HI5020 Corporate Accounting: Financial Reporting on ASX Listed Firms

This report provides a detailed analysis of the financial statements of two companies listed on the Australian Securities Exchange (ASX): Cochlear Limited and Cogstate Limited, both operating in the healthcare equipment and services industry. The analysis covers various aspects of their financial performance, including owners' equity, debt and equity positions, cash flow statements, other comprehensive income, and corporate income tax. Cochlear Limited, a market leader in hearing implants, demonstrates a strong financial position with significant revenue and a healthy debt-to-equity ratio, while Cogstate Limited, a smaller player, faces challenges in achieving profitability and maintaining positive cash flows. The report compares and contrasts the financial performance of these two companies, highlighting the differences in their scale, market presence, and financial strategies. Desklib provides access to similar solved assignments and resources for students.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Authors Note:

1
CORPORATE ACCOUNTING
Executive summary:
Annual report is the document that an organization generally issues after the end of a
financial year to provide all relevant information about the organization and its operations. Such
document includes financial statements of an organization also that reflect the financial position
and performance as on a particular date. In this document the annual reports of two listed entities
in Australian Securities Exchange, referred to as ASX in this document subsequent to this, have
been evaluated with the objective of understanding the various elements of financial statements
of these entities.

2
CORPORATE ACCOUNTING
Contents
Executive summary:........................................................................................................................1
Introduction:....................................................................................................................................3
Cochlear Limited:............................................................................................................................3
Cogstate Limited:.............................................................................................................................3
Owners’ equity:...............................................................................................................................3
Different items in equity:.............................................................................................................3
Comparison of debt and equity position:.....................................................................................5
Cash flow statements:......................................................................................................................6
Comparative analysis of two companies:..................................................................................10
Other comprehensive income statement analysis:.....................................................................10
Reasons that such items are not recorded in income statement:................................................11
Comparative analysis of other comprehensive income statement:............................................12
Accounting for corporate income tax:...........................................................................................13
Effective tax rates are as following:..........................................................................................13
Increase and decrease in deferred tax assets and liabilities:......................................................14
Cash tax rate:.............................................................................................................................16
Reason for the differences in cash tax rates from book tax rates:.............................................17
Conclusion:....................................................................................................................................17
References:....................................................................................................................................19

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CORPORATE ACCOUNTING

4
CORPORATE ACCOUNTING
Introduction:
The two companies that have been chosen for the exercise in this document are Cogstate
Limited and Cochlear Limited. Both these companies are listed in the ASX and are in Health
care equipment and services industry. Both the companies have made a significant name in
Health care equipment and services industry.
Cochlear Limited:
In Health care equipment and services industry Cochlear has made a significant name for
itself by providing top quality medical implants known as Cochlear implants. Based in Sydney
the company was established back in 1981 with financial support from coming from Australian
Government. The objective behind formation of the company was to commercialize the implants
pioneered by Dr Clark. It is with great pride the company now claims to hold more than two
third of worldwide market of hearing implant (Dhaliwal et. al. 2014). The company also received
the award of most innovative company by the Australian government in 2002 and 2003 for its
continuous drive towards innovation.
Cogstate Limited:
Founded in 1999 the company is in the industry of Health Care Equipment and Services.
Since its formation the company has taken large strides towards its objectives of capturing the
Health care equipment and services market. However, compared to Cochlear Limited the
company’s operations is limited to the local market in the country (Alin-Eliodor, 2014).

5
CORPORATE ACCOUNTING
Owners’ equity:
Different items in equity:
In case of Cochlear Limited the owners’ equity of the company includes the following
items:
Share capital: This is accumulated balance of amount received from issue of ordinary shares to
the public. The company is a listed entity and has issued ordinary shares to the public to arrange
necessary funds for business. In the financial year ending on 30th June, 2018 the company has an
issued and subscribed share capital of $173 million. In the corresponding previous year the
balance in share capital account of the company was $169.40 million (Grant, 2016).
Reserves: The accumulated amount of all specific reserves reported as reserves under equity of
the company. However, in both 2017 and 2018 the balance in the reserves accounts are in
negative. In 2018 the balance in reserves account I is ($33.8 million) and in the year 2017 it was
($12.9 million).
Retained earnings:
It is the accumulated profit transferred by the company to general reserves. This amount is free
reserves and can be distributed as dividend. The balance in retained earnings on 30th June 2018 is
$471.60 million whereas in the previous year it was $387.10 million (DeFusco et. al. 2015).
Overall the equity shareholders’ funds for the financial year ending on June 30, 2018 is $610.80
million. Or was merely $543.60 million a year before on 30th June, 2017. The reason for the
change in the amount of equity is mainly due to the amount of profit earned by the company in
the year and transferred to retained earnings. Apart from that around $3.6 million was also raised
from issuing share capital to the public in the financial year 2017-18 (Yohn, 2015).

6
CORPORATE ACCOUNTING
Equity of Cogstate Limited:
Contributed equity: Contributed equity is the amount of money the company has collected from
issuing its shares in the market. It represents the share of owners in the company. In 2017 the
balance in contributed equity was around $29 million, $28,511,980 to be precise. The company
has issued significant amount of shares to the public in 2018. The balance in contributed equity
as on June 30, 2018 is around $33 million (Weygandt, Kimmel and Kieso, 2015).
Other reserves: These are the reserves created by the company for specific purposes and not free
reserves thus not available for distribution to the shareholders. In 2017 the company had
$1,371,916 in other reserves. In 2018 it has increased to almost $3 million (Zeff, 2016).
Retained earnings: This is the amount of profit transferred to free reserves after providing for
necessary expenditures and provisions. The retained earnings generally reflects the amount of
accumulated profit and other free reserves that a company has. In 2017 the company had a
negative balance of $15 million that has increased to $16 million in the year 2018 (Penman, S.H.
and Penman, 2007).
The total equity of shareholders in the company has changed over the previous year. In 2017 the
owners’ equity was around $14 million that increased to $16 million in 2018. The reason for the
change is issue of additional shares to the public as well as the operating loss that resulted in
increase in negative balance of retained earnings of the company.
Comparison of debt and equity position:
Let’s have the table containing details about debt and equity position of two companies
over the last five years before comparing the debt and equity position of these two companies.
Cochlear Limited:

7
CORPORATE ACCOUNTING
All amounts are in $ million 2014-06 2015-06 2016-06 2017-06 2018-06
Long-term debt 234.00 45.00 189.00 134.00 144.00
Total stockholders' equity 329.00 355.00 449.00 544.00 611.00
Debt to equity ratio 0.71 0.13 0.42 0.2
5
0.2
4
(Damodaran, 2016)
Cogstate Limited:
$ million 2014-06 2015-06 2016-06 2017-06 2018-06
Long term debt 0 0 0 0 0
Total stockholders' equity 13 10 14 14 16
(Penman, 2016)
As is clear from the above table that there is significant size difference between the two
companies. Cochlear Limited is the leader in hearing implants across the globe whereas Cogstate
is yet to establish its place in Health Care Equipment and Services industry. The debt to equity
position of Cochlear is very strong as can be seen in the table above. The company has now a
seriously strong debt to equity ratio of 0.24 for the year ended on June 30, 2018. Compared to
that Cogstate does not even have long term debt (Robinson et. al. 2016). Hence, there is no
comparison between the two companies.

8
CORPORATE ACCOUNTING
Cash flow statements:
Cochlear Limited:
Receipts of cash from customers: The amount receipt from customers is the amount received for
credit sales effected by the company earlier. In 2018 the company has received $1,350 million
whereas a year back the same was $1,221 million. The reason for the increase in receipts from
customers is due to increase amount of credit sales effected by the company in the year 2017-18
(Sözbilir, Kula and Baykut, 2015).
Cash paid to suppliers and employees: This represent the payment made to the suppliers for
materials purchased on credit and amount paid to the employees and workers as salaries and
wages. In 2018 $987.8 million has been paid in cash to employees and suppliers compared to
$878.6 million paid in last year. Again the increase in production has led to the increase in
payment to the suppliers and employees (Badenhorst and Ferreira, 2016).
Grants and other income received: The increase in grant received is very minor and it is shown
as and when the grant is received.
Interest received: $0.6 million interest income has been received in 2018 represents the amount
of interest earned on investments. It was $0.7 million a year back.
Payment of interest: $8.5 million has been paid as interest in 2018 whereas in 2017 the company
paid $8.6 million as interest (Johnston and Kutcher, 2015).
Income taxes paid: It is the amount of income tax paid for the profit eared by the company. In
2018 $101.3 million has been paid as income tax compared to $78.5 million of 2017. The
increase is due to the increase in income of the company from previous year.

9
CORPORATE ACCOUNTING
Cash used in investing activities:
The company has used $55.40 million in investment activities during the year 2017-18 compared
to a significantly large amount of $135.6 million in 2016-17. The reason for such reduction in
investments is that the company has invested in relatively less number of products (Yasseen,
Jansen and Small, 2016).
Cash used in financing activities:
In 2018 the company has used $232.7 million for financing activities. Most of the payments are
towards repayment of borrowings and payment of dividend. In 2017 the company merely used
$108.3 million in financing activities as the repayment of borrowing was lower (Edwards, 2017).
Cogstate Limited:
Cash flow from operating activities:
The company has no cash flows from operating activities. This shows that the amount of cash
flows from business operations was absolutely insignificant.
Cash flow from investing activities:
In 2018 the company has acquired intangible assets for $3 million and investment in other
properties of $1 million. No such investments were made in the previous year (Mullinova and
Simonyants, 2016).
Cash flow from financing activities:

10
CORPORATE ACCOUNTING
In 2018 the company has received $4 million from issue of ordinary shares and no other
payments or received has been made under financing activities in the year. In 2017 the company
only collected $1 million from issue of ordinary shares (Yasseen, Jansen and Small, 2016).
Comparison of cash flows:
Cochlear: The following table contains the cash flows from three broad categories of cash flows
these are, cash flows from operating activities, cash flows from investing activities and cash
flows from financing activities (Morris, 2017).
2014-
06
2015-
06
2016-
06
2017-
06
2018-
06
Net cash from operating activities 111.
00
188.
00
185.
00
259.
80
258.
00
Net cash used for investing activities (32.0
0)
(28.0
0)
(50.
00)
(136.0
0)
(55.0
0)
Net change in cash (108.0
0)
(173.0
0)
(182.
00)
(246.0
0)
(286.0
0)
Cogstate:
$ million 2014-
06
2015-
06
2016-
06
2017-
06
2018-
06
Cash Flows From Operating Activities 1 2 2 3 3

11
CORPORATE ACCOUNTING
.00 .00 .00 .00 .00
Net cash used for investing activities (1.
00)
(1.
00)
(2.
00)
(1.
00)
(4.
00)
Net change in cash 7
.00
1
.00
(1.
00)
(1.
00)
(4.
00)
(Oliver, 2014)
As already mentioned earlier that the size of two companies is significantly different. Cochlear is
the market leader whereas Cogstate is merely surviving in the market. The cash flow statement
and cash flows and used under three broad headings as provided in the above table of two
companies makes the point even more clear (Citron, 2015).
Comparative analysis of two companies:
Cochlear being the market leader in hearing implant in the world has a significantly high
level of turnover as compared to the Cogstate which is struggling to even survive in the
competitive market. The total comprehensive income of Cochlear Limited is $221.4 million in
2018 compared to the net operating loss of $1 million that Cogstate incurred in the same
financial year. The amount of revenue earned by Cochlear in 2018 is $1,363.7 million and
$1,253.8 million in 2017. Cogstate on the other hand only earned a revenue of $16 million $17
million in 2017 and 2018 respectively (Suryanto, 2016).
Other comprehensive income statement analysis:
The other comprehensive income statement of an organization generally includes items
of income that have not been considered in the income statement for computation of net income