Woolworths Limited: An In-depth Corporate Accounting and Tax Analysis

This report offers a detailed analysis of Woolworths Limited's corporate accounting practices, focusing on equity, tax expenses, and deferred tax assets and liabilities as reported in the company's 2017 annual report. It examines the components of equity, including contributed equity, reserves, retained earnings, and non-controlling interests, and explains the changes in these items over the past year. The report also investigates Woolworths' tax expenses, comparing the reported figures with the expected tax rate based on accounting income, and explores the reasons for any discrepancies. Furthermore, it discusses deferred tax assets and liabilities, providing insights into their potential impact on the company's future taxable income. The analysis extends to a comparison of income tax expenses reported in the income statement with the income tax paid as shown in the cash flow statement, highlighting the factors contributing to any differences. Finally, the report reflects on interesting, confusing, or surprising aspects of Woolworths' tax treatment, offering new insights into how companies account for income tax. Desklib provides access to similar solved assignments for students.

Corporate Accounting
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Table of Contents
Introduction:...............................................................................................................................3
1. From your firm’s financial statement, list each item of equity and write your
understanding of each item. Discuss any changes in each item of equity for your firm over
the past year articulating the reasons for the change..............................................................4
2. What is your firm’s tax expense in its latest financial statements?....................................6
3. 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.............................................................7
4. Comment on deferred tax assets/liabilities that are reported in the balance sheet
articulating the possible reasons why they have been recorded.............................................8
5. 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?.............................................10
6. 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?.........................................11
7. 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?.................................................................................................12
Conclusion:..............................................................................................................................13
References................................................................................................................................14
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Introduction:
This report provides the discussion regarding the concepts of corporate accounting in
consideration with the Woolworths Limited. The working of the company is necessitated in
accordance with the supermarket operations. This report also helps in providing the effective
understanding regarding the tax expenses incurred by the business. To develop the effective
understanding the effective analysis of the financial statements provided in the business are
analysed and evaluated in this report. All the concepts related to the deferred tax liability,
equity, etc. are analysed by the business of the current year. The effective comments in
relation to the interesting, confusing or surprising facts in the taxation are also provided in
this report.
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1. From your firm’s financial statement, list each item of equity and write your
understanding of each item. Discuss any changes in each item of equity for your firm
over the past year articulating the reasons for the change.
According to the latest annual report of the Woolworths limited for the year ended 2017, the
equity of the organisation includes the items such as contributed equity, reserves, retained
earnings. The share of contributing equity is $5615million. The share of the reserves is the
$113.8million and the share of retained earnings is $3,797.2million. The total non-controlling
interests are $350.1million. Hence the total portion which is available for the equity is $
9,876.1million. The understanding regarding the items of equity is provided thereunder:
 Equity share capital: The equity share capital of the corporate signifies the risk
capital which is staked by the owners with the consideration of the purchase of the
business common stock. The capital of the business keeps on fluctuating with the
amount recorded as the share capital. The ordinary shares represented by the business
do not comprise of any of the par value and hence the shareholders are eligible to vote
(Warren and Jones, 2018).
 Reserves: The reserves comprise of the retained profits of the business which is not
distributed to the shareholders and can be used in the future investments. These are
used in the future by the company for the purchase of the fixed assets or to pay the
legal statements, etc.
 Retained earnings: Retained earnings represent the percentage of the net earnings
which is not paid as a dividend but reserved by the business to be invested in its core
trade.
 Non-controlling interest: It signifies the portion represented by the equity of
business and which is related to its ownership in the subsidiary. It is not attributable to
the parent company (Warren and Jones, 2018).
The statement of changes in equity is provided thereunder:
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(Source: Woolworths Group, 2017).
It is analysed from the statements of changes in equity of the Woolworths Limited that the
main reason behind the changes involved in the equity is due to issue of the share capital. It is
observed that the $5347.0million. It is observed that there have been the changes in the
reserves as the expenditures incurred by the business are large in number.
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2. What is your firm’s tax expense in its latest financial statements?
Tax expenses are the expenses which are incurred by the business in terms of the taxation in
the current year operations. The tax expenses are considered to be a liability which is owing
to the federal, provincial and the municipal governments (Ramanna, 2014). According to the
latest income tax statements provided by the company in the year 2017, the income tax
expenses are $(650.4) million. The net profit before the application of the income tax is
$2,132.4million for the year ended 2017. The corporate tax is paid at the rate of 30%.
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3. 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.
It is observed that the figures which are obtained from the current tax expenditures of the
company in the year ended 2017 are not in agreement with the tax rate of 30% which is
applicable in the case of accounting income generated from the company. The business has
involved the profit on the accounting income of the company which is $2132.4million. The
differences involved in the current tax rates as per the accounting income involved and which
is obtained by the company is the result of various non-deductible expenses of $96.2 million.
There are involved a certain adjustment in respect of the prior period income tax expenditures
of the business leads to cause the differences in the tax expenditures (Sivathaasan, 2016). The
reconciliation statements are provided thereunder to access the understanding regarding the
accounting expenditures and the actual expenditures incurred by the business.
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(Source: Woolworths Group, 2017).
4. Comment on deferred tax assets/liabilities that are reported on the balance sheet
articulating the possible reasons why they have been recorded.
Deferred tax assets: The deferred tax assets are those assets which are present on the balance
sheet of the company and can be used to reduce the taxable income. The arrival of the
deferred tax results in when there is payment of the taxes by the organisation or the company
in the advance. It also arises when there is involved the overpaid taxes which results in the
business due to differences related to the accounting or tax treatments (Quick books, 2017).
The total amount of the refereed tax assets recorded by the company is $1,124.1million. As
per the consolidated statements provided by the company the deferred tax created by the
business involves the number of items which are property, plant and equipment, provisions
and accruals, cash flow hedges, unrealised foreign exchange differences and the other assets.
The benefits will be derived by the company when there is assessed the positive income by
the business entity. The deferred tax assessed by the business helps the business in
anticipation of the reduced taxable income as per the records of the accounting maintained.
But when concerned by the authorities of taxation then it will not allow such items to be
taxable and hence the benefits which are derived from these expenses is assessed in the future
years.
Deferred tax liability: The deferred tax liability is the liability on the account of the business
balance sheet which is the result of the temporary differences between the values of the
business taxes or the accounting income of the business (Quick books, 2017).
The deferred tax liability in the business of Woolworths Limited of the year ended 2017 is
arrived due to the involvement of the intangible assets, prepayments and other expenses. The
total deferred tax liability is $(626.4) million in the year 2017. The involvement of the
deferred tax liability leads to a decline in the taxable income of the business which is
provided by the rules of taxation. The taxes which are occurred in this year are paid in the
next or future years when they become the due.
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(Source: Woolworths Group, 2017).
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5. 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 income tax expenses are those expenses which signify the actual tax liability incurred by
the business. It is recognised after providing the valid consideration in relation to the
expenses and the incomes of the business and after the application of the concerned rates for
the tax. It is observed from the financial statements of the business that there is not involved
the current tax assets of the business in the financial year. The income tax payable which is
recorded by the business is also not the same (Accounting tools, 2017).
The income tax payable involves the overall amount which is consistent with the liability of
the current taxes. The amount or the adjustments which are related to the previous periods
covers certain adjustments whose payment is made to the taxation authorities. Hence the
amount which is related to the business is different for the business as there is also a
difference in the current tax liability. The income tax which is payable by the company
involves the certain adjustments which make the variation in the amount of both.
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6. 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 income tax expenses which are incurred by the company and which is shown in the
income tax statement is $ 837.7 million. Whereases the income tax paid in the cash flow
statement is $(668.1) million. There is involved the reason behind such differences in the
income tax. These are related to the differences in the opinion and the decision made by the
business regarding the payment of the past tax liabilities which are incurred in the business in
the present year. The set off of such amount is also taken as the reason for the difference. The
tax liability which is represented by the business involves the certain adjustments related to
the previous year's which becomes the reason for the differences in the tax liabilities
(Accounting tools, 2017).
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7. 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?
It is observed from the annual report of the Woolworths Limited that the treatment of the
taxation which is performed by the administration in the current year is interesting. The
reason behind such is that there is separate treatment made by the business in regards to the
current tax liability with its expenses and the incomes. There is also involved the funding tax
agreement by the business in relation to making the compensation of its losses.
It is also difficult to develop the understanding regarding the several treatments related to the
tax expenditure made by the company. The effective analysis and the presentation regarding
the deferred tax payments are to be made by the business. The effective arrangements related
to the presentation and the payments made are to be provided to develop the effective
understanding. In this case, the expectation regarding the profit-making and the setoff from
the deferred tax assets and liabilities is also made (Accounting tools, 2017). The expectation
or the estimation regarding the deferred tax payments is also very difficult to understand for
the company. The difference involved in the payment of the income tax expenditures are
involved due to certain adjustments which are not disclosed properly in the annual report.
The payment of the tax rates according to the 30% rates is also not disclosed adequately and
its arrangements and the set off of a loss are also not presented by the business. It is also
observed by the company that there is adopted the different cost structure by the company
which needs to be provided in the notes so that there is not involved any confusion.
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Conclusion:
It is concluded from the above report that the Woolworths Limited which deals with the
various products related to the grocery or the supermarket is efficient in terms of the
accounting terms. The concept of the corporate accounting proves to be defined very well to
generate the effective understanding of the topic. The records related to the accounting also
prove to be effective in providing the true financial position of the business. All the payment
of the tax liability and the payments are made by the business in the effective and efficient
terms. The treatment regarding the deferred tax assets and the liabilities are very well defined
by the business entity with the valid reasons regarding the increase or decrease in these terms.
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References
 Accounting tools, 2017. Income tax expense [Online]. Accounting Tools. Available at:
https://www.accountingtools.com/articles/2017/5/12/income-tax-expense [Accessed
19 January 2018].
 Accounting tools, 2017. Income tax expense.[Online]. Accounting Tools. Available at:
https://www.accountingtools.com/articles/2017/5/12/income-tax-expense [Accessed
on: 19 January 2018].
 Quick books, 2017. Making Sense of Deferred Tax Assets and Liabilities [Online]
Quick books. Available at: https://quickbooks.intuit.com/r/taxes/making-sense-of-
deferred-tax-assets-and-liabilities/ [Accessed on: 19 January 2018].
 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.
 Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
 Woolworths Group, 2017. 2017 Annual Report [Online] Woolworths Group.
Available at: https://www.woolworthsgroup.com.au/icms_docs/188795_annual-
report-2017.pdf [Accessed on: 19 January 2018].
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