HI5020 Corporate Accounting: Comparative Financial Statement Analysis

This corporate accounting report provides a detailed financial analysis of A2 Milk Company and Dairy Farmers, two companies listed on the Australian Securities Exchange (ASX) within the same industry. The report evaluates key financial statements including the income statement, cash flow statement, and balance sheet, focusing on accounting standards, policies, and disclosures to assess the companies' financial performance and adherence to proper accounting practices. It covers equity items, debt-to-equity positions, cash flow activities, other comprehensive income, and corporate income tax, including deferred tax assets and liabilities. The analysis includes comparative assessments of both companies over multiple years, highlighting strengths, weaknesses, and areas for improvement. Desklib provides students access to this assignment solution along with a wealth of other study resources.

Running Head: Corporate Accounting
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Project Report: Corporate Accounting

Corporate Accounting
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Executive summary
This is a corporate accounting report which mainly concentrates on the final
financial statement of the business. It evaluates all the items of the income statement, cash
flow statement and the balance sheet to identify the performance of the company. The report
further focuses on various accounting standards, accounting policies, materiality, disclosure
etc policies of the business to evaluate the presentation, recording and evaluation on the
statement of the company. The main motto of the report is to identify that whether the proper
policies have been followed by the business or not.

Corporate Accounting
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Contents
Introduction.......................................................................................................................3
Company overview...........................................................................................................3
a2 Milk Company.........................................................................................................3
Dairy farmers................................................................................................................3
Owner’s equity..................................................................................................................4
1. Equity items and understanding................................................................................4
2. Debt and equity position of both the companies......................................................4
Cash flow statement..........................................................................................................5
3. Cash flow items........................................................................................................5
4. Comparative analysis of cash flow categories..........................................................6
5. Comparative analysis of both the companies...........................................................7
Other comprehensive income statement...........................................................................7
6. Items in income statement........................................................................................7
7. Reasons.....................................................................................................................8
8. Comparative analysis................................................................................................8
9. Other comprehensive income...................................................................................8
Accounting for corporate income tax...............................................................................8
10. Tax expenses...........................................................................................................8
11. Effective tax rate.....................................................................................................9
12. Deferred tax assets and liabilities...........................................................................9
13. Changes into the deferred tax assets and liabilities................................................9
14. Calculate the cash tax amount..............................................................................10
15. Cash tax rate.........................................................................................................11

Corporate Accounting
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16. Difference in cash tax and book tax rate..............................................................11
Conclusion......................................................................................................................12
References.......................................................................................................................13

Corporate Accounting
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Introduction:
Corporate accounting is a process which mainly focuses on the preparation of the
final accounts of a business. It identifies the recording and presentation of the final financial
statement of a business. It interprets the financial statement of the businesses to evaluate that
whether the proper policies have been followed by the company or not (Nobes, Parker and
Parker, 2008). In the report, the corporate accounting process has been applied on a2 Milk
Company and dairy farmers company in order to measure the final financial statement of the
business ad identify that why the changes have taken place in the process of the final
financials statement of the business.
For identifying the financial statement and the performance of the company, the
annual report and other articles of the business have been identified. The report focuses on
the accounting standards, accounting policies, materiality, disclosure etc policies of the
business to evaluate the overall performance of the company. The main motto of the report is
to identify that whether the proper policies have been followed by the business or not.
Company overview:
a2 Milk Company:
A2 Milk Company is a dairy company in the Australian market. It has been founded
in 2000 in the New Zealand. The main products of the company are dairy products, infant
formula etc. the company has been formed by Dr Corran McLachlan in order to offer the
healthy products to the citizen and the main quality factor of the products of the company is
fat free and it contains A1 protein which offers the health benefits to the consumers (Home,
2018). The company deals with the farmers and offer the quality and healthy dairy products
into the Australian market.
Dairy farmers:
Dairy farmers is also operating its business under the dairy industry in the Australian
market. It has been founded in 1990 in the Australia. The main products of the company are
dairy products. The company has been formed by Dairy farmer’s cooperative milk company
in order to offer the healthy products and dairy products to the citizen and it supplies the
products at local as well as international level (Home, 2018). The main brands of the
company are “long life” milk, thick and creamy yogurt, custard, deserts and buttermilk.

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Owner’s equity:
1. Equity items and understanding:
The equity items of both the companies have been evaluated which are as follows:
THE A2
MILK CO
LTD Dairy farmers
Fiscal year ends in June. AUD in thousands 2017-06 2017-06
Common stock 129841 75100
Other Equity 11328
Additional paid in capital 57900
Retained earnings 266625
Accumulated other comprehensive income 101890 1557000
Total stockholders' equity 509684 1690000
(Annual report, 2017)
The common stock briefs total amount which has been generated by the business
through offering the ownership in the business to the shareholders of the company. It depicts
the par value of the common stock and the par value of preference share which has been
issued by the company in the market. The item “other equity” explains about the additional
ownership shares which have been offered by the company to the internal stakeholders of the
business (Morris, 2017).
The additional paid in capital contains the additional value which has been paid by the
shareholder above the par value to get the ownership in the business. Retained earnings
further explain about the portion which has not been distributed among the shareholders from
the total profit of the company. Accumulated other comprehensive income contains all the
additional amount of equity such as treasury stock etc. all if the equity items are essential for
a business to identify and present in proper way.
2. Debt and equity position of both the companies:
The debt and equity position of both the companies are as follows:
THE A2
MILK
CO LTD
Dairy
farmers
Fiscal year ends in June. AUD in
thousands. 2017-06 2017-06
Total debt 110 764700

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Total equity 509684 1690000
Debt / equity 0.02% 45.25%
(Morningstar, 2018)
It explains that the debt position of the A2 milk company is quite lower than the total
equity position of the business. The debt: equity proportion of the company is 0.0002:1 which
leads to the conclusion that the company is highly depend on the equity funds to manage and
run the business. On the other hand, the debt position and equity position of the dairy farmers
is average. The debt: equity proportion of the company is 0.45:1 which leads to the
conclusion that the company is managing the funds through debt and equity both and which
makes an optimal capital structure in the business (Tran, 2015).
Through comparing the position of both the companies, it has been concluded that the
performance of dairy farmers is way better and the A2 milk company is required to focus on
the debt funds to raise the amount in the company.
Cash flow statement:
3. Cash flow items:
The main cash flow items and the comparison from last year of both the companies
are as follows:
THE A2 MILK CO LTD Dairy farmers
Fiscal year ends in June.
AUD in thousands.
2017-
06
2016-
06 Changes
2017-
06
2016-
06 Changes
Cash Flows From
Operating Activities 231108 99943 131.24% 671300 542900 23.65%
Cash Flows From Investing
Activities -20919 -51148 -59.10%
-
280600
-
428000 -34.44%
Cash Flows From
Financing Activities 7264 3754 93.50%
-
387900 -42500 812.71%
Net change in cash 217453 52549 313.81% 2800 72400 -96.13%
Capital expenditure 123002 68471 79.64% 331700 250200 32.57%
Free cash flow 340455 121020 181.32% 334500 322600 3.69%
(annual report, 2016)
On the basis of the above table, it has been recognized that the cash flow from
operating activities consist receipts and payment from customers and suppliers and other
items which are related to the daily operations of the business. Generally, the cash flow from

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operating activities is positive. Cash flow from investing activities include various items
which are related to the investment for long period to run the business such as purchase of
PPE, sales of PPE, payment for investment etc. the cash flow from investment activities are
generally negative.
Further, the Cash flow from financing activities include various items which are
related to the funds and the capital structure of the business such as increment in the deposits,
payment of dividend, issue of equity shares etc. (Nobes, parker and Parker, 2008) lastly, the
capital expenditure contains various items which are not related to the transaction but still
have affected the cash position of the business such as changes in the exchange rate.
Through comparing the cash flow position of A2 milk lid from last year, it has been
measured that the operating cash flow has been improved by 131.24%. These huge changes
have taken place due to changes in the credit policy and increment in the total revenue. The
changes into the financing and investing activities are also higher which has taken place due
to changes into the strategically performance. The overall cash position of the company has
been improved by 181.32% (annual report, 2017).
Further, the comparison of the cash flow position of dairy farmers has been done. And
it has been measured that the operating cash flow has been improved by 23.65% only because
of decrement in the supplier payment. Further, the changes into the financing position are -
34.44% and investing activities have been changed by 812.71% due to issue of share capital
in the market. The overall cash position of the company has been improved by 3.69% only
(annual report, 2016).
4. Comparative analysis of cash flow categories:
The cash flow position of the companies of last 3 years is as follows:
THE A2 MILK CO LTD Dairy farmers
Fiscal year ends in June.
AUD in thousands. 2017-06 2016-06 2015-05 Changes
2017-
06
2016-
06 2015-05 Changes
Cash Flows From
Operating Activities 231108 99943 21474 976.22% 671300 542900 699800 -4.07%
Cash Flows From
Investing Activities -20919 -51148 -2054 918.45%
-
280600
-
428000 -1365400 -79.45%
Cash Flows From
Financing Activities 7264 3754 444245 -98.36%
-
387900 -42500 277800
-
239.63%
Net change in cash 217453 52549 463665 -53.10% 2800 72400 -387800 -

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100.72%
Capital expenditure 123002 68471 -394304
-
131.19% 331700 250200 2644500 -87.46%
Free cash flow 340455 121020 69361 390.84% 334500 322600 2256700 -85.18%
(Morningstar, 2018)
The evaluation on a2 milk limited brief huge changes in the business which has lead
to the business towards better performance. Such as, in case of operating cash position, the
cash inflow has been improved by 976.22% in last 2 years. As well as, the investing expenses
have been increased in the business by 918.45%. Further, the cash flow of the business has
been lowered by 98.36%. The overall changes are 390.84% in last 3 years which are enough
competitive for the business (Annual report, 2016).
Further, in case of dairy farmers limited, the inflows have been lowered in all the
major items of the cash flow statement. The operating cash flow, investing cash flow and
financial cash flow of the business lead to the conclusion that the cash position of the
company has been lowered by 85.18% from 2015 in 2017.
5. Comparative analysis of both the companies:
The comparative evaluation on both the companies further explains that the cash flow
strategies of A2 Milk Company are better in the industry. The company has invested and
managed the cash position in better way in the industry. The revenues of a2m has also been
improved which has helped the company to improve the overall operations in the industry
(Annual report, 2016).
Other comprehensive income statement:
6. Items in income statement:
The comprehensive income statement items of both the companies are as follows:
Other Comprehensive income statement
THE A2 MILK CO
LTD
Dairy
farmers
AUD in thousands. 2017-06 2017-06
Foreign currency taxation loss 74 68600
Listed investment fair value gain 108741
Debt / equity 108815 68600
(Annual report, 2017)

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Those items which must not be related to the operation of the business and still affect
the profits of the business falls in the category of the comprehensive income statement. These
items of comprehensive income statement are foreign current taxation loss and the fair value
gain on the investment, these are not the part of the operations of the business but still the
impact on the foreign rate and investment price improves or reduces the net profit level of the
business.
7. Reasons:
The above stated items have not been reported directly to the income statement
because of their nature as these are not the part of the operations and daily activities of the
business and still affect the performance of the business (Bardley, 2017).
8. Comparative analysis:
In case of both the companies, it has been found that the comprehensive income
statement of the company is positive which explains about the profit position of the company.
If these items were added into the income statement of both the companies then it would
surely improve the total profitability level and investment position of the business.
9. Other comprehensive income:
The managers are suggested to add those comprehensive income statement figures in
the consolidated income statement of the business as ultimately these are the part of the
business and it affect the profitability level of the business. If the items would be added in the
profit statement of a2m and the dairy farmers than the position of the business would be
improved and the annual report of the company would be more impressive.
Accounting for corporate income tax:
10. Tax expenses:
The total tax expense of a2m and dairy farmers are as follows:
Tax expenses
THE A2 MILK CO
LTD
Dairy
farmers
AUD in thousands 2017-06 2017-06
Income tax expenses 87548 42000

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(Annual report, 2017)
It express that the income tax expenses of a2m is higher because of the higher income
than the dairy farmers.
11. Effective tax rate:
The effective tax rate of both the companies is as follows:
Calculation of effective tax rate
THE A2 MILK CO
LTD
Dairy
farmers
AUD in thousands 2017-06 2017-06
Income tax expenses 87548 42000
EBT 283232 235200
Effective tax = income tax expenses /
EBT 30.91% 17.86%
(Bradley, 2017)
It expresses that the effective tax rate of a2m and dairy farmers is 30.91% and
17.86%. It briefs higher effective rate of a2m.
12. Deferred tax assets and liabilities:
Deferred tax assets and liabilities are reported in the balance sheet of an organization.
It depict about the difference among the tax amount which must be paid and the tax amount
which has actually been paid (Ho, 2017).
Deferred tax assets and liabilities
THE A2 MILK CO
LTD
Dairy
farmers
AUD in thousands 2017-06 2017-06
Deferred tax assets 4861 1100
Deferred tax
liabilities 51800
(Annual report, 2017)
In case of the above table, it has been recognized that the deferred tax assets of a2m is
higher due to the extra payment of taxation. On the other hand, the dairy farmers have paid
lesser taxation to the government and they are required to pay additional $ 51,800 thousand to
the Australian government as tax amount.

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13. Changes into the deferred tax assets and liabilities:
The deferred tax assets and liabilities of both the companies have been compared
from the last year to identify the changes. The changes are as follows:
Deferred tax assets and liabilities
THE A2 MILK CO LTD Dairy farmers
AUD in thousands
2017-
06
2016-
06 Changes
2017-
06
2016-
06 Changes
Deferred tax assets 4861 1954 148.77% 1100 400 175.00%
Deferred tax
liabilities 51800 3600 1338.89%
(Annual report, 2016)
In case of both the companies, the tax assets and liabilities have been improved.
14. Calculate the cash tax amount:
The cash tax amount is the total amount which has been paid by the company
annually to the government as tax amount. In case of both the companies, the cash tax
amount is as follows:
Calculation of cash tax amount
THE A2 MILK CO
LTD
Dairy
farmers
AUD in thousands. 2017-06 2017-06
Book Income tax expenses 87548 42000
ADD: Increment in the deferred tax assets 2907 700
Less: increment in the deferred tax
liabilities 48200
unleveraged cash taxes 90455 -5500
The cash tax amount of a2m is $ 90,455 thousand whereas the cash tax amount of
dairy farmers is $ -5500 thousand which explains that the company has not paid any tax
amount in the current year. The cash tax amount leads to the conclusion that how much taxes
have been paid by the company to the government of the company in order to manage the
cash flow level and reduce the liabilities of the business (Gorry, Hassett Hubbard and Mathur,
2017).