HI5020 Corporate Accounting Report: Comparative Company Analysis

This report provides a comparative analysis of the corporate accounting practices of Seafarms and Woolworths Ltd, both listed on the Australian Securities Exchange (ASX). The analysis focuses on key financial statement elements, including owners' equity, statement of cash flow, comprehensive statement of income, and accounting for corporate income tax. The report examines the companies' annual reports to evaluate their performance, comparing their disclosures and identifying significant changes from the previous year. The executive summary highlights the importance of disclosures in decision-making. The report provides insights into the companies' financial positions, including the impact of share issues, reserves, and retained earnings. It also analyzes the cash flow from operating, investing, and financing activities. The comprehensive statement of income is examined, considering the impact of unrealized revenues and expenses. The report aims to determine which company has been more effective in its performance based on the presented financial data. Furthermore, the report also evaluates additional information in the footnotes and notes to the financial statements so that a better understanding can be facilitated.

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Corporate accounting

Executive summary
Disclosures are significant in the corporate world because it allows users in making relevant
decisions. Furthermore, a comparative analysis between the disclosures of two companies can
assist in highlighting their inclination towards disclosures and organizational performance on
a whole. Therefore, the annual reports of Seafarms and Woolworths Ltd will be studied
through this report so that their different segments can be evaluated and a conclusion can be
derived as to which company has been more effective in its performance. Moreover,
segments like owners’ equity, income tax, comprehensive statement of income, etc will be
taken into due consideration so that any alterations in these areas when compared to the
previous year can be observed and the reasons behind such change can be assessed
thoroughly. The report will also evaluate the additional information in the footnotes and notes
to the financial statements so that a better understanding can be facilitated.
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Contents
Introduction...........................................................................................................................................3
Owners Equity.......................................................................................................................................3
Statement of cash flow..........................................................................................................................4
Comprehensive statement of income...................................................................................................6
Accounting for Corporate income tax....................................................................................................8
Conclusion...........................................................................................................................................11
References...........................................................................................................................................12
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Introduction
This report has reflected the different segments of both the companies so that a comparative
analysis can be performed and it can be determined as to which company has witnessed
extreme changes in comparison to the last year. In relation to this, Seafarms Ltd has been
chosen that is listed on the ASX and is a major producer of poultry and other agricultural
products. The company is primarily operating throughout New Zealand and Australia and
intends to diversify its affairs throughout the world. In contrast to this, Woolworths Ltd is a
major retailer that is undertaking its activities on a diversified scale and is also listed on the
ASX.
Owners Equity
i. It is observable from the companies’ annual reports that the total equity of
Woolworths has been disclosed at $10849 million for the current year. In
contrast to this, such segment reported an amount of $9876 in the previous
year that reflects increment in such segment. This is because Woolworths has
many elements in its financial statements and that can be accounted for by
users in their decision-making process. Nevertheless, the company’s
contributed equity has also experienced an increment in comparison to the last
year and the reason behind this can be attributed to the issue of fresh shares
that has been facilitated in the reinvestment and employees’ long-term
incentives (Needles & Powers, 2013). Nonetheless, the company’s reserves
have also declined owing to the costs associated to the share-based program.
Furthermore, variations in non-controlling interests and retained earnings can
be because of rise in net profits even though dividend payments had been
incurred during the years.
When it comes to Seafarms, the overall equity declined from the range $32718620 in
June 2017 to $ 15842803. The increment is due to the various components of equity
that is contained from the annual report of the company. The increment in the
contributed equity happened due to the share capital issue (Seafarms Group, 2017)
The company’s reserves have experienced a major increment during the year that is a
positive sign of its performance. This is because employees of the company had
attained performance rights, lapsed options, etc that resulted in such increase. Further,
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the company has also reflected that its retained earnings had decreased during the year
and this is because it had immense losses during the year. As per the year ending 30th
Jun 2018, there was increment in the accrued losses that was $19947283 that added to
the retained losses.
ii. From the previously mentioned analysis, it is visible that the company has
been in a better place in comparison to Seafarms Group especially in relation
to its position of debt and equity. The major cause behind this fact may be
because the company has additional equity resources that are greater than the
other company (Seafarms Group, 2017). Besides, it is also observable that
Woolworths has exerted extra focus on equity financing and has not relied too
much on debt financing unlike Seafarms. In addition to all these, the
company’s entire investments have also increased in the current year in
comparison to the past tenure.
Cash flow Statement
iii. It is notable from the financial statements of Woolworths that there are various
elements of statement of cash flow that is disclosed in the annual report. In
relation to these elements, cash flow from all operating activities is the first
element that has formed part of the company’s cash flow statement. This
element comprises of income expenses and other routine costs that has been
incurred by the company in the current year (Woolworths limited, 2017).
However, it is observable that such element has experienced a major decline in
the present year when compared to the past tenure. Hence, in association with
this, since the requirements of suppliers and employees necessitated increased
payments on the part of the company, this segment has decreased as a result.
Further, cash flow from investing activities forms the second element of the
company’s cash flow statement. In relation to this, the same has experienced a
decrease when compared to the previous year and this is because enormous
purchases were undertaken in the present year and there were lesser returns
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attained from sale of (PPE) property, plant, and equipments. Further, cash
flow from financing activities forms the third and last element of the
company’s cash flow statement. This element has also declined in the present
year in comparison to the last year. Moreover, even though the company had
undertaken dividend payments in the current year, the outstanding obligations
have not been properly addressed that is a negative indicator and that has
resulted in such deterioration (Deegan, 2011).
When it comes to Seafarm, the cash flow statement comprises of the following:
Cash outflow or inflow from overall operating affairs – Seafarms’ cash flow statement
has portrayed that there are items like general or standard costs that the company has
incurred. In addition, the company has disclosed that its operating activities have
increased in the present scenario that has resulted in the exaggeration of outflow of
cash towards such activities. Besides, it has been reflected that receipts from
customers failed to surpass the expenses that had been undertaken to address the
needs of employees and suppliers.
Outflow of cash for the company’s investing activities has maximized in the current
phase. This is because the company’s expenses towards acquiring fixed assets like PPE
and other machineries had been incurred. Furthermore, there are other assets that have
also incurred extreme costs on the company’s part.
The inflow of cash in association with the company’s financing activities has decreased in
the present year. In addition, the company’s borrowings have also enhanced in this year
when compared to the past tenure. Moreover, the company had also encountered a
maximization of consideration owing to issue of fresh shares in the present scenario.
Therefore, its cash and cash equivalents have deteriorated during the year and that is a
negative indicator of its overall performance.
Comparative analysis
iv. Woolworths Ltd
The net cash from the operating activities of the company have decreased in the present year
because enormous payments were undertaken towards suppliers and employees when
compared to the previous year. In addition, the cash flow from investing activities of the
company had also deteriorated and the major cause behind this can be due to lesser returns
from sale of fixed assets and larger purchases in the current year when compared to the last
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year. The company has also utilized fewer resources in association with its financing
activities that has resulted in the decline of such segment as well.
v. Insight on such analysis
It is observable from the cash flow statement of the company that it has witnessed
enhancements in its cash equivalent and cash at the end of the year that sheds light on growth
and development on its part.
Comprehensive statement of income
vi. The company has incorporated various items in its statement of
comprehensive income during the year. Firstly, it is observable that there are
significant movements in the equity reserves of the company. Secondly, it is
observable that the fair value of income taxes and hedges of cash flow have
also witnessed potential movements during the year (Kieso et. al, 2010).
Thirdly, it is also notable that the company has disclosed its attempt of foreign
currency translation and income taxes on a whole.
vii. The company has appropriately highlighted the fact that many revenues and
expenses have been failed to be realized by it during the year and the same has
been portrayed in the comprehensive income statement. This highlights the
fact that after realization of these aspects by the company, losses or gains
arising as a result of these will be progressed towards recognition and will be
displayed under the head recognized losses and gains. Thereafter, it is
observable that the same forms part or is adequately disclosed by the company
in its statement of income. Moreover, the company has also reflected that there
are unrealized sales during the year and that has accommodated in its
comprehensive income statement. Nevertheless, if such income had formed
part of the income statement of Woolworths, it will highlight the fact that such
income has not been realized yet (Woolworths limited, 2017). Moreover, as
per the principles or requirements provided by GAAP and IFRS standards, the
company’s net salaries must be properly depicted by it in its financial
statements so that it can be portrayed that there are higher feasibilities of
income that can be accrued in the upcoming time. Overall, these segments
must find place outsides the company’s financial statements (income
statement) and the reason behind this can be attributed to the fact that such
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income can be referred as that income which the company has not even
realized in the present scenario.
The aspects or elements that have been disclosed by the company in the previous discussion,
if these were disclosed in the financials, it would cause the attributable profits of the
shareholders to decline. The most important reason behind this issue can be because the
aggregate impact of these transactions can play a major role in the creation of potential losses
on the part of the company and therefore, the shareholders will encounter a major decline in
their attributable profits (Deegan, 2011). Moreover, this sheds light on the fact that the same
will become an ineffective treatment on the company’s affairs and this is because there are
major gains or losses that have been arising owing to the extraordinary transactions that have
not been so particular as their occurrence. Furthermore, this also sheds light on the fact that it
is efficient and appropriate to disclose these amounts outside the scope of the financial
statements of the company.’
viii. The elements that have formed part of the company’s comprehensive
statement of income have not gone through the realization process. In other
words, such items have not been attained in the current year and are yet to be
realized. This highlights the fact that the company has been incapable of
determining that these transactions possess the most feasibility of occurrence
during the year. Besides, these transactions also play a vital role in the
assessment of future feasibility of the company in relation to its statement of
income. Nevertheless, it is already known that a company’s statement of
income can allow users in determining whether it has been capable of
maintaining its financial position during the year.
ix. It has been observed in the case of Seafarms group Limited that there are no
comprehensive incomes during the previous year that can be considered in
order to analyze the differences are the common aspect between the two
companies. Also, there were many items that were detected under the
comprehensive income statements of Woolworths group Limited:
The increase in the exchange of foreign currency differences have also leaded
to an increase in the cost of international operations. They have not planned
transactions because of which the firm can face loss and also they are recorded
outside the income statement because of their short-term nature.
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A rise indicating instrument has been noticed because of the revaluation of
equity securities invested by the organization. Their disposal will lead idea to
gain or loss to the form that will be further transferred to the equity.
The cash flow hedge is depicted using the effective gain or loss of the
derivative financial instrument.
Recognition of actuarial gains and losses can be made on the net defined
benefit liability for the protocol financial year in which they occur with the
help of the comprehensive income statement. They are not generally
reclassified into the income statement (Davies & Crawford, 2012).
• Cash flow hedge is shown about the effective gain or loss on the derivative
financial instrument.
• The company recognises the actuarial gains or losses on the net defined benefit
liability in the year when they occur and are shown in the comprehensive income
statement. These do not get reclassified to Income Statement.
Accounting for Corporate income tax
x. The overall influence in relation to translation of foreign currency affairs is
that there has been a loss of $2.7 million for the year. Further, net
comprehensive income in the last year was $1.4 million that is a negative
indicator. Moreover, such comprehensive income as depicted in the below
mentioned analysis of $113.10 million also accommodates net profit of
$114.60 million (Woolworths limited, 2017). Since, the company is not
specific or is unsure about the realization of comprehensive income, such has
not formed part of the income statement.
Seafarms Group Limited- The company has clearly reflected and paved a path
for disclosing that its net income tax costs that have occurred during the year
has been $3576 (Seafarms Group Limited, 2017).
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xi. The net costs related to tax have been disclosed by the company in its
financials and is being reflected at $718 during the year (Woolworths limited,
2017). Besides, this was $651 million in the previous year. Moreover, the
company’s tax expenses in association with its activities that have been
discontinued have been disclosed at an amount of $74 million.
Seafarms Group Limited-
From the financials, the company has disclosed its PBT to be in negative figure that is
in losses and the income tax costs have been reflected at $3576. In addition, the
effective rate of tax that has been portrayed by the company has arrived at thirty
percent respectively. This clearly depicts that such segment is equivalent betwixt both
the companies.
xii. Computation of effective rate of tax
This can be computed by dividing the company’s income tax costs with its profit before tax
and therefore, since the income tax costs have stood at $714 million in the present year and
profit before tax stood at $2394 million, the effective rate of tax shall come at 30% after
dividing the same. Further, it is notable from the previously mentioned evaluation that there
is a significant deterioration in the company’s deferred tax assets because of mass changes in
time in relation to its liabilities and assets (Peirson et. al, 2015). However, no change is
observable in the scenario of Seafarms Ltd as the same has been reported as nil in both the
years.
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Seafarms Group Limited-
Seafarms group Limited depicted a blank balance for the deferred assets in the balance sheet
for the year 2018. The basic function of the deferred tax is to calculate and record the
temporary differences that are present between the assets and liabilities of a company so that
the purpose of transaction recording and taxation can be fulfilled for financial reporting
systems. The differences have been settled in the same financial year itself (Seafarms Group
Limited, 2017).
xiii. Computation of cash tax of Woolworths
Provision of net tax = ($718m)
Decrease in deferred tax assets- $90m
(-) provisions of DTA and accruals- ($44m)
Decrease in deferred tax liabilities = $11m
Therefore, cash tax= $661 m
xiv. It can be noted that the cash tax rate of an organization can be calculated by
dividing its cash tax by its PBT that has incurred during the year. In relation to
Seafarms, the company’s cash tax amount has arrived at 30% but the effective
tax rate of Woolworths has arrived at 27.61% (Woolworths limited, 2017).
This highlights the fact that Seafarms’ effective tax rate is better than that of
Woolworths Ltd (Merchant, 2012).
Seafarms Group Limited:
Provision of tax – ($3576)
Decrease or increase in company’s deferred tax assets- Nil
Less: DTA accruals and provisions during the year - Nil
Net decrease or increase in company’s deferred tax liabilities- Nil
Cash Tax value is equal to- $3576
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xv. The amount of cash tax of a company can be ascertained by evaluating their
amount of book tax as depicted in the income tax return and any other
alterations that can be observed in the deferred assets and deferred liabilities
must be also evaluated for the same. Furthermore, users of the company can
utilize such amount to attain self-interest objectives. Besides, such deferred tax
liabilities and assets are also depicted by the company in the annual report so
that the actual payable tax can be determined. In addition, the company has
also disclosed its liability of income tax although it can be undertaken in the
coming reporting period (Gowthrope, 2011).
xvi. both book tax and cash tax are distinct in nature owing to the presence of
deferred tax liabilities and assets together with all the provisions that are
designed for the liabilities of income tax (Madura & Fox, 2011).
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