Analysis of Wesfarmers Limited's 2017 Cash Flow, Comprehensive Income Statement and Corporate Income Tax

This article provides an analysis of Wesfarmers Limited's 2017 cash flow statement, comprehensive income statement and corporate income tax. It discusses the importance of cash flow statement, comprehensive income statement and accounting principles. The article also covers the items included in the comprehensive income statement and the difference between income tax expenses and income tax paid.

ASSESSSMENT TASK
The Public limited Company that is selected and listed on the Australian Securities Exchange
(ASX) is Wesfarmers Limited. We are conducting the analysis of 2017. In the year 1914 this
Company was founded as a co-operative to provide merchandise and services to Western
Australian farmers. In the year 1984 the Company was listed in the Australian Securities
Exchange and grew into a major retail conglomerate. Wesfarmers Limited is one of the
largest Australian Company who overtakes Woolworths and BHP Billiton. Wesfarmers
Limited is having more than 220,000 numbers of employees and about 515,000 stakeholders.
Wesfarmers Limited works globally and domestically through Wesfarmer’s Chairman,
Finance Director, Managing Director and others in the Wesfarmers leadership team.
Wesfarmer Limited main aim is to provide a satisfactory return to its shareholders. The Core
values of Wesfarmers are Accountability, Openness, Integrity and Boldness. Wesfarmers
engages itself with Shareholders throughout the year at Annual General Meeting. Wesfarmers
Limited works in the sustainability performance of the Company and also holds an annual
sustainability investor roadshow. The Company has also reported Whistle Blower process to
the Audit and Risk Committee. Wesfarmers principles is to eliminate gender balance and
focus on Women’s empowerment. This Company workforce is made up of 46 percent men
and 54 percent Women. Women hold 56 percent of award or enterprise and 47 percent of
salaried roles.
CASH FLOW STATEMENT
(i) Cash flow statement is a flow of cash flows in a financial statement which shows the
changes in cash and cash equivalents. There are three types of activities in a cash flow
statement that is Operating activities, Investing activities and Financing activities. It is
prepared to see the liquidity position in the company. Cash flow statement is prepared by the
company because statement is prepared under the accrual basis of accounting and the
expenses accordingly might not have been reported correctly. Cash flow statement is very
important for the company because it gives a clear picture about the growing status of the
company. If cash flow is positive it means the company is running smoothly. Operating

activities in a cash flow statement refers to the net cash inflow and outflow. This activity is
related to the company’s main buying and selling inflow and outflow. Investing activities in a
cash flow statement refers to the changes in company’s cash position which results in the
profit or losses from investing in financial market. Financing activities in a cash flow
statement refers to the inflow and outflow of cash from issuance of new stock, repurchase of
any existing stock and any dividend payment (Hoy 2017).
By analysing the data of 2017 of wesfarmers, it has seen that there is a change in operating
activities by $m 861 from last year. It is also noticed that the change in net capital
expenditure has incurred by making payment of property, Plant & expenditure and
intangibles assets
(ii) The comparative analysis of the three broad category of cash flows of wesfarmers is
discussed herein. There has been a significant increase in the revenue of $m 2885 from last
year (2016) while it was $m 67684 in 2015. There is a huge change in impairment and
writedown of assets of $m 2123 from last year. There has been a decrease in trade payable of
$m 94 and trade receivables of $m 70 as compared to last year (2016). The taxes paid in the
current year is around $m 951 as compared to payment in 2016 which is $m 1009 and in
2015 it was paid around $m 1102. In the year 2017 the dividend was paid around $1998m as
compared to the last year (2016) which is around $m 2270 and in 2015 it was $m 2597. There
is no huge subsidiary acquisition payment is see from last year. The net proceeds has
increased from the sale of subsidiaries of $m 946 (WesFarmers 2017) The revenue has
increased from last two years which results in the overall growth of the company. The tax
payment of the current year is around $m 951 as compared to the payment in last two years.
There was a capital return payment in the year 2015 which is not been paid in the year 2016
and in 2017. The overall gist of the company’s cash flow statement is that Company has
increased cash in hand and cash at bank and on deposit by around $m 402 as compared to
last year (WestFarmers 2016)
OTHER COMPREHENSIVE INCOME STATEMENT
(iii) Comprehensive Income Statement means the statement of all the net incomes and
expenses and other items which is recognised during a specific period and that must bypass
the income statement which have not been realised. Comprehensive Income statement
includes items like foreign currency translation gains or losses, revenue, finance cost, tax
expenses, unrealised holding gain or loss from available for sale of securities, discontinued

operations, profit share and profit loss. It also includes realised gains or losses transferred to
non – financial assets, share of associates and joint venture profits. A statement of
comprehensive income is different from a typical income statement because it includes profit
or losses in detail and may omit changes in net assets due to change of ownership, transfer of
equity holdings and other factors. Comprehensive Income statement is very important in
every business because it shows a fair amount of latitude on the timing, annual charges,
impact of quarterly and other expenses. Unrealised gains or losses on pension and retirement
benefit plan are also included in preparing Comprehensive Income Statement.
(iv) The Items of the comprehensive income statement includes many items which arises due
to the operations conducted by the company. A standard Comprehensive Income statement is
generally attached to the bottom of the income statement and it includes a separate heading
for the same. Whenever Comprehensive income statement is made by the company, a
detailed comprehensive income statement in the financial statement to give external users
detail about how the comprehensive income statement is made. The net income to the
comprehensive income statement is adjusted and transferred down to the balance sheet for
computing the total comprehensive income for that period. The losses or gains due to the non
– financial assets should have an huge impact and does not show any affects in the business
activities. The measurement loss on the defined benefit plan has been taken into account. By
making comprehensive income statement, we not only adjust the assets of the company
which is available for sale of securities but also adjusts the net assets of the company and
stock holders equity.
(v) The items of the comprehensive income statement includes the extra – ordinary items
which is accepted both by the Generally Accepted Accounting principles including
International Financial reporting standards which have been let off from the net income on
the revenue statement. The items of incomes and expenses which is included in the
comprehensive income statement is actually used to change the interest in an owner’s interest
in a business and bypass the income statement which have not been realised. Extra – ordinary
items are included in the comprehensive income statement and this statement does not
prepared by smaller companies. Comprehensive income statement is most important for
valuing larger corporations. In comprehensive income statement, it measures the sum total of
all financial and operating activities which results in changes in an owner’s interest in a
business. It is calculated by reconciling the book value per share to capture the effects of
dilution and options.

ACCOUNTING FOR CORPORATE INCOME TAX
(vi) Tax expenses are that expense which is reported as a line item in the balance Sheet and
are calculated by multiplying the appropriate tax rate of an individual or business with the
appropriate income. It is a kind of liability which has to be paid to state, federal and
municipal Governments. There are two accounting principles that is GAAP (Generally
Accepted Accounting Principles) and IFRS (International Financial Reporting Standards)
which provide a certain treatment of income and expense items. Under the applicable
government tax code, these items of income and expense can be differ from the provision.
This means that the amount of tax expense can be differ under this two accounting principles.
The firms tax expense in in its latest financial statement i.e in the year 2017 is $m 1265. In
2016 the tax expense was $m 631 (WesFarmers 2017)
(vii) Income is calculated at a statutory tax rate of 30%. This tax expenses is expected to
recover or to be paid to the taxation authorities at the applicable tax rates. The tax laws has
been enacted or substantively enacted by the balance Sheet date. Also there is a changes
happened in equity which is $m 15 in 2017 and $m (48) in 2016 (WesFarmers 2017)
(viii) Deferred income tax is calculated on the timing difference. In other words it is
calculated on temporary differences at the Balance Sheet date between the tax bases of assets
& liabilities and accounting carrying amount. It is termed as an asset on the organisation
financial statements which reduces the taxable income for the business. Deferred tax asset is
reported under the head Current Assets. The deferred tax expenses reported in the income
statement is $m 971 in 2017 and $m 1042 (WesFarmers 2017) Deferred income tax expenses
are recognised for all deductible temporary differences and which carried forward the unused
tax losses and unused tax assets. Deferred tax assets are not carried forward to the next year if
there was no certainty that this assets will reverse in the foreseeable future. Also Deferred tax
liabilities are not recognised if it is not probable that it will get reverse in the foreseeable
future. Deferred tax liabilities are also not recognised on recognition of goodwill. Income
taxes relating to items are recognised directly in equity and not in the income statement. Also
deferred tax liabilities are not recognised on indefinite life intangibles for which the carrying
value has been assessed to maximise shareholder’s return. Deferred tax assets and deferred
tax liabilities are set off only if there is a legally enforceable right exists to set off this
deferred asset against liability. For offsetting the deferred tax asset against deferred tax
liability, it must relate to the same taxable entity and same taxable authority. In the year 2017

the unrecognised deferred tax asset is $m 127 and in the year 2016 it was $m 130 which
relates wholly to capital losses (WesFarmers 2017)
(ix) Yes, the Company has recorded Current tax assets or income tax payable. The Income
tax payable recorded by the Company in 2017 is $m 292. Income tax expenses is not same as
Income tax payable because Income tax expense is an income statement account which we
used to record federal and state income tax cost. The calculation of the income tax expense is
based on the standard business accounting rule. We pay taxes on income at quarterly basis or
annual basis. The entry to income tax expense will be a debit entry because the amount of
expenses is increasing. Generally, income tax expense is shown right after the total of profit
before tax and just before net income or loss. On the other hand, Income tax payable is a
liability account which is shown in the balance sheet. It is an actual amount which company
have to pay to the taxing authority based on the rules of tax codes. When we actually pay the
income tax liability, we debit income tax payable and credit cash. But there are certain
situations where company have to pay net income according to the generally accepted
accounting principles. In this situation the differences in tax arises. Company have to record
this differences to an asset or liability account titled “Deferred tax”. One of the other main
reasons of differences between the two is the calculation of depreciation on different fixed
one assets (Government 2015)
(x) No the income tax expenses shown in the income statement is not same as the income tax
paid shown in the cash flow statement. The income tax shown in the income statement is $m
1265 whereas in the cash flow statement it is $m 951. The difference between the two is
because of deferred tax expenses which is not included in the cash flow statement. A decrease
in the deferred tax asset increases the cash balance whereas an increase in the deferred tax
asset decreases the cash balance. An income statement is a financial statement which shows
total revenue, total expenses including non – cash items such as depreciation. On the other
hand, Cash flow statement is kind of an income statement which records a company’s
performance over a period of time. A income statement is used to determine the financial
performance of the company whereas cash flow statement is used to determine the short –
term viability and liquidity of the company.
(xi) I found the concept of income tax treatment very interesting because on going through
the overall concept of tax expenses treatment I came to know that how one item of balance
sheet is linked with other items. Also the concept of two accounting principles came i.e

Generally accepted accounting principles (GAAP) and International financial reporting
standards (IFRS). On the other hand income tax expense term is based on the normal business
rules and is reported in the income and loss statement. The concept of provision of taxation is
also very interesting because it is a non-cash item and does not involve any cash inflow or
outflow.
References
WesFarmers 2017, Annual Report, <https://www.wesfarmers.com.au/docs/default-
source/default-document-library/2017-annual-report.pdf?sfvrsn=0>.
WesFarmers. (2016). Annual Report. Retrieved from
https://www.wesfarmers.com.au/docs/default-source/reports/2016-annual-report.pdf?
sfvrsn=4
Hoy, S (2017). Cash flows: The Gap Between Reported and Estimated Operating
Cash Flow Elements. Retrieved from http://ro.uow.edu.au/cgi/viewcontent.cgi?
article=1070&context=aabfj
Australian Government (2015). AASB 101 - Presentation of Financial Statements -
July 2015 . Retrieved from https://www.legislation.gov.au/Details/F2015L01626