Corporate Accounting Analysis: Virgin Australia Financials

This report provides a comprehensive analysis of corporate accounting principles, focusing on the cash flow statement, other comprehensive income statement, and accounting for corporate income tax. The report examines the financial statements of Virgin Australia (VAH), a publicly listed airline company, to illustrate key concepts. The cash flow statement analysis includes operating, investing, and financing activities, highlighting trends and significant items from 2015 to 2017. The other comprehensive income statement components, such as income tax benefit, foreign currency translation reserve, and cash flow hedge reserve, are also assessed. The report further delves into corporate income tax, including tax expenses, deferred tax assets and liabilities, and current tax assets. The analysis includes a discussion of Virgin Australia's tax benefits and their impact on the financial statements. The report references multiple academic sources to support its findings, providing a thorough examination of corporate accounting practices.

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

1CORPORATE ACCOUNTING
Table of Contents
Cash flow statement:........................................................................................................................2
Requirement (i):...........................................................................................................................2
Requirement (ii):..........................................................................................................................3
Other comprehensive income statement:.........................................................................................5
Requirement (iii):.........................................................................................................................5
Requirement (iv):.........................................................................................................................5
Requirement (v):..........................................................................................................................5
Accounting for corporate income tax:.............................................................................................6
Requirement (vi):.........................................................................................................................6
Requirement (vii):........................................................................................................................6
Requirement (viii):.......................................................................................................................6
Requirement (ix):.........................................................................................................................7
Requirement (x):..........................................................................................................................7
Requirement (xi):.........................................................................................................................7
References........................................................................................................................................9

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Cash flow statement:
Requirement (i):
The reporting areas of the assignment has been considered with “Virgin Australia” which
is recognised as one of the top airline companies listed under ASX and coded as VAH. The
depictions of the cash flow statement have been segregated into “financing activities, investing
activities and operating activities” (Virginaustralia.com, 2018). Some of the main classification
of the items are listed below as follows:
Cash flows from operating activities:
Some of the main items in this section is considered with receiving financing income,
payments made to staff, finance costs paid and payment to suppliers. The amount obtained from
the credit sales are known as customer receives in this case. With particular reference to virgin
Australia, the overall increase in the cash inflow is discerned as “$5,567.40 million in 2016 to
$5,657.10 million in 2017”. This is mainly due to the fact of strict credit policy adopted by the
company. The payments made to the staff and suppliers are amounts which are purchased on
credit and staff payments include the salaries (Virginaustralia.com, 2018). The increasing trend
under these subheadings are evident in the case of Virgin with an increasing trend of additional
purchases from suppliers. It is further noted that finance income is received to utilise money for
repayment on demand or at a specified period. In addition to this, the increase in this section is
seen to be writing off the considerable portion of as uncollectible. In 2017, the finance costs have
shown certain decrease due to lesser amount of interest payment on loans (Virginaustralia.com,
2018).

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Cash flows from investing activities:
The primary items listed under the cash from investing activities have been considered
with equity distributions, proceed from borrowings and several other items. The borrowings have
been further able to signify the total amount disbursed to the borrower under the terms of
agreement of loan (Virginaustralia.com, 2018). It needs to be further assessed from the annual
report that the borrowings have decreased in 2017, whereas there is increase in the repayment of
borrowings during the same year. Additionally, the distribution of equity has signified on the
total amount disbursed to the borrower on part of the lender as per the agreement of the loan. It
needs to be further observed that the annual report of Virgin Australia has considered the
proceeds from shareholders and the total amount has reduced due to increased retained earnings
(Scott, 2015).
Requirement (ii):
The evidence of three categories of cash flows such as “financing activities, operating
activities and investing activities” can be traced from the annual report published by Virgin
Australia. Moreover, the comparative analysis in these categories have been shown with the use
of bar diagram as follows:

4CORPORATE ACCOUNTING
2015
2016
2017
- 200.00 400.00 600.00 800.00
Cash flow statement of Virgin
Australia- Important Items
Net cash from financing
activities
Net cash used in investing
activities
Net cash from operating
activities
Figure: Significant Items in the “Cash flow Statement of Virgin Australia from 2015 to
2017”
(Source: As stated by the author)
The aforementioned figure clearly presents the various facts and figures of important
items of cash flow. Based on the depictions can be clearly seen that despite of the decrease in net
cash flow from operating activities in 2016, it has been succumbed by the company in 2017 due
to higher receipts from customers and finance income (Virginaustralia.com, 2018). On the
contrary, the net cash used in the investing activities have decreased over the period of 3 years
due to significant reduction in “investment on property, plant and equipment”. Lastly, the main
earning of cash is seen with the financing activities due to the net proceeds from issuing of share
in 2017. Due to this, the increase can be observed in “cash and cash equivalents items of Virgin
Australia” (Warren & Jones, 2018).

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Other comprehensive income statement:
Requirement (iii):
The assessment of annual report by the company in 2017, the important items in the
comprehensive income statement has been comprised of income tax benefit our expense, foreign
currency translation reserve and cash flow hedge reserve (Virginaustralia.com, 2018).
Requirement (iv):
The foreign currency has been further put forward to use with the conversion of outcomes
associated to foreign subsidiaries to the reporting currency by the parent firm. The utilisation of
“cash flow hedge reserve” is seen with the main intention to reduce the various exposures
pertaining to variations in the cash flow of liability or asset and particular changes in the risk
associated to interest rate of that instrument related to floating rate. On the contrary, the “IT
expense” is the amount which is incurred as per PBT of the company (Dyreng, Hoopes & Wilde,
2016).
Requirement (v):
The elaborated view on net income is taken into consideration with other comprehensive
income. Virgin Airlines have used the net income to provide significant details on values
mentioned above. The main rationale for these items are included in the justification of other
comprehensive income statement. According to this, the income statement provides a holistic
summary of main driver is associated to business operations and therefore they are not disclosed
in the income statement (Taylor, G., & Richardson, 2014).

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Accounting for corporate income tax:
Requirement (vi):
Some of the main tax expenses are further taken into account with important consideration
of the organisation because of “federal, municipal and state governments of the nation”. With
reference to the selected organisation, Virgin Australia has not incurred any IT expense. Instead,
it has obtained the benefit in both 2016 and 2017. In 2017, the company obtained IT benefit of
“$103.8 million in compared to $201.9 million in 2016” (Dowling, 2014).
Requirement (vii):
Based on the annual report of “Virgin Australia in 2017”, it can be discerned that
organisation has suffered losses before IT in 2016 and 2017. It is clearly noted that the airline
charges of 30% on PBT has been taken into consideration to compute the net income. Despite of
this, the airline incurred significant loss due to the IT expense. Therefore, it cannot be
determined a possible reason is whether IT is calculated by the consideration of 30% tax rate on
PBIT (Beatty & Liao, 2014).
Requirement (viii):
The consideration for “deferred tax assets” are included in those situations when the firm
needs to make prepayments of taxes or additional taxes on the financial assets. On the contrary,
deferred tax liabilities are able to highlight several variations in “profit of the corporate entities
and tax in the carrying amount” (Virginaustralia.com, 2018). The deferred taxes of the airliner
have amounted “$1,017.6 million in 2017, which was depicted as $857.9 million in 2016”. On
the contrary, the “deferred tax liability” is being seen as “$463.4 million in 2017 when compared
with $434.4 million in 2016”.

7CORPORATE ACCOUNTING
The recognition for “deferred tax assets” is considered due to the excess amount of
depreciation as an outcome of differences in taxable depreciation rate and total amount of
depreciation. Moreover, the “deferred tax liability” is incurred due to the temporary variation in
profits which were attained in both 2016 and 2017 (Henderso et al., 2015).
Requirement (ix):
The total payable amount of “current tax assets/income tax assets” is comprised of
important depictions associated to Australian business organisations. The information published
in the financial statement of Virgin Australia is evaluated in terms of “current tax assets” which
have been able to contribute to the expected amount of tax payable or receivable on the taxable
income or loss for a certain period. This is measured with the help of several tax laws and tax
rates published in the reporting year. Since it is observed that Virgin Australia obtained total IT
benefit of “$201.9 million 2016 and $103.8 million in 2017”, these amounts are reported for
reconsideration of net loss to net cash from operations in the annual report of the company. The
main rationale for this, is evaluated with non-existence of excess tax expenses on the part of
companies in both the years (Virginaustralia.com, 2018).
Requirement (x):
Referring to the annual report of 2017, it is identified that organisation did not incur any
IT in 2016 and 2017. Instead of this, it earned significant IT benefits which is the main rationale
that IT was not included in the cash flow statement (Virginaustralia.com, 2018).
Requirement (xi):
Based on the critical assessment of treatment of tax for “Virgin Australia” it is found that
the organisation suffered considerable amount of losses before incurring of IT expense in both

8CORPORATE ACCOUNTING
thousand 17 and 2016. Due to this, it earned significant amount of IT benefit. Due to this, it has
brought several complicacies in relating the real tax expense paid in compared to prevailing tax
rate in the country (Virginaustralia.com, 2018). Moreover, as there is no IT incurred by the
company, there is no disclosure associated to payment of IT in the cash flow statement of Virgin
Australia. By consideration of the several types of depictions made in the study can be duly
stated that IT benefits obtained by the company have been conducive in acquiring several
knowledges about tax treatment (Virginaustralia.com, 2018).

9CORPORATE ACCOUNTING
References
Beatty, A., & Liao, S. (2014). Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics, 58(2-3), 339-383.
Dowling, G. R. (2014). The curious case of corporate tax avoidance: Is it socially
irresponsible?. Journal of Business Ethics, 124(1), 173-184.
Dyreng, S. D., Hoopes, J. L., & Wilde, J. H. (2016). Public pressure and corporate tax
behavior. Journal of Accounting Research, 54(1), 147-186.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Scott, W. R. (2015). Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Taylor, G., & Richardson, G. (2014). Incentives for corporate tax planning and reporting:
Empirical evidence from Australia. Journal of Contemporary Accounting &
Economics, 10(1), 1-15.
Virginaustralia.com. (2018). [online] Available at:
https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/
webcontent/~edisp/2017-annual-report.pdf [Accessed 19 May 2018].
Virginaustralia.com. (2018). [online] Available at:
https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/
webcontent/~edisp/2016-annual-report.pdf [Accessed 19 May 2018].

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Virginaustralia.com. (2018). [online] Available at:
https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/
webcontent/~edisp/2015-annual-report.pdf [Accessed 19 May 2018].
Virginaustralia.com. (2018). [online] Available at:
https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/
webcontent/~edisp/2014-annual-report.pdf [Accessed 19 May 2018].
Virginaustralia.com. (2018). Retrieved from
https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/
webcontent/~edisp/2017-annual-report.pdf
Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.