Corporate Accounting Analysis: Financial Performance Report

This report provides a detailed analysis of corporate accounting practices, focusing on two prominent Australian companies: Wesfarmers Ltd and Woolworths Group Ltd. The project begins with an executive summary and table of contents, setting the stage for an in-depth examination of key financial statements. The analysis encompasses owners' equity, comparing items such as common stock, retained earnings, and reserves, and conducting a comparative analysis using the debt-to-equity ratio. The report then delves into cash flow statements, examining interest received, borrowing costs, and income tax received, with comparative insights for both companies. The study also covers other comprehensive income statements, identifying items within comprehensive profit and loss statements and their significance in reporting income statements. Furthermore, the project explores accounting for corporate income tax, including tax expenses, effective tax rates, deferred tax assets and liabilities, and the calculation of cash tax rates, providing reasons for variations between cash tax rates and book rates. The report concludes with an overall evaluation, drawing conclusions from the analysis to aid in effective future decision-making, and includes references and an appendix for further information.

Corporate Accounting

EXECUTIVE SUMMARY
This project is being summaries by taking specific information about the corporate
accounting. It consists of various rules and regulation that can help accounting in analysing the
overall performance of the both the company. In order to get more reliable results two of the
main companies is taken for this particular analysis such as Wesfarmers ltd and Woolworths
group ltd. Different types of accounting statements, comprehensive incomes report and other
accounting statements are discussed under this report. Understanding of accounting for corporate
income tax is also being covered under this project so that specific knowledge about tax paid by
both the companies can easily be analysed. Overall evaluation is done to reach at specific
outcomes so the effective decisions can be made in near future.

TABLE OF CONTENTS
EXECUTIVE SUMMARY.............................................................................................................2
Table of Contents.............................................................................................................................3
INTRODUCTION...........................................................................................................................1
OWNERS’ EQUITY.......................................................................................................................1
(i): Listing item of equity and associated information about the companies.........................1
(ii): Comparative analysis.......................................................................................................2
CASH FLOW STATEMENT..........................................................................................................3
(iii): Listing of cash flow statements......................................................................................3
(iv): Comparative analysis......................................................................................................3
(v): Comparative analysis along with proper insight.............................................................4
OTHER COMPREHENSIVE INCOME STATEMENT................................................................5
(vi): Items in comprehensive profit and loss statements of both company............................5
(vii): Essential for reporting income statements.....................................................................8
(viii): Comparative analysis...................................................................................................9
(ix): Comprehensive income be included in evaluating the performance of manager...........9
ACCOUNTING FOR CORPORATE INCOME TAX....................................................................9
(x): Tax expenses shown in financial statements of both the companies...............................9
(xi): Effective tax rate...........................................................................................................10
(xii): Deferred tax assets / liabilities.....................................................................................11
(xiii): Evaluation on Deferred tax liabilities.........................................................................12
(xiv): Cash tax amount using in book tax amount................................................................12
(xv): Calculation of cash tax rate for both the company......................................................12
(Xvi): Reasons of variation in cash tax rate and book rate...................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
Appendix........................................................................................................................................15

INTRODUCTION
Corporate accounting is a specialized branch of accounting that deals with the accounting
for companies, formulation of final accounts and cash flow statements. The actions that
managers take to increase the value of their firm to the shareholders and techniques as well as
analysis used to allocate financial resources within an organisation. In accordance to analyse the
significance of this concepts, the two companies are selected which are listed on ASX
(Australian securities Exchange). The first company is chosen is “Wesfarmers Ltd” which is
having one of the largest business operations in chemicals, fertilisers and coal mining. While the
another one is “Woolworths group limited” which is more trusted brands in retailing, serving
millions of customer every day. This project covers various information about owners’ equity,
cash flow statements of the mentioned two companies under this report. Apart from this,
accounting for corporate income tax is also being illustrated effectively in this project
(Etxeberria and Ortas, 2017).
OWNERS’ EQUITY
(i): Listing item of equity and associated information about the companies
Equity items: These are said to be owner capital worth that is being derived among total
assets and liabilities they are carrying with them. The data is taken from both Woolworths group
limited and Wesfarmers ltd. There are various types of equity accounts that combine to make up
total shareholders’ equity. It consists of common stock, preferred stock, contribution surplus,
additional paid up capital and retained earnings. These are mentioned as per the financial
statement prepared by the company. some of them are discussed underneath:
 Common stock: It is said to be the security that represent ownerships within an
organisation. Common stock is considered as securities, shares, bonds and debentures
retain by organisation of other companies. The main reason of fluctuation in the value of
stocks occurs due to fluctuations in dividends or interest income received by
organisation. For example, Wesfarmers and Woolworths group retain the common stocks
and the fluctuation will be based upon change in dividends and interest income. Holders
of common stock exercise control by electing a board of directors and making vote on
corporate policy. (Zadek, Evans and Pruzan, 2013).
 Retain earnings: These are said to be net revenue after dividends that are present with
the company to reinvestment in the company’s core business or to pay their all-time
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debts. They used to record all this information under shareholder equity on their balances
sheet. Wesfarmers and Woolworth group Ltd retain earnings affected by the increase or
decrease in net income and dividends paid to shareholders. Because of this, any items that
drive net value higher will affect the retained earnings.
 Reserve: Such kind of gains incurred by the company are set aside for upcoming
contingencies. Capital under this account is being procured either from sale of fixed
assets or form overall shareholders equity. These items are shown on the balance sheet of
both Woolworths group limited as well as Wesfarmers ltd. The changes under this varies
with the total net earnings and loss a company is getting within an accounting period of
time.
Items Year Wesfarmers ltd Woolworths group Ltd
Common stock 2017 22,242 9526
2016 21,909 8471
2015 21,844 10834
Retained earning 2017 2742 3554
2016 874 3125
2015 1509 5830
Reserve 2017 190 176
2016 166 156
2015 156 201
(ii): Comparative analysis
In context to examine total liabilities and equities of both the companies, debt equity ratio
is taken into account to compare the debt paying capabilities of such kind of organisation.
Wesfarmers ltd Woolworths group Ltd
The total debt/equity ratios of this capital for
the last three year is 0.18.
There are specific results collected from the
total debt and equity of the company.
1.39+1.74+1.28=4.41/3=1.47
After making reliable performance analysis of
this company, it can be said that this particular
organisation is more responsible to pay off
However, this company is having much higher
ratio of 0.07 because of which it can be said
that they are not being able to similar as Wes
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their liabilities in coming future time. farmer in accordance with debt payment
system.
CASH FLOW STATEMENT
(iii): Listing of cash flow statements
This is said to be one of the effective report of every data associated with cash inflows
and outflows generated by the company from the various activities. This statements indicate
specific changes in the cash value with the both companies. Such items are recorded in a
systematic statements and some of the associated items are mentioned underneath:
Interest received: It is known as incomes or cash inflows which indicated in the different
venture capital. From the statement of cash flows prepared by Wesfarmers Ltd is changing in the
overall investment value (Edwards, 2013). It can be earned by proper investment in different
venture. Such as operating, financing and investing activities. Like for examples, this
organisation has made valuable amount of earning from all activities such as, net cash from
operating activities is 4226 and 3365 in 2017 and 2016 respectively. While, overall investment
made within the period of time is -53 and -2132, whereas financing activities are incurring net
cash of 3771 and 1339 respectively in those two years.
Borrowing costs: In an organisation, borrowing funds from outside parties, they have to
incur certain expenditure which are transacting in the head of borrowing costs. As per the total
cash flow statements of Wesfarmers Ltd, these cost have mentioned under operating activities.
Such kind of cash outflows from the company will be showing overall investment they are done
within the same segment. The capital expenditure cost was bear by the company in the form of
capital expenditure was 1.55 in last financial year by Wesfarmers Ltd.
Income tax received: Basically, incomes tax is a considered as cash outflow but in the
case of Woolworths group Ltd they are getting positive balance. This positive balance is that
outcome of rebate which has been retained through this companies against their taxation. This
cash inflow in transaction under the head of operating activities are recorded as 122 in 2017 and
-362 in 2016. It is very less as compare to other company.
(iv): Comparative analysis
Operating activities Investing activities Financing activities
According to this activities of
Wesfarmers Ltd, it has been
These are considered as one of
the overall cash flows
It is known as specific
transaction done with the
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found that net cash inflows
from operating actives is 4226
and 3365 in 2016-17.
Whereas, Woolworths group
Ltd 3126 and 2361
respectively.
investments made on payment
of fixed assets and net
proceeds from sale of
businesses. In Wesfarmers
Ltd, they are getting net cash
of 53 and 2132. While, in case
of Woolworths group Ltd,
they are getting 1435 and
1270 respectively.
creditors and shareholders to
funds either company’s overall
operations or expansions.
These are transactions are
third set of cash activities
displayed on the overall
statements of cash flows. Cash
flow from operation was
recorded as $4266 billion and
102.1 percent (excluding non-
trading items) by Wesfarmers
and the net cash flow for the
year 2017 was $234 million.
From the above comparison made on the basis of various activities of both companies has
been analyse their performance by taken into account the net income and losses incurred by the
during the period of time.
(v): Comparative analysis along with proper insight
Woolworths group Ltd Wesfarmers Ltd
On the basis of income statement prepared
from all three activities are showing maximum
amount as compare to Wesfarmers. Free cash
flow for the 2015, 2016 and 2017 was found
respectively $2265 million, $2545 million and
$1466 million.
In this particular company, it has been analysed
that they are having low income and loss but
there is consistency in their entire value.
Because of this consistency the company is
more capable and high in turnover. The free
cash flow for the year 2015, 2016 and 2017
was found respectively $1212 million, $375
million and $1172 million.
OTHER COMPREHENSIVE INCOME STATEMENT
(vi): Items in comprehensive profit and loss statements of both company
Comprehensive income is said to be the sum total of net profit and other items that must be
go through the incomes statement. Because they have not been realized including products
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unrealized by holding gains and loss from the present sales and foreign currency conversion. It
consists of detailed change in company’s net assets during a particular period of time (DeBusk,
2012). It is must more difficult from the common income statement that details in profits and
losses. But omit changes in net assets due to transfer of equity holding and other factors. By the
comprehensive financial statements of Wesfarmers ltd and Woolworths group Ltd, there are
certain items in their respective report which are mentioned underneath:
Wesfarmers Ltd:
 Unrealised gains on cash flows hedges: It is a profit that exist on statements, resulting
from an investment. It provides position that has yet to be sold in context to the cash such
as a stock kept by the company increases the capital gains.
 Realised losses/gains transferred to net profit: A realised profit results from selling an
asset at a cost higher than the original purchase costs. It occurs in case the asset is sold at
the level that exceed the book value amount.
 Realised gains transferred to non-financial assets: Under this, the accountant used to
analyse the total gains generated during the time and transfer the amount to their non-
financial property of the company.
 Tax effects: There are various factors those are affecting the tax such as time component,
projections and estimation of earnings, expenses and their relationship upon current and
future tax liability (Schaltegger, Burritt and Petersen, 2017).
Particular 2017 2016 2015
Unrealised gains on cash flows hedges -136 -34 128
Realised losses/gains transferred to net profit 92 147 40
Realised gains transferred to non-financial assets 84 -257 -246
Tax effects -17 46 86
Woolworths group Ltd:
Consolidated statement of other comprehensive income:
Hedging reserves: In case of fair value hedge the offset is being attain either through
making to market an assets or liability which offsets the profit and loss movement. It will
directly make impacts on the income tax effect with total investment made by the company. In
2015, they are collect 623.2$m from the movement in fair value of cash flow hedges.
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Foreign currency translation reserve(FCTR): It used during the time of preparing the
financial statements of forging operations which is transferred to the FCTR which forms
associated part of other comprehensive statements. With 119.7$m is found as movement in
translation of forging operations that is taken into equity (Watson, 2015).
Income tax effect: It is acceptable to either all report element of other comprehensive net
income related tax, or before related tax effects with an individual aggregate income tax expense.
The overall income tax paid by the company during 2015 is 14.8$m.
Earning from joint venture: Profit from Woolworths financial services increase from
4.4% from last year. The performance impacted through rate adjustments and wide impairment
charged in a challenging collection environment can provide great chance of growth opportunity
for the Woolworths.
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(vii): Essential for reporting income statements
A comprehensive profit and loss statements is being prepared by an organisation to
examine every all items which can have effect on stockholder’s equity during the period of time.
these items consist of all revenues, expenses as well as gains. The primary motive of this
statement is to record all those items that are not realised yet by the company. The both two
companies such as Wesfarmers and Woolworths has prepared this statement and list the item
because these transactions are not being recorded into the statements (Raiborn and Sivitanides,
2015). Unrealized items can consist of profit and losses on investments that are divided as
presented for sales. There are some reasons mentioned below which are not considered under
income statement:
 These items ore transaction are not an essential part of common business course. It occurs
1 or 2 times in a year.
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 These gains and losses are gained by an organisation but not yet being realised through
proper business management.
(viii): Comparative analysis
Wesfarmers Ltd Woolworths group ltd
In case of comprehensive income items such as
overall sales of stock and income tax effect
appear in usual income statements then profit
for the year. It will increase eventually which
can further reflect non-accurate as well as
undependable fiscal position of the company.
Profit generated from comprehensive income
continues and discontinued operation are not
being recorded in profit and loss account. But,
if these items were concluded in this account
then value of net income would increase
because of their investment made by the
investors and shareholders.
(ix): Comprehensive income be included in evaluating the performance of manager
It is said to be sum total of net income and other items that must bypass the overall income
statement because they have not been realised. It consists of all items that are unrealised holding
profit or losses from available for sale securities and international currency translation gains.
Managers are associated with internal operations of an organisation that develop this statement
which cannot concern performance of a manager. In accordance to measure and analyse manager
performance different appraisal methods are taken into account but comprehensive profit and
loss statements cannot assist in this particular process (Hoskin, Fizzell and Cherry, 2014).
ACCOUNTING FOR CORPORATE INCOME TAX
(x): Tax expenses shown in financial statements of both the companies
Wesfarmers Ltd:
Tax expenditure is said to be the compulsory cost that are charged by government in
context to the income earned by an organisation during an accounting period. As per the balance
sheet of Wesfarmers ltd, it has been analysed that the company is paying annual tax of
$1.9billion and royalties in 2017. Because of unrecognised temporary difference and tax losses.
There is no balance of income tax on their company and their break down are mentioned
underneath:
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