Analyzing Elanor Retail Property Fund's 2017 Tax Treatment

The assignment involves a detailed examination of Elanor Retail Property Fund's tax practices as outlined in its 2017 annual report, which was published in March 2018. The focus is on deferred and current taxes, with an analysis based on the organization’s compliance with Australian Taxation Law. Key aspects include an evaluation of effective tax rates, treatment towards tax expenses, deferred tax assets and liabilities, and their influence on financial statements. Additionally, it explores variations in tax payment between income statements and cash flow statements. The report also assesses how these practices align with corporate social responsibility guidelines from the Australian Tax Office (ATO) and includes references to academic literature that provide context for understanding Elanor’s tax strategies.

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

1CORPORATE ACCOUNTING
Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:.....................................................................................................................3
Answer to Question 3:.....................................................................................................................3
Answer to Question 4:.....................................................................................................................4
Answer to Question 5:.....................................................................................................................5
Answer to Question 6:.....................................................................................................................6
Answer to Question 7:.....................................................................................................................6
References:......................................................................................................................................8

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Answer to Question 1:
In the balance sheet statement of an organisation, three main items are present and one of
them is equity. Elanor Retail Property Fund is not exempted from this item as well. Based on the
balance sheet statement of 2017 of the organisation, the major items include issued capital,
treasury shares, reserves and retained earnings. Issued capital is taken into account as the equity
of the business firms (Armstrong et al. 2015). Issued capital is computed by multiplying the
number of outstanding shares with the par value of the shares. The annual report of the
organisation states that issued capital has increased from $42,280,000 in 2016 to $55,768,000 in
2017 (Elanorinvestors.com 2018).
The next equity item of Elanor Retail Property Fund is reserves. As commented by
Atanasov and Black (2016), reserve is a portion of the equity of an organisation, which is taken
into account as the additional amount except for basic share capital. The latest annual report of
Elanor depicts that its reserves have increased from $13,411,000 in 2016 to $13,487,000 in 2017
(Elanorinvestors.com 2018).
The next item in the equity section of the organisation includes retained earnings. It
denotes the overall profit and losses of the organisation from the time of its formation decreased
by any dividend paid on the part of the shareholders (Graham et al. 2017). According to the
annual report, it has been found that the organisation has not experienced any form of retained
earnings; instead, it has suffered from accumulated losses. The accumulated losses of the
organisation have increased from ($6,968,000) in 2016 to ($7,228,000) in 2017, which denotes
that it has more losses in contrast to profits.

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The final item in the equity section of Elanor is treasury shares. Treasury shares might
arise due to buyback of shares or they are not issued in the first place. These shares do not have
dividend payments, voting rights and thus, they are excluded from the computations of
outstanding shares (Cheng, Ioannou and Serafeim 2014). According to the balance sheet
statement of Elanor in 2017, the treasury share value has remained constant at $691,000 in both
2016 and 2017 and hence, it denotes that the organisation has not repurchased shares from the
shareholders.
Answer to Question 2:
In the current era, business organisations often incur various types of expenses like
administration expenses, selling expenses and others. Tax expense could be considered as one of
them. Moreover, tax expense is taken into account in the form of major liability of the
organisations owing to the state, federal and municipal governments of the nation (Christensen et
al. 2015). Tax expense is computed by multiplying the suitable business tax with the income
before tax after factoring few main items like tax assets, non-deductible items and tax liabilities.
In case of Elanor, the tax expense of the organisation has fallen from $927,000 in 2016 to
$768,000 in 2017. Despite the increase in profit before income tax, the tax expense of the
organisation has been reduced due to reversal of tax provision.
Answer to Question 3:
It has been identified that the corporate tax rate in Australia is 30% (Damodaran 2016). In
case of Elanor Retail Property Fund, the identical rate is applied, which is identified from the
annual report of the organisation. Moreover, the profit before income tax is identified as
$12,394,000 in 2017 (2016: $5,070,000). In case of application of the above tax rate, the overall

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tax expense would be arrived at $3,718,200 in 2017. However, the company has taken into
account other items in order to calculate the total tax expense. Such items include the following:
 Entertainment
 Non-deductible amortisation and depreciation
 Adjustments of fair value to trust investment property
 Non-deductible expenditures
 Proceeds of insurance on plant and equipment
 Reversal of tax provision
By taking into account, the above-depicted items and the domestic tax rate, Elanor has
reconciled the tax rate. This has resulted in variation of overall tax expense of the organisation
compared to the corporate tax rate times the accounting income of the firm.
Answer to Question 4:
Deferred tax assets and liabilities are two main concepts related to tax operation of the
organisations. Deferred tax assets denote the position, in which the organisations make advance
or over tax payments on their financial assets (Dowling 2014). On the contrary, deferred tax
liabilities depict a position, in which the difference could be observed in the tax carrying value
and profit of the organisation. For Elanor, it could be observed that the organisation has
disclosed both deferred tax assets and deferred tax liabilities in its annual report. The deferred tax
assets of Elanor have been $2,600,000 in 2017 (2016: $2,079,000), while the deferred tax
liabilities of the organisation have been $1,635,000 in 2017 (2016: $1,607,000).
By taking into account the accounting norms and regulations pertaining to deferred tax
assets and liabilities, some reasons are inherent for reporting deferred tax assets and liabilities.

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For deferred tax assets, the reason might be the additional payment of depreciation on the part of
the organisation because of variation in rate of taxable depreciation and difference. Due to the
additional payment related to depreciation, the organisation need not have to incur the excess tax
in the upcoming year; hence, it is adjudged as an asset. For deferred tax liabilities, they generally
occur because of the temporary differences in profits and thus, the organisation needs to incur
lower amount of tax in the existing year. The organisation needs to pay the remaining amount in
the upcoming years and thus; they are taken into account in the form of liability.
Answer to Question 5:
Income tax payable or current tax asset is adjudged as a significant aspect for the
business firms. According to the annual report of Elanor, it could be observed that the income tax
paid is $631,000 in 2017; however, there is absence of income tax payable in the year 2016.
In organisations, it could viewed that there is a variation between income tax expense and
income tax payable and some particular reasons could be held accountable for such disparity.
The primary reason is the presence of deferred tax assets. There are many examples, in which the
organisation incurs additional tax amount in contrast to the tax expenses (Dyreng et al. 2016).
Under such condition, the additional amount of tax paid would be adjudged in the form of
deferred tax assets, which forms the difference. The next reason is the difference between the
norms of tax accounting and the norms of financial accounting. Under such aspect, the instance
of depreciation could be mentioned. The variation for depreciation could be viewed under tax
accounting and financial accounting for various rates of depreciation (Dyreng et al. 2017).
Hence, the amount of final depreciation could be either raised or declined. These are the primary
reasons behind the variations between income tax expense and income tax payable.

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Answer to Question 6:
According to the financial statements of Elanor, the organisation has provided description
regarding its tax payments in the income statement and cash flow statement. However, it could
be found that it has published two distinct set of amounts in both the above-depicted statements.
In case of Elanor, the tax expense of the organisation has been $768,000 in 2017 and $927,000 in
2016. On the other hand, the income tax payable of the organisation has been identified as
$631,000 in 2017; however, there is no such payment in 2016. There are some particular reasons
for this difference regarding income tax payment.
In accordance with the income statement, the organisation depicts the entire amount of
tax expense by charging the tax rate of 30% on profit before income tax. However, the case is
not similar for the cash flow statement. Under such cash flow statement section, there is different
treatment related to some items of the income statement. It signifies that various changes occur
in current assets and liabilities of the organisations. For Elanor, the income tax payment is taken
into account as current asset. In the cash flow statement, some minimisation in the items of
income tax has been made depicting the utilisation of cash. This signifies that some items of tax
expense have been eliminated before they are considered in the cash flow statement (Goh et al.
2016). Due to these reasons, the variation in tax expenses could be viewed in income statement
and cash flow statement.
Answer to Question 7:
. After careful evaluation of tax treatment in the annual report of Elanor, it could be stated
that no confusing or surprising element is inherent in the treatments of tax. The organisation has
carried out all its tax treatment by adhering to the norms and regulations of the Taxation Law of
Australia. Moreover, it has provided all the justifications and descriptions of different taxation

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factors like deferred tax assets and liabilities, tax rate, current tax assets and others. However,
some interesting factors have been found in the tax treatment of Elanor Retail Property Fund.
The significant factor is the description of the organisation regarding the variation between
overall tax expenses. Moreover, it has provided descriptions regarding the primary factors
accountable for differences in tax expense. Another significant factor is the variation in tax
payment in income statement and cash flow statement. All such factors are useful in improving
the understanding and knowledge in taxation of the organisation. From this evaluation, both
insight and knowledge could be obtained about the tax treatment of Elanor Retail Property Fund.

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References:
Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D. and Larcker, D.F., 2015. Corporate governance,
incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), pp.1-17.
Atanasov, V. and Black, B., 2016. Shock-based causal inference in corporate finance and
accounting research.
Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to
finance. Strategic Management Journal, 35(1), pp.1-23.
Christensen, D.M., Dhaliwal, D.S., Boivie, S. and Graffin, S.D., 2015. Top management
conservatism and corporate risk strategies: Evidence from managers' personal political
orientation and corporate tax avoidance. Strategic Management Journal, 36(12), pp.1918-1938.
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate
finance (Vol. 324). John Wiley & Sons.
Dowling, G.R., 2014. The curious case of corporate tax avoidance: Is it socially
irresponsible?. Journal of Business Ethics, 124(1), pp.173-184.
Dyreng, S., Hanlon, M., Maydew, E.L. and Thornock, J.R., 2016. Changes in corporate effective
tax rates over the past twenty-five years.
Dyreng, S.D., Hanlon, M., Maydew, E.L. and Thornock, J.R., 2017. Changes in corporate
effective tax rates over the past 25 years. Journal of Financial Economics, 124(3), pp.441-463.
Elanorinvestors.com. (2018). [online] Available at:
https://www.elanorinvestors.com/images/ENNAR2017Report.pdf [Accessed 5 Jan. 2018].

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Goh, B.W., Lee, J., Lim, C.Y. and Shevlin, T., 2016. The effect of corporate tax avoidance on
the cost of equity. The Accounting Review, 91(6), pp.1647-1670.
Graham, J.R., Hanlon, M., Shevlin, T. and Shroff, N., 2017. Tax rates and corporate decision-
making. The Review of Financial Studies, 30(9), pp.3128-3175.