Financial Statements Analysis and Corporate Accounting

This report analyses the financial statements of Woolworths Group Limited and Wesfarmers Company in the Australian retail sector. It covers cash flow, equity, comprehensive income statement, and accounting for corporate income tax for effective investment decisions.

Running head: FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
Financial Statements Analysis and Corporate Accounting
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1FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
Executive Summary:
Certain factors that are chosen to be reported in other comprehensive statement of income for the
Wesfarmers and Woolworths Company encompass retained earnings, cash flow hedge reserve
along with translation reserve in foreign currency.The current report focussed on analysingcash
flow, equity, comprehensive income statement along with accounting for corporate income tax
for implementing certain effective investment decisions.Deferred tax assets are deemed to be a
situation in which the companies decide to paycertainadvance taxes on the related financial
assets or increased taxes. It is also revealed from the report that It is important for organizations
to bear several expenses which encompass research and development costs along with the selling
and distribution costs and the tax expense is deemed to be a vital aspect. Moreover, the
organization is deemed to be a vital liability existing within the organization due to certain
municipal, state governments within the country.

2FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
Table of Contents
Introduction:....................................................................................................................................4
Owners’ Equity:...............................................................................................................................4
Requirement (i):...........................................................................................................................4
Requirement (ii):..........................................................................................................................5
Cash Flow Statement:......................................................................................................................6
Requirement (iii):.........................................................................................................................6
Requirement (iv):.........................................................................................................................7
Requirement (v):..........................................................................................................................8
Other comprehensive income statement:.........................................................................................9
Requirement (vi):.........................................................................................................................9
Requirement (viii):.......................................................................................................................9
Requirement (viii):.....................................................................................................................10
Requirement (ix):.......................................................................................................................10
Accounting for Corporate Income Tax:.........................................................................................11
Requirement (x):........................................................................................................................11
Requirement (xi):.......................................................................................................................11
Requirement (xii):......................................................................................................................12
Requirement (xiii):.....................................................................................................................12

3FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
Requirement (xiv):.....................................................................................................................13
Requirement (xv):......................................................................................................................13
Requirement (xvi):.....................................................................................................................14
Conclusion:....................................................................................................................................14
References:....................................................................................................................................15

4FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
Introduction:
Woolworths Group Limited and Wesfarmers Company has been used in this report as
these major retail companies those have their business operations in the Australian retail sector
(Akhmetshinand Osadchy 2015). Moreover, it has been observed that in the current competitive
world it is highly necessary for the shareholders to evaluate its cash flow, equity, comprehensive
income statement along with accounting for corporate income tax for implementing certain
effective investment decisions. These segments are considered in analysing two chose companies
in order to evaluate techniques followed in allaying all the important aspects within the
company’s financial statements.
Owners’ Equity:
Requirement (i):
The major items those are covered within the balance sheet statement includes three
items and owner’s equity is one of them for the reason that both the companies Wesfarmers and
Woolworths have this aspect within their balance sheets. In case of Woolworths it has been
observed that there has been a drastic increase in the year 2017 from 2016 that is $5,252.20
million more than $5,615 million (Ball, Gerakos, Linnainmaa and Nikolaev 2016). This is
because of the reason that the management of these companies have decreased considering
increased debt funding.
Another owner’s equity item is deemed to be reserves that is an aspect of equity and is
revealed to be an increased amount rather than the basic share capital. Similar trend is also

5FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
observed in case of Wesfarmers as its reserves increased from $166 million to $190
millionduring the years 2016 and 2017 (Koo, Ramalingegowda and Yu 2017).
Through analysing Wesfarmers Limited’s balance sheet, it is gathered that the required
reserved shares have decreased from $28 million to $26 million that is from the year 2016 to
2017. Moreover, there are decreased shares as observed in the Woolworths Company (Tayeh,
Al-Jarrah and Tarhini 2015). Another item explained within these company’s owner’s equity is
retained earnings that signifies profit and loss of the company after it has established its business
after shareholder dividend payments. In case of both Wesfarmers and Woolworths certain
increase in retained earnings because of a drastic rise in profit base for the year.
Requirement (ii):
In case of Woolworths and Wesfarmers, the debt and equityposition has been analysed
and represented in the below table in the form of ratios:
The table above indicated that Woolworths Limited is observed to be highly leveraged in
comparison to Wesfarmers that is represented through these ratios. This is due to the fact that
Woolworths considered decreasing its reliance on debt finding in 2017 and most of the business
funds is still attained through attaining bank loans. Conversely, the condition is not evidenced in
case of Wesfarmers Limited as it increases maximum part of its finds through attaining increased
equity within the industry (Kraft 2014). Therefore, it is also gathered that in analysing the

6FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
solvency position, Wesfarmers has attained a sustainable position in Australian retail industry in
comparison to Woolworths Limited.
Cash Flow Statement:
Requirement (iii):
There are several aspects those are explained within the Woolworths and Wesfarmers
cash flow statements that has been indicated in the factors below:
Operating Cash Flows- This segment includes four major factors that encompass
borrowings expenses, interest payments along with consumers receipts. Few reasechersnamely,
Wesfarmers.com.au. (2018) indicated that consumer receipts signify an increased number of
attained amounts through which sales are carried out based on credit in the previous years.
Conversely, suppler payments for Wesfarmers along with Woolworths company has elevated
because of is development in the production lines and addressing consumers varying preferences.
In contrast to such situation, it is revealed by the interest payments that a company needs to deal
with increased bank loans taken in fulfilling needs of its every business conduct.
Investing Cash Flows- The items considered within the investing cash flows encompass
payment and purchase of property, plant and equipment along with intangible assets payment.
The amount paid for the plant, property and equipment is deemed to be the expenses incurred in
acquiring and purchasing it as it is important in all the business activities. On the other hand,
these assets attain economic benefits for organizations that is mentioned within proceedings of
plant, property and equipment. From case analysis of Wesfarmers Limited it is evidenced that
Wesfarmers have decreased its asset investment in 2017 that has increased in the upcoming years
due to increased sale of its assets (Woolworthsgroup.com.au. 2018). While selling or acquiring

7FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
these long-term assetsthese are deemed as proceeds and investments. In case of Woolworths
Limited, a good fraction of proceedings can be attained from certain joint arrangements along
with associates for the year 2017. However, the investment amount has remained constant for the
selected years. An increased investment of $47 million has been made by Wesfarmers in loan
notes of 2016 that has obtained loan rates redemption of $54 million.
Financing Cash Flows- The financing activities of these companies encompass the
repayments along with equity dividend and borrowings proceeds provided to the shareholders of
Wesfarmers Limited. Borrowings include net amount provided to the borrowers by its lenders
within important loan agreement terms. Through observing the situation of Woolworths Limited
a huge decline in borrowing proceeds due to debtor’slong-termextension. Moreover, a high
amount is paid as loan repayment to banks (Wu, Chen and Lee2016). Equity dividends explains
the yearly cash flows which is provided to the organization’s equity shareholders. Through
observing situation of Wesfarmers, dividend payment equity is declined in 2017as it focussed in
obtaining retained earnings base.
Requirement (iv):
The annual report of both the companies namely Woolworths and Wesfarmers
organization has three major aspects included within its statement of cash flows. These segments
encompass operating, financing along with investing activities. The comparative evaluation of all
the recognised segments in the statement of cash flow over the past three years are indicated
under:

8FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
1 2
0
2000
4000
6000
8000
10000
12000
Chart Title
Particulars Series2
Cash flow for operating activities Cash flow from investing activities
Cash flow from financing activities
Figure 1: Wesfarmers and WoolworthsComparative Ratio Analysis
(Source: Wesfarmers.com.au., 2018)
Requirement (v):
Cash flow analysis of Wesfarmers has increased by $ 3791 million, $ 3365 million and $
4226 million over the years from 2015 to 2017 from all its operating activities (Johnston and
Petacchi 2017). In addition, a drastic decrease was observed due to the fact that the company has
observed drastic decrease in its plant, property and equipment purchase. In addition, cash flow
generated by the Wesfarmers from the financing conducts is indicated to $ 1333 millionto $ 3771
million in the year 2017 in contrast to year 2016.
In comparison to Wesfarmers, Woolworths is indicated to attain cash flows from the
operating conducts has declined from $ 3345 million to $ 2357 million that is observed in case of
both the years 2015 to 2016. It is observed to increase in the year 2017 by $ 3122 million. In
addition, the investing activities are observed to be $ 1090 million from $ 2011 million that
signifies to be decreasing from 2015 to 2016(Johnston and Petacchi 2017). This is for the reason

9FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
that the organization has to deal with addressing all its bank loans for the investing activities for
the tear 2016. In addition, it is due to the reason that the organization attained increase in bank
loans by $ 1690 million for the year 2017. Cash generating from the financing activities is
indicated to attain increase significantly in contrast to Wesfarmers over the years from 2015 to
2017.
Other comprehensive income statement:
Requirement (vi):
Certain factors that are chosen to be reported in other comprehensive statement of income
for the Wesfarmers and Woolworths Company encompass retained earnings, cash flow hedge
reserve along with translation reserve in foreign currency (Johnston and Petacchi 2017).
Requirement (viii):
Foreign currency is used by organizations for the purpose of transforming the existing
foreign subsidiaries of the parent organization to a specified reporting currency. This acts as a
vital consolidation process aspect within the financial reports. Moreover, these are remeasured in
the reporting currency of the parent company based on which retained earnings recover an aspect
of net income after making necessary payments of dividend to all its shareholders for investing
in the capital projects in the upcoming years (Hribar and Yehuda2015). On the other hand, from
case analysis of WoolworthsLimited it is evident that cash flow hedge reserve is implemented in
a situation where an organization has attempted to deal with exposure taking place from
variations in financial asset or liability-based cash flows. Considering such reasons, changes in
specific uncetainities like interest rate takes place in the debt instrument floating rate.

10FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
Requirement (viii):
From analysing the comprehensive income, it is evident that this is a distinct manner in
recording net profit. In the past years, some alterations in organizational profits was deemed to
remain out of its key operations and because of the same being highly risky was transferred to
shareholders equity (Hope, Thomas and Vyas 2017). On the other hand, Wesfarmers Company
uses some aspects related with comprehensive income statement with the standard net income.
These items included within the organization is drastically reported in comprehensive statement
of income in order to provide detailed and holistic viewpoint regarding all the conducts and
necessary operation drivers of the business which is not reported in the statement of income.
Requirement (ix):
By means of analysing the other comprehensive statement of income it is considered to
identify highly necessary aspects. This is because of the fact that this might lead to elaborating
the ways in which the organizations are managing all their investments along with anticipating
any type of future losses (Haslamet al.2016). This is the cause for which all the above statements
are supported in a way that the auditors can obtain an effective measure concerned with an
organization’s investment’s fair value. By associating all these factors, the inclusion of few
factors of comprehensive statement of income that can be recoded s a useful technique in
overviewing an organization’s managerial performance.
Accounting for Corporate Income Tax:
Requirement (x):
It is important for organizations to bear several expenses which encompass research and
development costs along with the selling and distribution costs and the tax expense is deemed to

11FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
be a vital aspect. Moreover, the organization is deemed to bea vital liability existing within the
organization due to certain municipal, state governments within the country. The tax expense
computation is through multiplying earnings before tax along with applicable tax rate after
considering certain factors such as tax liabilities and assets related with non-deductible aspects
(Barua and Saha 2015). For both the companies Woolworths and Wesfarmers are deemed not to
be tax exempted.
Certain applicable corporate tax rate in Australia is recorded to be 30% and, in such
scenario, tax expense beared by Wesfarmers can be $1,241 million in compassion to Woolworths
for the year 2017 that is recorded to be $640 million (Hanlon, Maydewand Saavedra 2017).
Considering such facts, it might be recorded that tax expenses for companies is indicated as
normal figures of tax rate because of increase in income of these two organizations.
Requirement (xi):
It is indicated from the above table that the average rate of tax is deemed to be the taxed
business profits. Based on the below table, it might be explained that Woolworths has attained an
effective tax rate of 30.50% and for Wesfarmers Limited it is recorded to be 30.57% (Gordon,
Henry, Jorgensen and Linthicum 2017). For thisreason, it is present that Wesfarmers effective
tax rate is increased in comparison to Woolworths Company.

12FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
Requirement (xii):
Deferred tax assets are deemed to be a situation in which the companies decide to
paycertainadvance taxes on the related financial assets or increased taxes. In contrast to that,
there is an increase in the deferred tax liabilities in which variation is considered to be revealed
between the profit carrying amounts and tax (Goh, Lee, Lim and Shevlin 2016). The main cause
for which deferred tax assets might be recognised is because of increased depreciation payments
due to increased alterations in depreciationamount and the taxable rate of depreciation. In
contrast to that, the major cause of identifying the tax liabilities that is because of few variations
in company profits in which low tax is experienced in the year 2017.
Requirement (xiii):
From observing the situation of Wesfarmers Company, the deferred tax assets are
observed to be $971 million in comparison to $611 million from the year 2016 to the year 2017.
The Woolworths Company’s annual report revealed that tax assets are $372.3 million in 2017 in
comparison to $497.7 million in 2016. Moreover, the deferred tax liabilitiesare deemed to be
$625.7 million that has decreased in the year 2017 in comparison to the year 2016 that recorded
to be $626.4 million (Givoly, Hayn and Katz 2017).
Requirement (xiv):

13FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
The table explained that Woolworths Limited has beared $ 582.38 in the year 2017 as
most of cash tax and $ 1387 for 2017 by Wesfarmers. The analysed data indicates that a drastic
decrease in the cash tax amount exist in case of Woolworths Limited in contrast to the case of
Wesfarmers Limited for the year 2017 (Dichev 2017).
Requirement (xv):
The table indicated certain cash are factors based on the evaluation of financial position
of these companies. It is evidenced that a drastic decrease is observed in the Woolworths
Limited’s cash rate in contrast to the case of Wesfarmers Company. Cash tax rate 25.04% is
observed in Woolworths in comparison to 31.44% for Wesfarmers in the year 2017 (Campbell
2015). This increase signifies that Wesfarmers limited has high pre-tax operating profits which
can be experienced by organization within cashtaxes to the government through analysing that it
was 10% equity financed.
Requirement (xvi):
There is a difference in the book tax and cash tax rate that exist in the fact that such rate
is anticipated in the recent year and the rate of booktax can be computed for current and
upcoming years. Some income tax benefit arising from the loss of operations has resulted in such
drastic difference (Crane, Graham and Himick 2015). Another cause for such increased
difference is because of rules related with tax and financial accounting. In this condition, it is
vital to consider certain depreciation expense for chosen organizations.

14FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
Conclusion:
Woolworths Group Limited and Wesfarmers Company was used in this report as these
major retail companies those have their business operations in the Australian retail sector. It is
gathered from the report that the main cause for which deferred tax assets might be recognised is
because of increased depreciation payments due to increased alterations in depreciationamount
and the taxable rate of depreciation. Moreover, by associating all the income statement factors,
the inclusion of few factors of comprehensive statement of income that can be recoded s a useful
technique in overviewing an organization’s managerial performance.

15FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
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Barua, S. and Saha, A.K., 2015. Traditional Ratios vs. Cash Flow based Ratios: Which One is
Better Performance Indicator?. Advances in Economics and Business, 3(6), pp.232-251.
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16FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
Gordon, E.A., Henry, E., Jorgensen, B.N. and Linthicum, C.L., 2017. Flexibility in cash-flow
classification under IFRS: determinants and consequences. Review of Accounting Studies, 22(2),
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17FINANCIAL STATEMENTS ANALYSIS AND CORPORATE ACCOUNTING
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