HI5020 Corporate Accounting: Analysis of Adairs Limited's Financial Statements

HI5020 Corporate Accounting
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Table of Contents
Introduction.................................................................................................................................................3
1 Various items of cash flow statement.......................................................................................................4
2 comparative analyses of cash flow statements..........................................................................................5
3 What items have been reported in the other comprehensive income statement?.......................................6
4 Understanding of identified items.............................................................................................................6
5 Reasons for not including them in income statements..............................................................................6
6 Tax expense in latest financial statements................................................................................................7
7 Is this figure the same as the company tax rate times your firm’s accounting income? Explain why this
is, or is not, the case for your firm...............................................................................................................7
8 Comment on deferred tax assets/liabilities that are reported on the balance sheet articulating the possible
reasons why they have been recorded..........................................................................................................7
9 Is there any current tax assets or income tax payable recorded by your company? Why is the income tax
payable not the same as income tax expense?.............................................................................................8
10 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?......................................................................................8
11 What do you find interesting, confusing, surprising or difficult to understand about the treatment of tax
in your firm’s financial statements? What new insights, if any, have you gained about how companies
account for income tax as a result of examining your firm’s tax expense in its accounts?..........................8
Conclusion.................................................................................................................................................10
Reference...................................................................................................................................................11
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Introduction
Adairs limited is a leading company and specialty retailer that produces home furnishings and it
operates in Australia. It consists of a national footprint of stores with a number of store formats.
This company aims to present consumers with providing trending fashion products, quality,
strong value and a well-managed customer service. Adairs' has a wide range of products such as
bedding, bed linen, towels, and other home furnishing. Adairs provides vertically integrated
product design and do retail operations. Almost all the products of this company is sold under its
own private brands. Some of the products of this company are sold under some third-party
brands. Currently, Adairs has established 160 stores in Australia and some of them are named
Adairs, Adairs Kids, Adairs Homemaker and Adairs Outlets. This company is also growing its
reach with the online stores. The profit margin of this company has shown exponential growth in
last few years.
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1 Various items of cash flow statement
The cash flow statement of Adairs is determined in this report regarding the assessment of the
finance and overall cash flow of the company in the year 2015, 2016 and 2017. This cash flow
statement has multiple cash flow statements such as the cash flow from operating activities, cash
flow statement from investing activities and from financing activities. The cash flow statement of
Adairs is given below:
Cash flow statement from operating activities:
According to the cash flow statement of Adairs from operating activities, the Payments to
suppliers and employees (inclusive of GST) has shown extensive growth in 2017 which is
248,550$ which is very high in comparison to 2016 and 2015. Income tax paid by this company
is also increased in 2017 which is 15,152$ that was only 8,659 $ in 2016. On the other hand, the
interest paid by Adairs is getting low in 2017 which is 1,731 and in 2016 it was 1,936 $. So the
new cash flow from operating activities is 27,644 $ in 2017 which is maximum in comparison to
2015 and 2016.
Cash flow statement from investing activities:
According to the cash flow statement from investing activities, the Acquisition of property, plant
and equipment is 11330 $ in 2017 which was 10324 $ in 2016 and 6878 $ in 2015 so it can be
said that the property acquisition has increased exponentially in 2017. Investing cash flows from
discontinued operations is not present in 2016 and 2017 but in 2016 it was 1,374 $. Along with
that, Cash loss attributable to a discontinued operation is also not present in the cash flow
statement of 2016 and 2017 but it was 7,044 $ in 2015.
Cash flow statement from financing activities
In accordance to the cash flow statement from financing activities, Net increase in cash and cash
equivalents is decreased in 2017 on a higher scale which is 363$ which was 5,239 $ in 2016 and
14,940$ in 2015. The Cash and cash equivalents at beginning of the period are also increased in
2017 which is 14,676 and in 2016 it was 9,437$.
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So the net cash flow of Adairs at the end of the period in 2017 is 14,313$ which a little bit less in
comparison to 2016 which was 14,676.
2 comparative analyses of cash flow statements
Analysis of cash flow generated from operating activities
The net margin of Adairs is getting increased after the adjustment of multiple expenses that are
paid by cash or by banking that are based on accounting. The net profit is analysed by using the
information in the net cash flow of Adairs that is interpreted from using the operating activities.
All these expenses are considered under noncash items where cash inflow and outflow does not
included. When a calculation is done regarding the cash flow by operating activities, some of the
items are added back to the net profit to get the net profit increased by an organization in cash.
Net cash flow of Adairs from operating activities is maximum in 2017 in comparison to 2015
and 2016.
The main objective of this analysis is to create the cash inflow and outflow of Adairs as the full
business operations of this company are conducted at the time of financial year. Some of the
details regarding noncash items are deducted from the statement of net profit in the income
statement, only preliminary depreciation and expenses are considered in this.
Analysis of cash flow generated from investing activities
Many companies analyse the available balance and after this, they make a decision in a manner
to use this balance effectively. There are many purchases which are made using fixed assets that
will give some additional returns to the organization. Adairs also makes purchases and after that
they sell these assets in which investments are incorporated in the net cash flow by investing
activities.
Analysis of cash flow from financing activities
Sometimes companies make cash payments to its various stakeholders who are associated with
the organization and this inflow and outflow of the cash come under cash flow of the financing
activities. Adairs Limited has generated cash dividend for the shareholders at the end of year
2015, 2016 and 2017. While generating the cash flow of financing activities of Adairs it was
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identified that this company has issued some debt as it has a positive cash flow which is initiated
for development of the company.
The entire cash flow statement of Adairs in year 2015, 2016 and 2017 is analysed according to
which the cash flow at the end of year is positive in 2017 which was lower in 2016 and 2015.
3 What items have been reported in the other comprehensive income statement?
In running state of a business or company there is a complete income statement created in order
keep record of the income and outcomes of the organization. The essential items that are
involved in the income statement have foreign currency translations along with the increment
which is unrealized in the investments of funds. Additionally, the reserves made to provide
advantages to the employees are also considered under the income statement. The final total of
the income statement will be divided with the equity holders and non-controlling interest to
equally distribute of the profit in relation to their investments and funding provided to Adairs.
4 Understanding of identified items
An appropriate understanding of the transactions is required which are incorporated in the
comprehensive income statements. After this, it can be evaluated that whether this value should
be added in the income statement or not. All these elements get changed along with a broad
category that is analyzed initially. An overall amount in the foreign currency translation also
included and divided into two different sections that can be reclassified along with the loss and
profit regarding Adairs limited. Whenever an organization gets involved with foreign
transactions of the prevarication of investment with the raw material purchase then the company
must take care of foreign exchange as there might be some future requirements of foreign
exchanges (Joyner, et. al., 2014).
5 Reasons for not including them in income statements
Differences of the foreign exchange translation regarding Adairs limited in the financial year
2017 has high exchange currency differences within the market. These differences are not
usually as the items that must be represented autonomously are not even in the income statement
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of this company. Also, Reserve movement shares also must not be added to the income statement
because these elements are not related to the income statement. This is one of the extraordinary
items that should be represented and reported separately (Omag, 2016).
6 Tax expense in latest financial statements.
Adairs carry out the operations and tasks with aim of increasing the profits and it is required as
per the regulations that on the quantity that is earned. A business must be acknowledged with the
tax expense according to the tax rule of the company location. If the organization is in loss then a
determination of the profit is done according to the tax expenses. These essentials need to be
calculated according to the policies and rules which are predefined for the evaluation of accurate
amount and after this, this amount will be paid to the right authority. In previous years, this is
complete changes as it totally relies on the profit margin amount or loss made by Adairs limited.
In the current financial statements, all the company expenses are increased in accordance to the
profit margin (Miletić, 2014).
7 Is this figure the same as the company tax rate times your firm’s accounting income?
Explain why this is, or is not, the case for your firm.
No, the evaluation of the amount is done as expense of the company which is not similar in
accordance to the accounting tax. Main reason behind this is the difference in the manner where
some of the elements are considered in accordance to the policies and laws. The taxes that will
be paid are considered in accordance to the Australian tax rate and after that some adjustments
will be made regarding the tax assessment. This is done due to some of the amounts that are
acceptable in accounts will be deducted in tax policies and laws and that could not be excluded.
In Adairs, deferred tax balances foreign exchange difference; non-deductible depreciations etc.
are determined as final tax expenses (Gobetti & Orair, 2017).
8 Comment on deferred tax assets/liabilities that are reported on the balance sheet
articulating the possible reasons why they have been recorded.
In Adairs, present and late taxes are acknowledged in the balance sheet. Deferred tax is the tax
which is calculated in order to the temporary timing difference which exists in the company. It
happens due to one of these items in law that is not allowed in a different time period. Deferred
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tax asset is used for this amount and these amounts are considered according to the timing
differences that exist (Bhandari & Adams, 2017).
9 Is there any current tax assets or income tax payable recorded by your company? Why is
the income tax payable not the same as income tax expense?
Adairs limited keeps the full record of the entire income tax payable amount while making the
income statements. This amount has been included in the balance sheet of this company for the
assessment of tax. This is evaluated as it is the total tax amount that will be paid by Adairs in the
next year and due to this it involves current liability. The payable tax amount is not same to the
expense as in the expenses, only income of current year is included but still the current tax will
be consisted in the payable amount (Nejad, et. al., 2018).
10 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?
The amount which is evaluated by Adairs limited in the income statement is not similar as the
amount which will be pad and included in the cash flow statements. The main cause is that these
expenses are regarding current period with considering the payments so it is not urgent to pay the
same amount while making tax payments. In the case of Adairs the current tax expenses are
higher compared to the previous year which shows that the profit is also getting increased
(Graham, et. al., 2012).
11 What do you find interesting, confusing, surprising or difficult to understand about the
treatment of tax in your firm’s financial statements? What new insights, if any, have you
gained about how companies account for income tax as a result of examining your firm’s
tax expense in its accounts?
In each and every company, there are some specific rules and policies which are followed by the
shareholders and the working employees in context to the company. An arrangement of the tax-
sharing is done by members of the company for proper tax allocation with all the companies and
their subsidiaries. One other agreement is tax funding that is managed by the members of the
company. These are the interesting facts about Adairs limited regarding its financial statement
(Yap, 2012).
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Conclusion
Financial statement of Adairs limited is analyzed along with profit and loss assessment in this
report. Multiple items are involved in this report which can be regenerated for the profit and loss
in future. In Adairs limited, a tax consolidation assembly is created which have many Australian
subsidiaries. This work represents that Adairs has made a higher growth as profit in last few
years. .
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Reference
 Annual report. (2017). Adairs Limited. [Online]. Annual report. Available at:
http://investors.adairs.com.au/FormBuilder/_Resource/_module/51fbMLwe2UG-
5KJ3qHCF4w/file/Adairs-2017-Annual-Report.pdf. A[accessed on: 25th may 2018].
 Bhandari, S. B., & Adams, M. T. (2017). On the Definition, Measurement, and Use of the
Free Cash Flow Concept in Financial Reporting and Analysis: A Review and
Recommendations. Journal of Accounting and Finance, 17(1), 11-19.
 Gobetti, S. W., & Orair, R. O. (2017). Taxation and distribution of income in Brazil: new
evidence from personal income tax data. Revista de Economia Política, 37(2), 267-286.
 Graham, J. R., Raedy, J. S., & Shackelford, D. A. (2012). Research in accounting for
income taxes. Journal of Accounting and Economics, 53(1), 412-434.
 Joyner, D. T., Banatte, J. M., & Dondeti, V. R. (2014). Back to basics: Algebraic
foundations of the statement of cash flows. American Journal of Business Education
(Online), 7(1), 93.
 Miletić, D. (2014). Cash flow statement: Assessment of situation and application
problems in Serbia. Industrija, 42(4), 99-114.
 Nejad, M. Y., Ahmad, A., & Embong, Z. (2018). Value Relevance Of Other
Comprehensive Income. Asian Journal of Accounting and Governance, 8, 133-144.
 Omag, A. (2016). Cash Flows from Financing Activities. Evidence from the Automotive
Industry. International Journal of Academic Research in Accounting, Finance and
Management Sciences, 6(1), 115-122.
 Yap, C. (2012). Users' perceptions of the need for cash flow statements—Australian
evidence. European Accounting Review, 6(4), 653-672.
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Appendix
Cash flow statement
Profit and Loss statements
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Balance sheet
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