Analyzing Cromwell Property Group's Tax Treatment

This assignment delves into the income tax treatment of Cromwell Property Group, a prominent real estate company. Students are tasked with examining the company's financial statements to understand its various tax strategies and identify potential discrepancies between reported income tax expenses and actual cash payments. The analysis requires a thorough understanding of accounting principles related to income tax and the ability to interpret complex financial data.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Answer to Question I.......................................................................................................................2
Answer to Question II......................................................................................................................3
Answer to Question III....................................................................................................................3
Answer to Question IV....................................................................................................................4
Answer to Question V.....................................................................................................................5
Answer to Question VI....................................................................................................................6
Answer to Question VII...................................................................................................................6
References........................................................................................................................................7

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Answer to Question I
From the latest Annual Report of Cromwell Property Group, it can be observed that there
are four major items of equity in the consolidated balance sheet of the company; they are
Contributed Equity, Other Reserves, Retained Earnings/ (Accumulated Losses) and Non-
controlling interests (cromwellpropertygroup.com 2018). Contributed Equity refers to the
summary of the total stock value of the companies that the shareholders have directly purchased
(Finkler et al. 2016). Increase in contributed equity can be seen in 2017 than 2016. For the
company, it has increased from $106.5 million to $106.9 million; and for trust, it was from
$1287.5 million to $1295.2 million. The main reason behind this increase in the increase in the
number of share issued in 2017; that is 1,762,361,339 from 1,752,331,208
(cromwellpropertygroup.com 2018). Reserves refer to the amount excess money shareholders
pay except the par value of shares (Daskalakis, Jarvis and Schizas 2013). In 2017, increase in
reserves can be seen in Cromwell Property Group for both the company and the trust. For the
company, it has increased from $17.9 million to $18.2 million; and for trust, it was from $2.3
million to $1.7 million (cromwellpropertygroup.com 2018). The main reason in the increase in
reserve is the presence of various reserve heads; they are security-based payments reserve, sales
reserve and reserve for foreign currency transactions. Retained Earnings and Accumulated
Losses refer to the total profit and loss of the companies due to the payment of dividends
(Bourguignon, Branson and De Melo 2015). In 2017, there is accumulated loss for the company;
that is $112.9 million in 2017 and $129.4 million in 2016. For trust, there is retained earnings;
that is $ 292.3 million in 2017 and $178.0 million in 2016. Non-controlling interest refers to the
portion of equity ownership not attributed to the parent company. For trust, increase in non-

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controlling interest can be seen; that is $1627.7 million in 2017 and $1505.2 million in 2016
(cromwellpropertygroup.com 2018).
Answer to Question II
Business organizations are required to incur different types of expenses for smooth
running of the business operations. One such expense is Tax Expenses that the companies are
required to incur, as they own this expenditure to the federal government and state government
(Khafizova and Fassakhov 2015). There is no exception of this fact in case of Cromwell Property
Group as the company is needed to pay their tax expenses for yearly basis. The annual report of
Cromwell Property Group shows that the applicable tax rate of the company in 2017 and 2016
was 30% as per the Australia’s company tax rate. The analysis of the latest annual report states
that the company has tax expenditure worth $1.5 million in 2017 and $3.5 million in 2016 for the
company. For trust, the amount of income tax expenditure in 2017 is $0.3 million
(cromwellpropertygroup.com 2018). It needs to be mentioned that Cromwell Property Group has
divided the tax expenses in three parts; they are current tax expenses, deferred tax expenses and
adjustment in tax expenses for previous taxation period.
Answer to Question III
The analysis of annual report of Cromwell Property Group states that the company has
$278.7 million and $333.1 million profit before income tax in 2017 and 2016 respectively for the
company; and $261.1 million and $371.4 million in 2016 for the trust. Thus, in 30% tax rate, the
income tax expenses should be $83.6 million ($287.7 million*30%), $99.3 million ($333.1
million*30%), $78.3 million ($261.1 million*30%) and $111.4 million ($371.4 million*30%).
However, the reported tax expenditure of the company is $1.5 million in 2017 and $3.5 million

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in 2016 for the company. For trust, the amount of income tax expenditure in 2017 is $0.3 million
(cromwellpropertygroup.com 2018). Thus, it can be seen that there is clear difference and some
specific factors are responsible for this difference. It can be seen that the companies use to do
some taxation adjustments after the payment of annual tax and all these aspects are needed to
take into consideration. The first item is the income of trusts. In 2017 and 2016, the trust of
Cromwell Property Group has acquired a number of corporate entities that is subject to tax
deduction. The next item is fair value impairment. It is an expenditure that is subject to tax
deduction and thus it has been adjusted in 2017. In the business operations, Cromwell Property
Group has some expenses that are not subject to tax deduction and thus, they have been adjusted
with the taxation expenses for the company in 2017 and 2016 (Weber 2014). The next important
item is change in recognized tax losses. It is an important aspect that needs to be adjusted with
the taxation expenditure. Thus, the company has adjusted this amount in 2017 for the company.
It was required for the company to adjust the taxation expenses related to the previous years and
thus, they have been adjusted with the tax expenditure in 2017 and 2016 for the company. In
addition, difference is there due to the difference in overhead tax rate. All these aspects have
created the difference (Figari et al. 2012).
Answer to Question IV
The annual report of Cromwell Property Group states that the company has reported both
deferred tax assets and deferred tax liabilities in their consolidated balance sheet. Cromwell
Property Group reported $3.4 million in 2017 and $1.3 million for company; and $0.3 million in
2017 for the trust as deferred tax assets (cromwellpropertygroup.com 2018). The company has
also reported $0.9 million in 2017 and $1.9 million for company as deferred tax assets. There is
not any deferred tax liabilities for the trust. According to the adopted policies, the company

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reports about deferred tax assets and deferred tax liabilities in the presence of temporary
difference in the tax rate at the time of the recovery of assets and settlement of liabilities ( Laux
2013). In Cromwell Property Group, the major factors responsible for deferred tax assets are
interests in managed investment scheme, employee benefits, and transaction costs, recognition of
tax losses and loss or gain from unrealized foreign currency. The only factor responsible for
deferred tax liabilities is management rights related to intangible assets. All these factors are
responsible for deferred tax assets and liabilities.
Answer to Question V
The latest annual report of Cromwell Property Group states that the company has
recorded both current tax assets and income tax payable or current tax liabilities in their
consolidated balance sheet. Cromwell Property Group recorded $1.2 million and $1.7 million as
current tax assets in 2017 and 2016 respectively. Cromwell Property Group has also recorded
$1.7 million and $2.2 million as current tax liability in 2017 and 2016 for the company; and $0.5
million for the trust (cromwellpropertygroup.com 2018).
It needs to be mentioned that there are some major differences between income tax
payable and income tax expenses. Income tax expenses refers to the tax expenses for the current
financial year of the companies that is required to be paid in the current year (Gogol 2016).
However, income tax payable can include the tax due in the previous year. There are many
instances where it can be seen that the companies pay less amount of tax due to temporary
difference in tax rate. For this reason, companies are required to pay the due tax in the next year
and thus, they are appeared as income tax payable (Friedman 2013).

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Answer to Question VI
The analysis of the latest annual report of Cromwell Property Group shows that the
company has reported different amount for income tax expenses in income statement and cash
flow statement. As per the consolidated income statement, the reported income tax expenses are
$1.5 million in 2017 and $3.5 million in 2016 for the company; and $0.3 million in 2017 for the
trust. As per the consolidated statement of cash flows, the reported income tax payment are $4.6
million in 2017 and $3.5 million in 2016 for the company; and $0.1 million in 2017 for the trust
(cromwellpropertygroup.com 2018). Thus, difference can be spotted in the recorded tax
expenses. Income tax expenses in the income statement shows the amount of income tax needs to
be paid for the current financial year (Widerquist et al. 2013). However, cash flow from
operating expenses considers the decrease and increase in current assets and liabilities. At the
same time, payment for differed tax expenses and income tax payable are the part of the current
liabilities of the companies. For this reason, the income tax payment in statement of cash flows
includes the payment of previous year tax expenses and deferred tax expenses (Fodor 2015). For
this reason, disparity can be seen in the income tax expenses in income statement and cash flow
statement.
Answer to Question VII
The above analysis shows that Cromwell Property Group has done their different income
tax treatments in an effective manner as the company has provided all the required justification
and clarification about their taxation treatment in the financial statements. For this reason, one
can get effective insight about how big organizations do their tax treatments. Most importantly,
one will be able to understand the major reasons responsible for creating disparity in the amounts
of tax payment in different areas of financial statements.

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References
Bourguignon, F., Branson, W.H. and De Melo, J., 2015. Adjustment and income distribution: A
micro-macro model for counterfactual analysis. In Modeling Developing Countries' Policies in
General Equilibrium (pp. 117-139).
Cromwellpropertygroup.com. (2018). ANNUAL REPORT 2017. [online] Available at:
https://www.cromwellpropertygroup.com/__data/assets/pdf_file/0015/22920/CMW-2017-
Annual-Report-final-web.pdf [Accessed 23 Jan. 2018].
Daskalakis, N., Jarvis, R. and Schizas, E., 2013. Financing practices and preferences for micro
and small firms. Journal of Small Business and Enterprise Development, 20(1), pp.80-101.
Figari, F., Paulus, A., Sutherland, H., Tsakloglou, P., Verbist, G. and Zantomio, F., 2012. Taxing
home ownership: distributional effects of including net imputed rent in taxable income.
Finkler, S.A., Smith, D.L., Calabrese, T.D. and Purtell, R.M., 2016. Financial management for
public, health, and not-for-profit organizations. CQ Press.
Fodor, A., 2015. The impact of taxation on company value.
Friedman, M., 2013. The case for a negative income tax: A view from the right. Basic Income,
p.11.
Gogol, T.A., 2016. Accounting and taxation, and their impact on the development of small
business in developed countries. Naukovyi visnyk Polissia-Scientific bulletin of Polissia, (4),
pp.257-261.
Khafizova, A.R. and Fassakhov, I.A., 2015. Development of the oil companies taxation
system. Mediterranean Journal of Social Sciences, 6(1 S3), p.20.

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Laux, R.C., 2013. The association between deferred tax assets and liabilities and future tax
payments. The Accounting Review, 88(4), pp.1357-1383.
Weber, C.E., 2014. Toward obtaining a consistent estimate of the elasticity of taxable income
using difference-in-differences. Journal of Public Economics, 117, pp.90-103.
Widerquist, K., Noguera, J.A., Vanderborght, Y. and De Wispelaere, J., 2013. Basic income: an
anthology of contemporary research.