000) ($’000) ($’000) ($’000)
Employee benefits 579 179 – – – – – 758
Non-deductible
accruals 210 57 – – – – – 267
Non-assessable layby
gross profit (147) (14) – – – – – (161)
15

Inventories 459 17 – – – – – 476
Gift vouchers 241 58 – – – – – 299
Operating lease
provision 729 122 – – – – – 851
Interest rate swap – – – – – – – –
IPO transaction costs
– listing – 450 – – – – – 450
IPO transaction costs –
issuance of new shares – – – 421 – – – 421
Total 2,071 869 – 421 – – – 3,361
2017 – Consolidated
Employee benefits 758 135 – – – – – 893
Non-deductible
accruals 267 107 – – – – – 374
Non-assessable layby
gross profit (161) 41 – – – – – (120)
Inventories 476 26 – – – – – 502
Gift vouchers 299 (95) – – – – – 204
Operating lease
provision 851 77 – – – – – 928
Interest rate swap – – – – – – – –
IPO transaction costs
– listing 450 (113) – – – – – 337
IPO transaction costs –
issuance of new shares 421 (105) – – – – – 316
16

Total 3,361 73 – – – – – 3,434
Current Tax liability
Current tax payable of the company for the financial period 2015 to 2017 is appended below
as extracted from the audited financial report of the company:
2017 2016 2015
$’000 $’000 $’000
Current
tax
liability 851 844 2,439
Basic reason for current tax payable showed in current tax liability not matched with
Income tax expense is due to tax payable to be paid in subsequent month of the next
financial year. As the tax liability generates through the operation process and it is
normal trend or practice to pay the tax of last month of the financial year in the
subsequent month of next financial year, the provision for such expenses are made to
make the financial report justified and logical with prudence.
Income tax – payment shown in cash flow and expense booked in income statement
The difference between income tax expense as per profit or loss and other comprehensive
income statement and payment made as per cash flow statement for three years of Baby
Bunting Group Ltd is given below:
201
7 2016
201
5
$’00
0 $’000
$’00
0
Income tax expense as per income 5,4
48 3,853 298
17

statement 8
Income tax paid as per cash flow 5,5
13 6,213
267
3
difference -65 - 2360 315
Reasons for such differences are:
o Difference in taxable profit and book profit to generate deferred tax asset
o Paid provision of tax liability for last year
Overall observation about tax treatment
Baby Bunting Group Ltd is dealing in the retailing segment of business. The company is in
simple format of retailing products from its outlets. The basic business operation is
depending upon procurement and selling of saleable goods. Income tax is mainly connected
with the profit of the company. It is found from the analysis of three years’ financial
statement that the company has generated deferred tax through their financial information
management. Moreover tax liability is shown in current liability depicting that the company
has normal trend of keeping income tax payable in their books. Most critical finding is
related to derivation of deferred tax with identification of its components. It is also observed
that consideration of non-deductible expenses inflate income tax payable for the company.
Another area of confusion prevails in the area of payment of income tax through cash flow
and the income tax booked in profit or loss and other comprehensive income statement. A
new insight in the form of more clarity or prudence is required for treatment of income tax in
the financial statement to make it easy to understand by the respective stakeholders.
18

References:
accaglobal, 2016. CONCEPTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME. [Online]
Available at: http://www.accaglobal.com/in/en/student/exam-support-resources/professional-exams-
study-resources/p2/technical-articles/pl-oci.html [Accessed 23 May 2018].
accountingtools, 2017. Other Comprehensive income. [Online] Available at:
https://www.accountingtools.com/articles/what-is-other-comprehensive-income.html [Accessed 23
May 2018].
ASX, 2018. Baby Bunting Group Ltd. [Online] Available at: https://www.asx.com.au/asx/share-price-
research/company/BBN [Accessed 23 May 2018].
Bunting, B., 2015. Annual Report. Annual Financial Report.
Bunting, B., 2016. Baby Bunting Annual report 2016. [Online] Available at:
http://www.babybuntingcorporate.com.au/wp-content/uploads/2016/01/BabyBunting-Annual-Report-
2016.pdf [Accessed 23 May 2018].
Bunting, B., 2017. Annual Report. [Online] Available at: http://www.babybuntingcorporate.com.au/wp-
content/uploads/2017/08/Appendix-4E-and-FY17-Annual-Report-final.pdf [Accessed 23 May 2018].
Coach, A., 2017. What is other comprehensive income? [Online] Available at:
https://www.accountingcoach.com/blog/what-is-other-comprehensive-income [Accessed 23 May
2018].
tax, C., 2018. Deferred Tax Asset and Deferred Tax Liability. [Online] Available at:
https://cleartax.in/s/deferred-tax-asset-deferred-tax-liability-dta-dtl [Accessed 23 May 2018].
Tools, A., 2017. What is GAAP? [Online] Available at: https://www.accountingtools.com/articles/what-is-
gaap.html [Accessed 23 May 2018].
19

Tools, A., 2018. What os IFRS? [Online] Available at: https://www.accountingtools.com/articles/what-is-
ifrs.html [Accessed 23 May 2018].
20