Corporate Accounting Assignment: Financial Statement Analysis, 2017

This document provides a comprehensive solution to a corporate accounting assignment, focusing on the analysis of JB Hi-Fi's 2017 financial statements. It covers various aspects including cash flow statements, dividends, directors' declarations, other comprehensive income, reserves, auditor remu...Read More

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

1CORPORATE ACCOUNTING
Table of Contents
Solution to a..........................................................................................................................................2
Solution to b..........................................................................................................................................2
Solution to c..........................................................................................................................................3
Solution to d..........................................................................................................................................3
Solution to e..........................................................................................................................................3
Solution to f...........................................................................................................................................4
Solution to g..........................................................................................................................................4
Solution to h..........................................................................................................................................5
Solution to i...........................................................................................................................................5
Solution to j...........................................................................................................................................6
Solution to k..........................................................................................................................................6
References:............................................................................................................................................7

2CORPORATE ACCOUNTING
Question 1
Solution to a
After analysing the annual report of 2017 of the Australian company of JB hi-fi it can be said
about the cash flow statement that in the year of 2017 the company has a net cash flow from the
operating activities of $190m and in the year of 2016 the company had $185.1m therefore it can be
said that there has been more inflow of cash in the company, enhancing the ability of the company to
pay off the short term obligations from the operating activities(Nizam & Hoshino, 2016).it can be said
that the liquidity has been increased. In case of the financing activities the cash flow of 1017 is -
$885.5m and in the year 2016 it was -$52 m, which is appositive outcome, hence the liquidity has
been increased. Moreover when it comes to the cash out flow from financing activities is $715.9m and
-$130.5m in the year 2016 the out flow has been increased representing a downfall in the liquidity.
However, the cash and cash equivalents inflow has been increased that shows an increase in the
liquidity, the amount rose from $51.9m in 2016 to $72.8m. The chosen company that is to be
compared with JB hi-fi Wesfarmers dealing with similar products and lies in the same industry. The
net cash inflow from operating activities is $4226m in 2017, from investing activities it is -$53m and
from financing activities it is -$3771m. The net cash and cash equivalent in the company is $1013m in
the same year. Therefore, after analysing it can be said that Wesfarmers is more liquid as it has more
cash inflow and less outflow as compared with JB hi-fi.
Solution to b
In the annual report of JB Hi fi of the year 2017, the recognised dividend are the final
dividend of the previous financial year with $36.7m and interim dividend of the current financial year
of $82.4m. The unrecognised dividend is the final dividend of the current financial year. There are
some dividends unrecognized in the annual statement as the date of declaration is decided by the
board (Ijiri, 2018).

3CORPORATE ACCOUNTING
Solution to c
In the directors declaration in the annual report JB Hi fi of the year 2017 it has been declared
by the directors of the company about their opinion regarding their assurance that the company will be
able to pay off the debts in due date.in addition to that the directors declares that the financial
statements are in compliance with the financial reporting standards and the corporation act of
2001.Moreover, it has been confirms that the financial statements and the positions are true and fair.
The director’s declaration have been given declaration as per the requirement by 295A of the
corporation act 2001.
Solution to d
The “Other comprehensive income” refers those revenues, expenses, gains, and losses under
both Generally Accepted Accounting Principles (GAAP) and International Financial Reporting
Standards that are excluded from net income on the income statement (Akbar & Ahsan, 2014). This
means that they are instead listed after net income on the income statement. Following shows the
items that may be classified in other comprehensive income:
 Unrealized holding gains or losses on investments that are classified as ready for sale
 Foreign currency translation gains or losses
 Pension plan gains or losses
 Pension before service costs or credits
In the annual report of C the comprehensive incomes are the net tax that values to -$1.1m in 2017
and Foreign currency translation gains or losses that values to -$0.1m.the total Other comprehensive
income is-$1.2m and total comprehensive income for the year of 2017 that are attributable to the
company owners is $171.2m.
Solution to e
Liquid assets held by a bank, company or government in order to meet expected future
payments and/or emergency needs (Warren, & Jones, 2018). In the annual report of JB hi-fi for the

4CORPORATE ACCOUNTING
year 2017, the reserves are equity settled benefits that amounts to $34.6 m in the year 2017, the
common control reserve that amounts to -$6.1 m, the Hedging reserve that amounts to -$0.2m and the
foreign currency translation reserve that amounts to $4.9 m in the current year. The information
regarding the different reserves in the chosen company of JB Hi-Fi can be obtained from asset side of
the balance sheet under the head equity, the details of the same can be seen in the notes to accounts of
the financial statements that deals with the financial risk management.
Solution to f
In accordance with the policies of the company and the standards of the AASB, the salaries
and other methods of remuneration of the internal auditors of the company are fixed by calling a
general meeting of the company at periodic intervals as decided by the board of directors. The details
of the remuneration of the auditors are fixed by the company officials of JB HI-FI, in their annual
general meeting. This is done, only when the Board of Directors have fixed the auditor of the first
auditor appointed by them (Jbhifi.com.au 2018). It has also been specifically mentioned that the
remuneration payable to the auditors of the company, is the fees which is provided to them in lieu of
their impartial and effective services towards the company. This fees includes all the expenses borne
by the auditor in the execution of his or her duties.
Solution to g
The non-audit services of the company mainly consists of all those activities which does not
involve the jobs related to the audit and analysis of the financial statements of the company. The main
constituents of the non-audit services includes comprehensive tax planning and preparation of the
income tax reports and suggestions. It also includes consulting as well as systems integration.
The proportion of the audit fees and the consultation fees which is followed in the policy of
JB HI-FI is not very good or healthy. It currently stands at the ratio of 10:1, in terms of audit fees and
consulting fees. The auditors work substantially hard for conducting the audit of the companies and
along with this, they also engage in providing various kinds of non-audit services like consulting. The

5CORPORATE ACCOUNTING
auditors are required to provide various kinds of non-audit services as mentioned above, therefore the
proportion should be improved.
Solution to h
In case of various companies, there are mainly two ways which are widely used for the
presentation of the income statements specially the expenses part. They are of two types, expenses
disclosed by function or by nature. In the disclosure by function, the expenses are disclosed in
accordance with the function for which they are undertaken, like administrative expense, research
expenses, whereas in case of expense of nature, the expenses are shown on the basis of the categories,
on which they are spent on.
The general rule is that if the costs or the expenses involved are classified into the nature, then
the expense classification on the basis of nature should be adopted, whereas, if the expenses are
classified on the basis of the different varieties which are undertaken by them, then it is advisable to
undertake the process of classification on the basis of function.
Solution to i
There are various reasons for the creation of the Deferred Tax Liability, some of which are
very prominent from JB HI-FI’s point of view. It is created as a provision for the risk or emergency of
facing future taxation. It mainly arises because of the difference between the income which is shown
in the income statement and the taxable income of the company. Mainly, the cost of depreciation is
the primary cause of the difference in the profits as per the income tax statement of the company’s
management and the income tax statement which is taxed upon (Aasb.gov.au. 2018). There are
various kinds of theories which are related to the causes of the deferred tax liabilities. Some of the
prominent ones are as follows:
1. Bad debt and other allied expenses.
2. Depreciation of fixed assets.
3. Amortisation of financial assets.

6CORPORATE ACCOUNTING
4. The revenue recognition policy employed by the business organisation.
Solution to j
The income tax for the year 2017, was 33.50 % and the current income tax charge for the
company stands at 78.3 million dollars for the fiscal year 2017 and the deferred tax liability of the
company stands at 5.5 million dollars. The cause of the difference between the current income tax
charge and the total income and tax expense, which is mentioned in the balance sheet of the company
is because of the principles of the accounting. It is mainly governed by the principles of GAAP, where
the realisation principle is generally used for this purpose. The company generally follows the
principle of realisation and the accrual concept, whereby the current tax charge is payable by the
company and the tax expense is the expenses incurred in the payment of the taxes. Both of them are
different, one is the expense for paying tax, while the other is the tax itself, therefore the difference is
bound to arise.
Solution to k
In the case of any change in the tax rate from 33.5 to 32%, a general fall in the income tax
rate could be seen. If the tax rate goes through a change, then under the in accordance with the asset-
liability or balance sheet method, all the deferred tax assets and liabilities must be revaluated using the
new tax rate that is expected to be in place in place of the previous rate (Heider and Ljungqvist,
2015) The changes in accordance with the new tax rate of 32% have been highlighted below:
Profit before tax: 259.2
Less: Tax rate @ 32%= 83
Profit after tax: 177.2
Deferred tax liability: 8.2
New tax rate = 32%
Change in deferred tax liability= (8.2-2.6=5.6 million dollars)

7CORPORATE ACCOUNTING

8CORPORATE ACCOUNTING
References:
Aasb.gov.au. (2018). Australian Accounting Standards Board (AASB) - Home. [online]
Available at: http://www.aasb.gov.au/ [Accessed 11 May 2018].
Akbar, S., & Ahsan, K. (2014). Analysis of corporate social disclosure practices of Australian retail
firms. International Journal of Managerial and Financial Accounting, 6(4), 375-396.
Asx.com.au. (2018). Home - Australian Securities Exchange - ASX. [online]
Available at: https://www.asx.com.au/ [Accessed 11 May 2018].
Heider, F. and Ljungqvist, A., 2015. As certain as debt and taxes: Estimating the tax
sensitivity of leverage from state tax changes. Journal of Financial Economics,
118(3), pp.684-712.
Ijiri, Y. (2018). An Introduction to Corporate Accounting Standards: A Review. Accounting,
Economics, and Law: A Convivium, 8(1).
Jbhifi.com.au. (2018). [online] Available at: https://www.jbhifi.com.au/Documents/2017%20Annual
%20Report.pdf [Accessed 11 May 2018].
Nizam, N. Z., & Hoshino, Y. (2016). Corporate Characteristics of Retail Industry among 11 Asian
and American Countries. Journal of Management Research, 8(1), 224-247.
TRENDS, A., 2014. und 2015. Empiriche Unter suchung mit den Top-1.000 Unternehmen
aus Deutschland sowie den Top-300 Unter nehmen aus den Branchen Health Care,
IT, Finanzdienstleistungen und Maschinenbau.
Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.

9CORPORATE ACCOUNTING