Corporate Accounting Analysis: Wesfarmers Financial Statements Report

This report provides a comprehensive analysis of corporate accounting principles, focusing on the financial statements of Wesfarmers. It begins with an examination of the cash flow statement, breaking down operating, investing, and financing activities, and offering a comparative analysis of cash flow categories. The report then delves into the other comprehensive income statement, highlighting key items like foreign currency translation reserve, cash flow hedge reserve, and retained earnings. Furthermore, the analysis covers accounting for corporate income tax, including a comparison of reported and standard taxation expenses, deferred tax assets and liabilities, income tax payable, and the differences between tax expenses in the income statement and cash flow statement. The report utilizes Wesfarmers' annual reports to illustrate the application of accounting concepts and provides insights into the company's financial performance and tax strategies.

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

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Table of Contents
Cash Flow Statement.......................................................................................................................2
Requirement [i]............................................................................................................................2
Requirement [ii]...........................................................................................................................4
Other Comprehensive Income Statement........................................................................................5
Requirement [iii]..........................................................................................................................5
Requirement [iv]..........................................................................................................................5
Requirement [v]...........................................................................................................................6
Accounting for Corporate Income Tax............................................................................................6
Requirement [vi]..........................................................................................................................6
Requirement [vii].........................................................................................................................7
Requirement [viii]........................................................................................................................8
Requirement [ix]..........................................................................................................................8
Requirement [x]...........................................................................................................................9
Requirement [xi]..........................................................................................................................9
References......................................................................................................................................10

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Cash Flow Statement
Requirement [i]
The cash flow statements is considered as a major financial statements that depicts the
major changes in the accounts of balance sheet and income that affect the cash and cash
equivalent of the companies.
Cash Flow from Operating Activities: In Wesfarmers, the major items under Operating
Activities are receipts from the customers, payment to the suppliers, interest received, borrowing
cost and many others. Receipts from the customers refer to the sales proceeds that Wesfarmers
receives from credit sales (Reid and Myddelton 2017).
There is an increase in these receipts in Wesfarmers that is from $74,042 million to
$71,157 million in 2017. Payment to the suppliers refer to the amount that Wesfarmers is
required to pay for their credit purchase; and it has also increased from $66.671 million to
$68,713 million due to increase in purchase (wesfarmers.com.au 2018). Interest received refers
to the amount that Wesfarmers receives from various investments in their company and others.
As a result of the write off of a certain bad debt, there is a decrease in the interest received in
Wesfarmers in 2017 that is $83 million as compared to $131 million in 2016. Borrowing costs
refers to the charges that Wesfarmers has to pay for debt covenant, finance fees and the payment
of interests. There is a decrease in this expense in 2017 from $288 million to $234 million
(wesfarmers.com.au 2018).
Cash Flow from Investing Activities: The most crucial items under Financing Activities of
Wesfarmers are both the payments and proceeds from property, plant, equipment and

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intangibles; proceeds from sales of businesses and associates; investment in associates and joint
ventures; acquisition of subsidiaries and redemption of loan notes.
The payment for property, plant, equipment and intangible assets refers to the amount
that Wesfarmers is required to pay for the acquisition and purchase of these items. At the same
time, proceeds from these items refer to the monetary benefits received by Wesfarmers by using
these items. As per the cash flow statement, Wesfarmers has reduced their investment in these
items from $1,899 in 2016 to $1,681 in 2017. On the other hand, there is an increase in the
proceeds from $563 million in 2016 to $653 million in 2017 due to sales of these assets.
Wesfarmers realizes the sold or purchased long-term assets as proceeds and investment
respectively (wesfarmers.com.au 2018). In the year 2017, Wesfarmers has gained major
proceeds from sales of businesses. However, the investment remains stagnant in both 2017 and
2016. In Wesfarmers, loan notes refers to a specific financial instrument that puts the obligation
on Wesfarmers to repay the loan along with the interests. Wesfarmers has become able to redeem
$54 milling of loan in the year 2017 (wesfarmers.com.au 2018).
Cash Flow from Financing Activities: The crucial items under Financing Activities of
Wesfarmers are proceeds from borrowing, payment from borrowing and the payment of equity
dividend (Miloš and Jovan 2013).
Borrowing refers to the total disbursed amount that the lenders provide to the borrower
under a specific loan covenant. Due to the extension of the loan terms to the debtors, Wesfarmers
has registers a massive fall in the proceeds from borrowings that is $220 million in 2017 from
$2,360 million in 2016. Moreover, Wesfarmers had to pay large amount to the banks for the
repayment of loans. Equity dividend refers to the yearly cash flow that is provided to the

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shareholders of Wesfarmers. Due to the focus on the increase in retained earnings, Wesfarmers
has paid less dividend in 2017 as compared to 2016 (wesfarmers.com.au 2018).
Requirement [ii]
The above discussion sheds light on the major aspects of the cash flows of Wesfarmers
from operating activities, investing activities and financing activities. The following discussion
shows the comparative analysis of three categories of cash flow of Wesfarmers:
2015 2016 2017
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
3,791
3,365
4,226
1,898 2,132
53
3,249
1,333
3,771
Comparative Analysis of Cash Flow Categories of
Wesfarmers
Net cash flows from operating
activities
Net cash flows used in investing
activities
Net cash flows used in financing
activities
Figure 1: Comparative Analysis of Cash Flow Categories
(Source: wesfarmers.com.au 2018)
The above figure indicates towards the decline in the cash flows from operating activities
of Wesfarmers that is $3,791 million in 2015 and $3,365 million in 2016; however, increase can
be seen in 2017 that is $4,226. The main reasons behind this are the cash recovered from the
customers and the payment of the income tax for the last three years. Moreover, there is an
increase in the cash flow from investing activities in 2017 that is $2,132 million as compared to

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$1,898 million in 2016 (wesfarmers.com.au 2018). The main reason behind this is the reduction
in the purchase and acquisition of property, plant, equipment and subsidiaries in Wesfarmers.
Lastly, there is a significant fall in the cash flow from financing activities in 2016 that is 1,333
million as compared to $3,249 million; but, there is a major increase in the year 2017 that is
$3,771 million. The main reason is the clearance of loans. For all these reasons, there is an
increase in the cash and cash equivalent in 2017 that is $1,013 million as compared to $611
million in 2016 (wesfarmers.com.au 2018).
Other Comprehensive Income Statement
Requirement [iii]
It can be seen that Wesfarmers has reported three major items in their comprehensive
income statements. They are Foreign currency translation reserve, Cash flow hedge reserve and
Retained earnings (wesfarmers.com.au 2018).
Requirement [iv]
Business organizations use the foreign currency translation reserve in order to convert the
results of the foreign subsidiaries of the parent companies to the reporting currency. This is
considered as a major portion of the process of consolidation of the financial statements and it
helps in the ascertainment of functional currency of cross-border business entity. With the help
of this aspect, companies use to re-measure the foreign business entity into the reporting
currency of the parent company. The last stage includes the currency translation of recorded
profit and losses (Eaton, Easterday and Rhodes 2013).
Business organizations use to use the cash flow hedge at the time of the planning of the
removal or minimization of the exposures that rose from the change in cash flow of specific

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assets or liabilities due to the change in the risk rate of the interest on any dent instrument based
on the floating rate of interests (Bratten, Causholli and Khan 2016).
Lastly, retained earnings refers to the portion of the net earnings of the companies that the
businesses do not distribute as dividend to the shareholders as the intention of the companies is
to retain this portion for the payment of debt or reinvestment in the core business activities
(Bertoni and De Rosa 2013).
Requirement [v]
Business organizations use to consider the other comprehensive income as a diversified
of their net profit. In the previous times, business entities use to consider the variations in the
profit as the external factors of their core business operations; and the shareholders use to get
highly volatile equities (Jordan and Clark 2014). However, Wesfarmers uses the other
comprehensive income statement as a tool to provide significant information about the above-
mentioned factors. Comprehensive income is considered as a mixture of standard new income
and other comprehensive income. The main reason behind the reporting of these activities in the
other comprehensive income is to provide the users with the comprehensive and holistic
overview of the major drivers of the business activities and operations as they cannot be reported
in the income statement.
Accounting for Corporate Income Tax
Requirement [vi]
It needs to be mentioned that Wesfarmers is subjected to taxation under Australian
taxation law. According to the annual report of Wesfarmers, the reported taxation expenses for
the company for the years 2017 and 2016 are $1,265 million and $631 million respectively. In

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order to carry out the taxation operations, Wesfarmers uses a tax rate of 30%. With the
application of this tax rate, Wesfarmers would have taxation expenses worth $1,241.40 million
($4,138 million*30%) for the year 2017 and $311.40 million ($1,038*30%) for the year 2016.
Hence, in the presence of increased income of the company, the above mentioned figures are the
major taxation related expenses of Wesfarmers (wesfarmers.com.au 2018).
Requirement [vii]
According to the 2017 Annual Report of Wesfarmers, the recorded profit before income
tax for the company for the years 2017 and 2016 are $4,138 million and $1,038 million
respectively; and the taxation rate for these years are 30%. By applying this taxation rate on the
reported profit, the taxation expenses of Wesfarmers would be $1,241.40 million ($4,138 million
x 30%) for the year 2017 and $311.40 million ($1,038 million x 30%) for the year 2016.
However, in the financial statements, the company has reported $1,265 million and $631 million
as the taxation expense for the year 2017 and 2016 respectively (wesfarmers.com.au 2018).
Thus, there is not any resemblance in the reported and standards taxation expenses of
Wesfarmers. The main reason of this differences in the inclusion or exclusion of some taxation
related items in the taxation expenses. Non-deductible expenses required for arriving to the
taxable profit can be considered as one of these items. Change in the rate of taxation for the
taxation operations of subsidiaries of Wesfarmers is considered as another reason; like the tax
rates of Australian and New Zealand are 30% and 208% respectively. Deferred tax is another
crucial item for this difference as Wesfarmers can enjoy tax benefits out of this. Lastly, non-
assessable income can also be held responsible for this difference (Woellner et al. 2016).

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Requirement [viii]
Deferred tax assets indicate towards the situation when the company pays advance tax or
high amount of tax. Deferred tax liabilities indicate towards the difference between tax carrying
amount and profit of the companies (Laux 2013). As per the 2017 Annual Report of Wesfarmers,
the amount of deferred tax assets for the year 2017 and 2016 are $971 million and $1,042 million
respectively; and the amount of deferred tax liabilities for 2017 and 2016 are $722 million and
$611 million respectively. The main reason for recording deferred tax assets is the variation in
taxable rate of depreciation and depreciable amount. The reason for deferred tax liabilities is the
difference in profit and the lower payment of taxes in 2017 (wesfarmers.com.au 2018).
Requirement [ix]
Income tax payable is considered as a crucial aspect for the business organizations.
According to the 2017 Annual Report of Wesfarmers, the amounts of income tax payable for
2017 and 2016 are $292 million and $29 million respectively (wesfarmers.com.au 2018).
However, there is difference between the amounts of income tax expenses and income tax
payable and differed tax assets can be considered as the prime reason for this. There are
instances where Wesfarmers has paid additional taxes apart from the actual amount. Thus, the
additional tax payment is the reason for this difference. After that, different regulation for
financial accounting and tax accounting is another major reason and depreciation can be
considered as an example. Due to the difference in the rate of depreciation, variation can be seen
under the taxation accounting and financial accounting and it leads to the increase or decrease in
depreciation expenses (Saad 2014).

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Requirement [x]
In Wesfarmers, $1,261 million and $631 million are the recorded taxation expenses for
2017 and 2016 in the income statement; and, $951 million and $1,009 million are the taxation
expenses for 2017 and 2016 in the cash flow statement (wesfarmers.com.au 2018). Thus, clear
difference can be seen in the amount. The calculation of tax expenses is done after considering
the tax expenses and other aspects. However, the taxation expenses are recorded under operating
expenses in the cash flow statement. It implies that the company has made large income tax
payment for the year and it has been considered as the cash outflow for operations. In the cash
flow statement, reduction in the tax expense implies that use of cash. It implies towards the
elimination of some of the taxation expenses by Wesfarmers before considering them in the
statement of cash flows (Woellner et al. 2016).
Requirement [xi]
The above discussion indicates towards the fact that there is not an surprising or
confusing factors in the taxation treatment of Wesfarmers as the company has complied with the
Australian Taxation Law for carrying out their taxation treatment. In addition, Wesfarmers has
also provided the necessary notes to the financial statements to support their taxation treatment
as they provide the necessary justification and explanation of the taxation treatment. By
observing the taxation treatment of Wesfarmers, one can gain the insight about the taxation
treatment for differed tax, current tax payable and others. These are helpful to gain knowledge to
conduct the taxation treatment of the companies.

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References
Bertoni, M. and De Rosa, B., 2013. Comprehensive income, fair value, and conservatism: A
conceptual framework for reporting financial performance.
Bratten, B., Causholli, M. and Khan, U., 2016. Usefulness of fair values for predicting banks’
future earnings: evidence from other comprehensive income and its components. Review of
Accounting Studies, 21(1), pp.280-315.
Eaton, T.V., Easterday, K.E. and Rhodes, M.R., 2013. The presentation of other comprehensive
income. The CPA Journal, 83(3), p.32.
Jordan, C.E. and Clark, S.J., 2014. Reporting preferences under the comprehensive income
standard: Examining its use in practice. The CPA Journal, 84(5), p.34.
Laux, R.C., 2013. The association between deferred tax assets and liabilities and future tax
payments. The Accounting Review, 88(4), pp.1357-1383.
Miloš, P. and Jovan, B., 2013. Cash flow statement. Škola Biznisa, 2013(3-4), pp.129-147.
Reid, W. and Myddelton, D.R., 2017. Cash flow statement. In The Meaning of Company
Accounts (pp. 16-16). Routledge.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-
Social and Behavioral Sciences, 109, pp.1069-1075.
Wesfarmers.com.au. (2018). 2015 Annual Report. [online] Available at:
http://www.wesfarmers.com.au/docs/default-source/reports/2015-annual-report.pdf?sfvrsn=4
[Accessed 18 May 2018].

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Wesfarmers.com.au. (2018). 2016 Annual Report. [online] Available at:
http://www.wesfarmers.com.au/docs/default-source/reports/2016-annual-report.pdf?sfvrsn=8
[Accessed 18 May 2018].
Wesfarmers.com.au. (2018). 2017 Annual Report. [online] Available at:
http://www.wesfarmers.com.au/docs/default-source/reports/j000901-ar17_interactive_final.pdf?
sfvrsn=4 [Accessed 18 May 2018].
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law
2016. OUP Catalogue.