Introduction: The financial report relating to corporate accounting has been prepared to develop the knowledge of users regarding various concepts and fundamentals related to accounting work conducted in the business. The report will include the analysis of cash flow statement of company and the items relating to operating, investing and financing activities of company will be differentiated in this report. The comprehensive income statement of the company will be discussed in this report and various interpretations will be made according to the types of items reported in this assignment. The report will involve accounting for income taxes which ill involve recognising the income tax expense for the company and identifying the reconciliation provided in this behalf. The report will also include an explanation about the deferred tax assets and liabilities reported in the annual report of company and the interest or confusing facts recognized will be described appropriately in this report. 2
Contents Introduction:....................................................................................................................................2 CASH FLOWS STATEMENT...................................................................................................4 OTHER COMPREHENSIVE INCOME STATEMENT............................................................8 ACCOUNTING FOR CORPORATE INCOME TAX...............................................................9 Conclusion:....................................................................................................................................12 References:....................................................................................................................................13 3
CASH FLOWS STATEMENT The various items reported in the cash flow statement of the company for the year ending 2017 has been presented below: Receipts form customers– The revenues received form the customer represents the amount which have been obtained in consideration of the goods and services given to the customers of company. Payment to suppliers and employees– The payment made to suppliers and employees of the company is concerned with the amounts which have been paid by the company to the suppliers for their purchases and the payment made for labour to the employees (Blue Scope Steel Limited, 2017). Finance cost paid– The finance cost paid refers to the amount of interest paid by the company towards the amount of credit received in ordinary business operations. Income taxes paid – The income taxes represents the amount of current tax liability paid by the company during the year and includes the past taxes as well as present taxes. Payments made for purchases of subsidiaries and business asserts– This is the type of investing activity of the company which includes the amount paid for acquiring the joint ventures or associate and the business assets of company during the year. Payments made for property, plant and equipment and intangible assets – The cash outflow can be in the form of amount to be paid by the company for acquisition of property, plant and equipment for the company along with the intangible assets. 4
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Proceeds from sale of property, plant and equipment and investments– The cash inflow can be in the form of cash received form the selling of property, plant and equipment and the other investments of the company. Proceeds and repayments form borrowings– The type of cash inflow or outflow is concerned with the amount received or paid for the repayments or acquisition of long term loan by the company. This will be a financing activity for the company (Blue Scope Steel Limited, 2017). Dividends paid– the dividends paid by the company will be recognized as financing activity which will be concerned with paying the dividend to shareholders. 5
The comparative analysis is provided below: Comparative cash flow statement Particulars2017$ (million ) % increase/ decrease 2016$ (million ) % increase/ decrease 2015$ (million ) Cash flows from operating activities Receipts from customers11,149.3 0 139,867.10108,989.00 Paymentstosuppliersand employees - 9,813.00 11- 8,810.60 4- 8,482.50 1,336.30261,056.50109506.5 Associate dividends received4.3303-284.6 Jointventurepartnership distributions received -10024.2-81127.3 Interest received6.1-66.51173 Other revenue34.85322.73716.6 Finance costs paid-90.8-18-111.260-69.6 Income taxes paid-158.3217-501-49.7 Netcashinflowfromoperating activities 1,132.401995277538.7 Cash flows from investing activities Paymentsforpurchaseof subsidiaries, net of cash acquired -100-987.7 Paymentsforpurchaseof businessassets,netofcash acquired -100-33.8-36-52.7 Payments for investments in joint venture partnerships -100-2.3-8-2.5 Paymentsfordisposalof subsidiary -55.10-100-375.8 Payments for property, plant and equipment -368.728-288.93,075-9.1 6
Payments for intangibles-14.3-43-25-21322.1 Proceeds from sale of property, plant and equipment 3.2-6810.1407.2 Proceeds from sale of investments26.6-3038.10 Net cash (outflow) from investing activities -408.3-68- 1,289.50 214-410.8 Cash flows from financing activities Proceeds from borrowings1,261.50-714,290.701032,114.80 Repayment of borrowings- 1,516.20 -61- 3,849.80 78- 2,165.90 DividendspaidtoCompany's shareholders -40.218-34.2101-17 Dividends paid to non-controlling interests in subsidiaries -63.463-38.8-16-46.2 Transactions with non-controlling interests -100-0.5 Share buybacks-150.40-100-0.6 Netcashinflowfromfinancing activities -508.7-238367.9-419-115.4 Netincreaseincashandcash equivalents 215.460930.414312.5 Cash and cash equivalentsat the beginning of the financial year 548.96517.911465.9 Effects of exchange rate changes on cash and cash equivalents -12.4-2,1670.6-9839.5 Cash and cash equivalents at the end of the financial year 751.937548.96517.9 Analysis: Cash flows from operating activities: The cash flows from operating activities have resulted in an increase in inflows by 19% in the year 2017 and the same has increased by 77% in the year 2016. The main reason behind such an increase is associated with increase in amounts received by joint venture partnership distributions received (Beekes, et aussi. al., 2015). Cash flow from investing activities– The net cash outlay form investing activates have decreased significantly in the year 2017 which has been 68% decreased however this has increased in the year 2016 by 214%. 7
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Cash flows from financing activities– The net cash outlay concerned with the financing activities in the year 2017 is amounting to $508 million which is a major issue of concern for the company. OTHER COMPREHENSIVE INCOME STATEMENT 3.What items have been reported in the other comprehensive income statement? Items that may be reclassified to profit or loss – this represents the items which results in fluctuation in income due to fluctuations in the foreign exchange rates and has not been recognized in income statement yet. Items that will not be reclassified to profit or loss – The type of items includes actuarial gains and losses which are represented by retirement benefit obligations. 4. Explain your understanding of each item reported in the other comprehensive income statement The foreign currency loss signifies the actual damages that can be incurred to the company due to alterations recognized in foreign exchange rates. The income tax commitment represents the expense associated with income tax and which has not been recognized yet. Also there have been actuarial gains in case of retirements benefit obligations and the same has not been recognized in income statements(Beekes, et aussi. al., 2015). 5. Why these items have not been reported in Income Statement/Profit and Loss Statement. The item concerned with the comprehensive statement of the company refers to the items which are not reported in the income statement but affects the equity position of the company. 8
ACCOUNTING FOR CORPORATE INCOME TAX 6. What is your firm’s tax expense in its latest financial statements? The BlueScope Steel Limited is a company that runs its business activities for the purpose of profit making. For the purpose of ascertaining the true earning of the company it is necessary to exclude the taxable liability of the company. The tax actually paid by the company differs from the tax expenses that are shown in the cash flow of the company. The taxation liability of the company in the year 2016-2017 includes both direct and indirect computation. The total tax expenses for the given is noted as $6 million which was just $5.8 million in the year 2016 i.e. in 2017 it was $181.8 million which means the tax expenditure of the company in the current year was more than the previous year (Veerman, et. al., 2016). 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 income tax payable is not in confirmation with the accounting income tax calculated by the company and the reconciliation is provided below: 9
(Source:Blue Scope Steel Limited, 2017) 8.Comment on deferred tax assets/liabilities that are reported in the balance sheet articulating the possible reasons why they have been recorded. Deferred tax refers to the liability for tax which was overdue and had to be paid earlier but due to improper calculation of tax value the same could not have been paid. The total deferred tax assets for the year 2016 was $196 million and it was recoded as $155.3 million. The deferred tax liability for the year 2016 was $162.4 million and in 2017 it was recoded as $175.9 million. The deferred tax assets arises when the tax is calculated more than what was actually had to be paid by the company and the deferred liabilities arises when the taxability for the given year is calculated less than what was actually to be paid by the company. Like if the depreciation over the assets of the company is calculated more than the actual deprecation to be deducted out of the assets. The situation of deferred tax can also arise when the tax rate are changed (Payne and Raiborn, 2018). 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? The total income tax by the company in the year 2017 was $158.3 million which is higher than the previous year with $50.0 million. However there are no current tax assets of the company for the given financial year of 2017 and the total income tax liability of the company has been recoded $5.0 million. Since there was no current tax assets of the company total taxable liability of the company was recoded as $158. 3 million which includes both current tax of $154.0 million and deferred tax of $24.9 million. 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 total income tax expenses for the year 2016-2017 financial year was $181.8 million and the total tax for the year was recorded as $158.3 million which is less than the total tax expenses recorded in the cash flow. The differences between the recoded tax expenses for the year and the total tax paid for the year is there as the tax paid actually includes the actual amount that has been deducted out of the profit and the tax expenses also include the deferred taxes and other 10
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connected expense thereto. The reason can also be that the expenses calculated involves overvaluation of the profit of the company and on the final calculation of the same earning of the company was found less (Karikari, 2014). The expense of income tax are deducted on monthly basis from the accounts of the company so as to reduce the tax liability burden of the company at the end of the year and in the end of the year the tax is ultimately paid to the government by calculating at the rate at which it is prevalent. 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? On the basis of detail analysis of the annual report of the company for the financial year of 2016- 2017 to examine the taxation system that is prevalent in the country various difficulties and interesting facts were find out. The change in the rate of tax causes difficulty and differentiation in the amount of tax calculated for the purpose of deducting the tax and the amount of tax that is finally calculated for payment. The deferred tax assets and liabilities also have to be considered for the calculation of the present tax liability of the company and therefore they also increase the difficulty of calculation of the tax liability of the company. The tax liability of the company reduced the turnover and the earning of the company (Donohoe and Robert, 2014). The instant fluctuation in tax causes the problem of maintaining the uniformity of deductions which are made on monthly basis and this increases the issue of differed tax assets and liabilities for the subsequent years as well. These issues causes the issue in understanding the real financial position of the company. 11
Conclusion: It can be concluded that the corporate accounting work can be operationally affected when there are presented the common size income statement and balance sheets of company. The analysis performed above for Blue Scope Limited represents a sound situation of the company and the profitability of the company will be increased in future years as per the healthy prospects. 12
References: Ali, S., 2016. Corporate governance and stock liquidity in Australia: A pitch.Journal of Accounting and Management Information Systems,15(3), pp.624-631. Beekes,W.,Brown,P.andZhang,Q.,2015.Corporategovernanceandthe informativenessofdisclosuresinAustralia:are‐examination.Accounting& Finance,55(4), pp.931-963. Bhasin, M.L., 2015. Corporate accounting fraud: A case study of Satyam Computers Limited. Blue Scope Steel Limited, 2017 Annual Report.Concise Annual Report 2017, Available at: /bluescope-steel-annual-report-2016-17-web.pdf [Accessed on: 23/05/2018] Donohoe, M.P. and Robert Knechel, W., 2014. Does corporate tax aggressiveness influence audit pricing?.Contemporary Accounting Research,31(1), pp.284-308. Duff, A., 2016. Corporate social responsibility reporting in professional accounting firms.The British Accounting Review,48(1), pp.74-86. Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015.Issues in financial accounting. Pearson Higher Education AU. Karikari,A.G.,2014.InternationalTaxAvoidanceSchemes:AnInvestigationof Multinational Technology Companies.International Journal of Academic Research in Accounting, Finance and Management Sciences,4(1), pp.365-370. Lee,T.A.,2014.EvolutionofCorporateFinancialReporting(RLEAccounting). Routledge. Payne, D.M. and Raiborn, C.A., 2018. Aggressive tax avoidance: A conundrum for stakeholders, governments, and morality.Journal of Business Ethics,147(3), pp.469-487. Ramanna, K., 2014. Political standards: Accounting for legitimacy. Sivathaasan, N., 2016. Corporate governance and leverage in Australia: A pitch.Journal of Accounting and Management Information Systems,15(4), pp.819-825. Veerman, J.L., Sacks, G., Antonopoulos, N. and Martin, J., 2016.The impact of a tax on sugar-sweetened beverages on health and health care costs: a modelling study.Available at:http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0151460.[23May 2018] 13
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