Bapcor Ltd. Corporate Accounting Analysis: Financial Report Review

This report provides a comprehensive analysis of Bapcor Ltd.'s corporate accounting practices, focusing on several key areas. It begins by examining the components of equity, including contributed equity, retained earnings, and reserves, and their changes between 2015 and 2016. The report then delves into income tax expense, detailing its composition and the significant increase observed from 2015 to 2017, as well as the corresponding cash outflows. The effective income tax rate is discussed in relation to accounting income, highlighting discrepancies and the reasons behind them. Furthermore, the report analyzes deferred tax assets, their recognition in the financial position, and their increase over the years. The current tax assets and liabilities are also examined, comparing income tax payable with income tax expense and explaining the differences. The report then contrasts income tax expense with income tax paid, explaining the differences through timing and permanent differences, and finally, it summarizes the treatment of taxation in Bapcor Ltd.'s financial statements, emphasizing the segmented presentation and detailed explanations of tax items.

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

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Table of Contents
Requirement i:...........................................................................................................................2
Requirement ii:..........................................................................................................................3
Requirement iii:.........................................................................................................................4
Requirement iv:.........................................................................................................................5
Requirement v:...........................................................................................................................5
Requirement vi:.........................................................................................................................6
Requirement vii:........................................................................................................................8
References list:...........................................................................................................................9

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Requirement i:
The items of equity is depicted in balance sheet of Bapcor limited and it comprised of
contributed equity, retained earnings or accumulated loss and other reserves.
Contributed equity is one of elements of total equity that is recorded by organization that
is split between common stock accounts and additional paid in capital. It refers to shares that
have been bought directly by public from company either in the form of stock issuance and
initial public offerings (Nichols et al. 2017).
Retained earnings are the profits or cumulative earnings that are reinvested by company
in business less distributions and dividend paid to investors. It is not distributed to shareholders
by way of dividend but they are invested for in business for specific purpose.
Reserves are the amount that is used to purchase fixed assets, repayment of debts and
funding expansions. Capital reserves and revenue reserves are the two types of reserves.
Revenue reserves are the profits that are earned by normal operations of business. General
reserves and special reserves are the two types of revenue reserves. Capital profits are profits that
are created out of profits that help in setting aside capital losses (Gan 2016).
Total value of equity of organization increased in year 2016 to $ 366220 million
compared to $ 266925 million in year 2015. This increase in total value of equity is attributable
to the fact of increase in total reserves and contributed equity. Contributed equity value stood at
$ 416427 million in year 2016 as against $ 337390 in year 2015. Other reserves value increased
from $ 441 million isn year 2015 to $ 845 million in year 2016. Increase in total equity value is
further attributable to fall in accumulated loss to $ 51052 in year 2016 compared to $ 70906

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million in year 2015 (Bapcor.com.au 2018). Hence, increased in total equity value is because of
decline in accumulated loss and increase in value of other reserves and contributed equity.
Requirement ii:
Income tax expense is the amount of tax payable on the taxable income of particular
period that is based on applicable rate of income tax. Income tax expense is comprised of current
tax profits for the particular year, adjustments hat have been recognized for prior period, deferred
tax expenses and relating to discontinued operations. Income tax is attributable to profit from
discontinued and continued operations. Expense related to income tax is depicted in the
consolidated statement of comprehensive income. Total income tax expense constitute of
deferred tax, current tax and over provision in prior years. Income tax expense increased
considerably in year 2016 to $ 18534 million compared to $ 9177 million in year 2015. There
was further increase in income tax expense to $ 25988 in year 2017. Cash outflow related to
payment of income tax increased from $ 18004 million in year 2016 compared to $ 3642 million
in year 2015 (Bapcor.com.au 2018).
Requirement iii:
The effective income tax rate that is applicable to organization is equivalent to corporate
tax rate of Australia that is 30%. Accounting income of Bapcor limited stood at $ 43582 million
in year 2016 and $ 19507 in year 2015 respectively. Higher value in year 2016 is indicative of
the fact that there was considerable increase in accounting income of organization. Amount of
the tax rate times the accounting income for both the years is computed at (30% * $ 43582=
13074.6) for year 2016 and (30% *$ 19507= 5852.1) for year 2015. From the computation of
above figures, it can be seen that income tax expense for year 2016 is more than $ 13074.6.

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Furthermore, it can be seen that income tax expense for 2015 is more than $ 5852.1
(Bapcor.com.au 2018). Therefore, the figures of income tax expense are not same as the
company tax rate times the accounting income. This difference is attributable to the fact that
income tax is charged on various items and there are many types of taxation charge incurred by
company. In some year, income tax is deducted as it has already been incurred while in other
year there are addition to income tax charged that leads to differences between the value of
income tax expense and accounting income percentage times tax rate.
Requirement iv:
Deferred tax assets have been reported under noncurrent assets in the statement of
financial position of company. Amount of deferred tax assets reported in the statement of
financial position is recorded at $ 20614 million in year 2016. Value of deferred tax assets was
recorded at $ 11847. Value of deferred tax assets stood at $ 18664 in year 2017 (Bapcor.com.au
2018(. Recognition of deferred tax assets and liabilities is attributable to unused tax loss,
temporary differences and any adjustments that have been recognized for prior periods.
However, deferred tax liabilities have not been recognized in the statement of financial position.
Recognition of deferred tax assets are done for unused tax losses and deductible temporary
differences (Hu et al. 2014). This is done only if the availability of future taxable amount is done
for utilizing temporary losses and differences. Recording of deferred tax assets in the
consolidated financial statement has been done because members of tax consolidated group has
recognized temporary differences using the approach of separate tax payer within the group.
Bapcor limited has recorded deferred tax assets deferred tax assets arises from tax credits of tax
consolidated group and unused tax losses. Deferred tax assets increased from $ 573000 in year
2015 compared to $ 839000 in year 2016 (Bapcor.com.au 2018).

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Requirement v:
The current annual report of Bapcor limited records total amount of income tax payable
by company in particular year and current tax assets. Bapcor limited has recorded income tax
payable in both current year and previous year. Organization has recorded current tax liabilities
at $ 6236000 in year 2016 as against $ 5098000 in year 2015. Amount of income tax payable has
reduced in year 2017 to $ 3455 (Bapcor.com.au 2018). There been no current tax assets that have
been recorded in both the years. Current tax assets are offset when organization has legally
enforceable right to do so and setting the same of net basis for settling the liabilities and realizing
the assets simultaneously. The income tax payable by company in every particular year is
different from income tax expense. Income tax payable for year 2016 stood at $ 6236000 while
income tax expense stood at $ 18534000 (Bapcor.com.au 2018). It is indicative of the fact that
income tax liabilities of Bapcor are significantly higher than income tax expenses.
Income tax payable is the liability that is incurred by organization that is based on
profitability reported. Amount that is paid as an income tax is not solely based on business
accounting profits. Accounting profits might get altered for resulting in taxable profits due to
number of adjustments as imposed by government. Timing differences would arise resulting
from these adjustments leading to differences between tax reporting and profit recognition for
accounting purpose. Consequently, differences would arise between income tax reported by
company in their income statement and the amount of income tax payable.
Requirement vi:
Income tax expense of Bapcor limited is recorded in the statement of comprehensive
income while total amount of income tax paid is recorded in cash flow statement. Income tax

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expense for year 2016 is recorded at $ 18534 and on other hand, income tax paid is recorded at $
18004. Hence, for year, income tax paid is different from income tax payable by amount $ 530
(18534- 18004). On other hand, income tax expense for year 2015 stood at $ 9177 while income
tax paid was recorded at $ 3642. Therefore, income tax expense is more than income tax paid by
amount $ 5535 (9177-3642). From the analysis of above figures, it can be inferred that there is
considerable difference between income tax paid and income tax expense.
The income tax expense of Bapcor limited is the amount of tax payable on the taxable
income of current period based in income tax rate that is applicable. Income tax paid is the
amount of income tax liability of organization. Income tax expense is calculated based on
accounting profit that requires accrual method of accounting that deals with recording expenses.
Tax expense is comprised of deferred tax and current tax that is incorporated in net profit and
loss determination for particular period. On other hand, income tax payable is determined by the
concept calculation taxable income that is determined by taxation rules followed by company.
Hence, former make use of net accounting profit and latter uses financial accounting concept
(Kravet 2014).
Tax accounting forms the basis of computation of income tax expense that takes into
consideration of understanding the effect events on income taxes such as valuation allowances,
net operating loss/profit and changes in rate of tax. Moreover, the differences between income
tax paid and income tax expense is attributable to principles of general accounting principles.
Difference between accounting income and taxable income is classified into timing and
permanent differences. Permanent difference does not occur reversely as they originate in one
period and do not repeat (Ahadiat and Martin 2016). It can be explained with the help of an
instance, if only a part of an expenditure item is allowed by tax laws if the purpose is to compute

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taxable income, there would be permanent difference resulting from disallowed amount.
Differences in the amount of income tax expense and income tax payable is also attributable to
timing differences that is a difference between accounting income and taxable income for a
period that is capable of reversing in on period and originate in other period. The reason
attributable to differences in timing is because the period in which some items of expenses and
revenue are included in the taxable income that does not coincide with the period in which
recording of such expenses and revenue have been done or have been considered when arriving
at accounting income (Ermakova and Gudshatullaev 2016). This explains why there exist
difference between income tax paid and income tax expense.
Income tax payable is determined by taxable laws and there exist difference between
requirement of computing taxable liabilities and the accounting policies that have been applied
for determination of accounting income that forms the basis of computation of income tax
expenses (Penner et al. 2016). It is certainly possible that the impact of accounting income on
income tax expense and taxable income in determining income tax liability might not be same.
Requirement vii:
The treatment of taxation in the financial statement of Bapcor limited has been interesting
as there was segmented presentation of treatment of income tax items. There have been detailed
explanations of deferred income tax assets and deferred income tax liabilities in comprehensive
income. It gives the explanation of determination of deferred income tax that has been done by
using Australian corporation tax rate. It has been ascertained that temporary differences is the
reason attributable to difference between deferred tax liabilities and income tax expense (Nichols
et al. 2017). Hence, analysis of the financial statement presented in the annual report of company

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depicts that company has separate presented the descriptions of income tax. Examination of
income tax has been done in context of income expense, recognition of taxation amount in equity
and there is detail explanation of numerical reconciliation of income tax expense. Manner in
which organization computes income tax expenses that arises from ordinary activities and
attributable to profit are presented separately. Determination of income tax expense is done by
considering income tax rate that is applicable to organization and taking into account taxable
income of current period for each jurisdiction by making adjustment to changes in deferred tax
liabilities and assets resulting from unused tax loss and temporary differences due to accounting
income and taxable income (Wang and Makar 2015). Moreover, it has been analyzed that
income tax expense in each period is higher than income tax paid. Income tax expenses of
organization have been increasing year on year due to increase in amount of profit reported.

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Hu, J., Li, A.Y. and Zhang, F.F., 2014. Does accounting conservatism improve the corporate
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