Corporate Accounting Report Analysis: Tax Treatment of a Company

This report provides a comprehensive analysis of a corporate accounting report, focusing on the financial statements of Energy Resources Australia Ltd. The report examines key components of the balance sheet, including equity (reserves, retained earnings, and issued capital), and analyzes the company's earnings per share. It delves into the treatment of tax expenses, comparing the calculated tax expenses with the actual tax expenses recorded in the financial statements, and explores potential reasons for any discrepancies, such as differences in tax rates and amortization. The report also investigates deferred tax liabilities and assets, highlighting their significance in corporate tax management. Furthermore, the report addresses the treatment of current tax assets and liabilities, and how income tax expenses are presented in both the statement of income and the cash flow statement. Finally, the analysis concludes by summarizing the company's tax practices, noting areas of potential confusion and the importance of proper reconciliation and understanding of international tax rates.

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

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Table of Contents
Answer to question 1.......................................................................................................................2
Answer to question 2.......................................................................................................................2
Answer to question 3.......................................................................................................................3
Answer to question 4.......................................................................................................................4
Answer to question 5.......................................................................................................................4
Answer to question 6.......................................................................................................................5
Answer to question 7.......................................................................................................................5
Reference List..................................................................................................................................7
Appendices......................................................................................................................................9
Appendix 1...................................................................................................................................9
Appendix 2.................................................................................................................................10

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Answer to question 1
The financial statements help in getting a better view of the position of the companies
with respect to finances that is represented in the balance sheet. The owner’s equity, liabilities
and assets is considered to be the primary items that come in the balance sheet of the company.
The current annual report of Energy Resources Australia Ltd. shows the major items under the
heading of ‘Equity’, which consists of Reserves, Retained Earning and Issued Capital (Cohen-
Cole & Martinez-Garcia, 2013). The annual report of the company shows the amount of issued
capital that has remained the same that is $ 706 million in both the financial years. The primary
purpose of the equity shares is to fulfill the requirement of capital within the company. it can be
seen that the earning per share of the company had decreased from $53.2 that was in 2015 to
52.4 in 2016 ("2016 Annual Report - Energy Resources of Australia", 2018). The other item that
is present in the equity of the company is reserves. Reserves are considered to be the excess
amount that is paid by the shareholders apart from the nominal price of the shares. The equity
reserve for the company in 2015 was $ 389 million, which decreased to $ 389 million in the year
2016. The company does not have any other reserve under that head in the year 2016. The last
item under the head equity for the company is the accumulated loss, which showed an amount of
$ (626 million) in the year 2015 that increased to ($ 897million) in the year 2016.
Answer to question 2
When the business carries out its operations, the companies have to incur various
expenses such as operating expenses, administrative expenses, selling expenses and others. The
tax expenses are usually one of the items that the companies have to incur for the smooth
operation of the business. The tax expenses can be formulated by multiplying the tax of the

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business with the income that the company had before the tax was paid after the reconciliation of
the tax has been done (Burman & Phaup, 2012). It is necessary for Energy Resources Australia
to calculate their taxes in a correct way so that it can be paid accordingly on an annual basis.
With respect to this, the company has to pay the tax expenses to the state and the federal
government as well. The Australian Taxation Law issued 30 percent of tax for the companies
that are doing business in Australia. The expenses related to income tax for the company in 2015
was $ 195 million and the annual report do not show any record for the income tax expense of
the company for the year 2016 ("2016 Annual Report - Energy Resources of Australia", 2018).
Answer to question 3
The current annual report of Energy Resources Ltd. shows the profit before tax for the
company as $ 79 million in the year 2015 and $ 271 million in the year 2016. The company
follows 30 percent rate of tax in both the years. Thus, the expenses of tax for the company have
to be ($ 79 million * 30%) that is $ 23.7 million for the year 2015 and ($ 271 million * 30%) that
is $ 81 million in the year 2016. Nevertheless, as per the income statement of the company, the
amount of expense that was considered as tax was $ 195 million in the year 2015 where in the
year 2016 the company did not record any of it ("2016 Annual Report - Energy Resources of
Australia", 2018). Therefore there has been a difference in the amount of tax that was paid by the
company. This can be due to various factors, which may result in showing the difference
between the income taxes of the company. The first reason is the difference between the rate of
tax in the overseas market and the Australian market. The next reason can be amortization and
the non-deductible depreciation. The company had paid $1.1 million as depreciation and
amortization in the year 2015 and $37 million in the year 2016, which has to be added back to

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the income tax expenses of the company for both the years respectively ("2016 Annual Report -
Energy Resources of Australia", 2018).
Answer to question 4
The deferred tax liabilities and assets are an important part in treating the taxes of the
company. In most of the situations, the companies have to pay an extra amount as tax in the
present year, which is known as the assets in the future years, which is known as the deferred
assets of tax (Harrington, Smith & Trippeer, 2012). In other situations, there are differences in
the value of tax-carrying and the differences, which are known as deferred tax liabilities
(Gallemore et al., 2012). The annual report of Energy Resources Australia shows the deferred tax
liabilities to be $ 21.09 million in the year 2015 and $ 21.06 million in the year 2016. This shows
that the company may face outflow of cash or losses in the future due to the decrease in the
deferred liabilities for the company. The company can pay a lesser amount as tax in the year
2017, as they have already paid an amount in 2016.
Answer to question 5
With respect to the treatment of taxes, the current tax assets and the liabilities need to be
taken in to consideration, as it is considered to be important factors. The company did not
mention any amount regarding the current tax assets and liabilities in the annual report. The
company mentioned in the annual report that the current tax assets and liabilities are the offset of
the entity that has the right to be enforced in a legal manner and its intention is to settle the
matter in an overall manner or to sell the assets and help in the settlement of the liability
simultaneously (Laux, 2013). Therefore, it can be stated that the differences in the income tax
payable and expenses has to be mentioned by the company so that it can easily be calculated for

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the income of the current year (Dhaliwal et al., 2013). Thus it can be said that the income tax that
is payable and the expenses for the company cannot be same.
Answer to question 6
The companies mention the income tax expenses in the statement of income and in the
cash flow statements as well, which has also been done by Energy Resources Australia. The
company had an expense of $ 195 million as income tax in the year 2015 and in the year 2016
the company has not recorded the expenses. The company did not show any record of the income
tax that they paid in the cash flow statement (Saad, 2014). This is mainly due to the fact that the
flow of cash from the operating activities show an amount of outflow or inflow of cash, which
may result in the decrease or increase in the assets or liabilities of the company. The tax that is
payable comes under the head current liabilities for the company and the reconciliation in the
cash flow statement is done later (Dowling, 2014). These are the probable two reasons, which
create the differences in the income tax that is reported in the statement of cash flow and the
statement of income for the company as well.
Answer to question 7
Therefore the analysis that has been done above shows that Energy Resources Australia
treats the taxes in a confusing manner, as the records are not properly maintained in the books of
accounts ion an annual basis. The company has treated the taxes in an interesting manner, as the
reconciliation of the tax has been recorded as notes, which are the primary causes for the
differences in the amount of tax of the company. Additionally, the person can gain a better
insight regarding the differences that are present between the expenses in the income tax that is
recorded in the cash flow statement and the statement of income as well. They can also gain a

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deeper insight regarding the different rate of taxes that is prevalent in various countries and treat
it accordingly.

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Reference List
2016 Annual Report - Energy Resources of Australia. (2018). Energyres.com.au. Retrieved 21
January 2018, from http://www.energyres.com.au/media/2016-annual-report/
Atkinson, A. B. (2013). Participation income. Basic Income: An Anthology of Contemporary
Research, 435-438.
Burman, L. E., & Phaup, M. (2012). Tax expenditures, the size and efficiency of government,
and implications for budget reform. Tax Policy and the Economy, 26(1), 93-124.
Cohen-Cole, E., & Martinez-Garcia, E. (2013). The balance sheet channel.
Dhaliwal, D. S., Kaplan, S. E., Laux, R. C., & Weisbrod, E. (2013). The information content of
tax expense for firms reporting losses. Journal of Accounting Research, 51(1), 135-164.
Dowling, G. R. (2014). The curious case of corporate tax avoidance: Is it socially
irresponsible?. Journal of Business Ethics, 124(1), 173-184.
Gallemore, J., Maydew, E., Schipper, K., Shackelford, D., & Wang, S. (2012). Deferred tax
assets and bank regulatory capital. EBC Discussion Paper, 2012.
Harrington, C., Smith, W., & Trippeer, D. (2012). Deferred tax assets and liabilities: tax benefits,
obligations and corporate debt policy. Journal of Finance and Accountancy, 11, 1.
Laux, R. C. (2013). The association between deferred tax assets and liabilities and future tax
payments. The Accounting Review, 88(4), 1357-1383.

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Marron, D. (2012). How Large Are Tax Expenditures? A 2012 Update. Tax Notes. Tax Policy
Center.
Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.

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Appendices
Appendix 1

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Appendix 2