Comprehensive Analysis: Cash Flow, OCI, and Tax Expense of Woolworths

This report provides a detailed analysis of Woolworths Limited's financial performance, focusing on its cash flow statement, other comprehensive income (OCI), and tax expenses for the year ending 2017. The report examines the company's cash flow activities, categorizing them into operating, investing, and financing activities. It highlights key items like cash received from customers, payments to creditors, income tax, and dividends, and includes a comparative evaluation of cash flow trends over three years. The analysis of OCI explains the nature of hedging and foreign currency translation, differentiating it from the profit and loss account. Furthermore, the report delves into the company's income tax expense, comparing accounting income with the tax rate and discussing deferred tax assets and liabilities. The report concludes with a comprehensive assessment of the company's financial reporting practices, offering recommendations based on the findings. References from where the data for the report has been obtained are also provided.

ANALYSIS OF CASH FLOWS, OCI AND TAX EXPENSE
Student Name: Student
ID:
5/18/2018

Contents
EXECUTIVE SUMMARY.................................................................................................................................2
INTRODUCTION...........................................................................................................................................3
DETAILS OF SELECTED COMPANY................................................................................................................4
ACTIVITIES OF CASH FLOWS – STATEMENT ANALYSIS.................................................................................4
Item Reported.........................................................................................................................................4
Comparative Evaluation..........................................................................................................................6
ANALYSIS OF OCI.........................................................................................................................................6
Reported Details......................................................................................................................................6
Description of Each head.........................................................................................................................7
Different from Profit and Loss Account...................................................................................................7
COMPANY’S INCOME TAX...........................................................................................................................7
Tax Expense for Current Period...............................................................................................................7
Accounting Income and Tax Rate............................................................................................................8
Reporting of Deferred Tax Assets/Liabilities............................................................................................8
Tax expense and Tax Payable..................................................................................................................9
Tax Expense and Actual Tax Paid.............................................................................................................9
Tax- Accounting Treatment Rating..........................................................................................................9
CONCLUSION AND RECOMMENDATION.....................................................................................................9
REFERENCES..............................................................................................................................................10
EXECUTIVE SUMMARY
Companies are mandatorily required to prepare the accounting books and present the results
thereon to the public including the stakeholders so that their needs can be satisfied and
accordingly the company can run in the future. In this report, the results have been detailed with
respect to the two statements – one is the statement of cash flows and other is the other
comprehensive income statement. The report it satisfy the three main purposes and each of it

have been followed throughout the report. The first purpose of the report is to discuss about the
results of the company through the cash flows generated and paid by the company. The second
purpose of the report is to identify as to why the other comprehensive income are separately
shown after the profit and loss account and why other classification have also been made in the
annual report of the company. The third and the last main purpose of the report is to know the
expense which has been accounted for by the company for Income Tax and how the same have
been dealt in the presentation of the financial statements. With these three purposes and to know
more about the results of the company, the report is being prepared and provided with adequate
headings and sub headings.
INTRODUCTION
The mandatory preparation of the books of accounts and the financial statements thereon has not
been casted by the statute only rather it is the basic need of every investor of the company to
have the full details of the results of the company and the same shall be monitored by the
company on the regular intervals. The statement which provides the results of the company to the
users of its financial statements shall present the true and fair view otherwise the decision of the
users of the financial statements shall become meaningless.
As the title of the report suggests the analysis of the cash flow statement, the statement showing
the other comprehensive income and the tax expense incurred by the company have been
detailed. The company that has been selected for the purpose of the report is Woolworths limited
and the annual report for the year ending 2017 has been considered. At first the statement of the
cash flows has been discussed and how the same have represented the operations of the company
and details whether the company is generating the cash inflows or incurring the cash outflows.
Each major as well as minor had been discussed in detail. Secondly the statement of the other
comprehensive income had been analysed as to how the statement is different from the normal
income and expenditure statement and the reason as to why it is being prepared and why the
some items of it has the effect of reversing in the future for and gets transferred to the statement
of the profit and loss account. Thirdly the major head has been considered for the company

which is the tax expense which is mostly remains understood by the shareholders and the
stakeholders of the company.
With these views the report has then included the concluding paragraph and the set of the
reference from where the data for report has been obtained.
DETAILS OF SELECTED COMPANY
The company that has been selected for the purpose of the report is the Woolworths Limited. The
company that has been selected is from Australia and is registered in the stock exchange of
Australia. The company is into the retail industry since its inception which is hundred plus years
ago. The company has been into the activities of having the departmental store and the market
chains and provides all the home products and other related products and services at one place
and has provided the customers with the facility of getting all the things at once place. It has
been operating across Australia and New Zealand and most importantly it is the number two
company in the retail sector. Its major competitor is Wesfarmers Limited. Its main focus is to
increase the customer base by providing the best services to the customers. With the retail sector,
the report has been started and accordingly the annual report of the company as obtained from
website has been considered for this report.
ACTIVITIES OF CASH FLOWS – STATEMENT ANALYSIS
The incoming and outgoing of cash has been detailed in the statement which is known as the
statement showing the cash flows. The incoming and outgoing has been identified and detailed
under the three major heads namely the activities relating to operating function, activities relating
to investment function and the activities relating to the financing function. The minor heads
under each of the above major head has been discussed below.

Item Reported
Although many items are reported in the statement of cash flows, but for the purpose of the
report the main items under the heads have been considered and detailed below:
 The item that comes first under the operating activity is the cash that has been received
from the persons to whom the payment has been made. Over the past two years the
increasing trend has been observed in case of the cash which is received from the
customers of the company. Increase has been observed to the tune of $169 millions.
 The item that comes after the debtors is the creditors to whom the company makes the
payment for the purchase of the goods and services. It is clear that it is outflow of the
cash and decreasing trend has been observed to the tune of $360 millions.
 The item which is of utmost importance is the income tax. Income tax is considered as
the part of the operating activities and accordingly it is the outflow for the company.
Income tax is the amount calculated on the taxable income of the company and not the
accounting income of the company.
 Whenever the company sells its goods and that too only capital goods then the cash
inflows will be there and accordingly cash inflows will be considered in the statement.
 In case the company purchases its goods and that too only capital goods then the cash
outflows will be there and accordingly the cash outflows will be considered in the
statement.
 The other major part in the cash flow statement is the case when the company purchases
the other businesses and accordingly the cash outflows will be there. It is the one time
activity and not the running activity.
 The other major item is the dividend. It is that item which is considered as the cash
inflows as well as the cash outflows. Cash inflow occurs when the company receives the
dividend on the investment if any made by the company and cash inflow occurs when the
company pays the dividend.
 Whenever the company issues the share to the public the amount comes and that amount
is regarded as the cash inflow for the company.
 Whenever the company borrows the amount from the banks and the financial institutions
then the amount received is considered as the inflows of cash. The company will repay
the same and accordingly the amount which repaid by the company to the banks will be

considered as the repayment of borrowings and hence is the cash outflow. The total of
approximately $1400 million has been the cash outflow for the company. (Fraser,
Ormiston and Fraser, 2010)
 The last and the major item to with each of shareholders and the stakeholders of the
company is concerned is with the status of the cash flows of the company and
accordingly when there is excess of the cash then it will be said that there is increase in
the cash and cash equivalents and otherwise there will be decrease in the same
(Woolworths Limited, 2016).
Comparative Evaluation
The statement of the cash flows consists of the three major activities. One is the activity of
operations, second is the activity of investment and the third activity is the activity of financing.
All these activities plays a major contribution in understanding of not only the movement of cash
but also the major instance which has resulted either in the cash inflows for the company or the
cash outflows for the company. These three activities have been considered for the purpose of
the evaluation and also the net increase or decrease in the cash or cash equivalents have been
considered.
S.
No.
Detail IST YEAR –
2017
IIND
YEAR –
2016
IIIRD YEAR
- 2015
1 Operations 3122 2357 3345
2 Investment (1432) (1266) (1335)
3 Financing (1729) (1475) (1610)
4 Increase or Decrease (39) (384) 400
The above table depicts that the company has been utilizing the cash and cash equivalents more
in the investment and financing activities. The company has been facing the net decrease on the
cash for the last so many years. It exhibits that the company has not managing the cash
efficiently and effectively (Taylor, 2010).

ANALYSIS OF OCI
Reported Details
Two items have been shown in the statement of the other comprehensive income which are:
- Hedging and
- Translation of Foreign Currency
Description of Each head
The hedging is mainly related to the hedge that is meant for the cash flows only. It is reclassified
as to be transferred to the profit and loss account and is transferred once it gets realized.
(Chambers, 2011).
Other item is the foreign currency translation which checks for the change in value of the foreign
currency and books the unrealized part in the statement and reclassifies the same into the
statement of the profit and loss (Bamber, Jiang, Petroni and Wang, 2010).
Different from Profit and Loss Account
The statement of the profit and loss is different from the statement of the comprehensive income
in the sense that the former considers the operating activities only and in case any non recurring
activity occurs then the same shall be disclosed in the statement of the other comprehensive
income.
The major part to consider is that the above items so reported in the statement of the other
comprehensive income is liable to be reclassified for transferring to the statement of the profit
and loss in the future when the same is realized.

COMPANY’S INCOME TAX
Tax Expense for Current Period
Income tax expense of $ 837.70 million has been reported by the company for the year ended on
30th June 2017 in its annual report. The company has reported in statement of profit or loss and it
includes tax expense for current year, tax expense which has been deferred and adjustments for
tax expense related to past years (Woolworths Limited, 2017).
Accounting Income and Tax Rate
The reported income tax expense and the tax rate multiply by accounting income value are
different from each other. The both value reported or can be calculated value are not same for
Woolworths Limited for the period ended on June 2017. The reason for difference in two values
is because of timing differences which consists of tax effect on the below items:-
a. Off Shore tax rate differences reported in operations of the company
b. Amount of impairment not allowed as deduction
c. Not recognized tax loss
d. Non deductible expenses
Reporting of Deferred Tax Assets/Liabilities
As per AASB 112, every company has report deferred tax asset/liabilities created due to timing
difference in transactions having tax impact. In Woolworths Limited, $ 372.30 million has been
disclosed as deferred tax asset in the annual report for the period ending on 30th June, 2017. The
deferred tax asset has been created to report the timing difference which occurred due to
following transactions:-
a. Timing difference occurred due to difference in depreciation rates under different
laws which need to be followed while presenting financial statements

b. Cash flow Hedges
c. Accrued expenses considered in books of accounts
d. Provisions recorded in financial statements
e. Unrealized differences in foreign exchange as the company is operating in more than
one country (Harrington, Smith and Trippeer, 2012)
Tax expense and Tax Payable
Woolworths Limited has reported the tax expense amount and tax payable amount. Both the
values are not same as the tax expense includes current tax expense and deferred tax expense and
on the other hand tax payable is actual amount which the company has to pay to tax authorities
of the country. In the annual report, the tax expense is $ 837.70 million where as tax payable is $
80.9 million for the year ended on 30th June 2017 (Laux, 2013).
Tax Expense and Actual Tax Paid
The amount of income tax expense is the combination of current tax and deferred tax. Tax paid is
the amount or outflow of cash and cash equivalents to discharge the liability which has been
arose on account of tax payable. The two values are different and can’t be same. Woolworths
Limited report $ 837.70 million has tax expense whereas the company has $ 668.1 million as tax
during the year ended on 30th June 2017 (Manzon, G.B. and Plesko, 2012).
Tax- Accounting Treatment Rating
Accounting treatment of tax adopted by the company in line with applicable rules and
regulations and is according to accounting principles governing the same. The policies adopted

by the company are very useful, easy and transparent so that effective and efficient decision
making can be done by different stakeholders of the company.
CONCLUSION AND RECOMMENDATION
Annual Reports of the company is the basis for providing information to different users of
accounting which serves the primary objectives of general purpose financial reporting. The
company which has been chosen for the study – Woolworths Limited has been analyzed in
details. The components of the financial statements have been describe in detail so that users can
understand the purpose for providing information in specific statement format by the company.
The cash flow statement has been analyzed which provide the information about the performance
of liquidity of the company. Also, statement of comprehensive income has explains what will be
the future prospective incomes of the company which are assesses in the current year. The
treatment and account of corporation tax has also been analyzed which shows that the company
is complying with all the relevant provisions of the accounting laws in relation to tax. In order to
conclude, it can be said Woolworths financial statements and their components so transparent
that can helps the users to provide effective information.
To recommend, the financial statements and all sub statements of financial statements should be
prepared by following the rules and regulations set by AASB and Corporation Act, 2001 so that
true and fair view of accounting information can be obtained and appropriate decision making
can happen.
REFERENCES
Bamber, L.S., Jiang, J., Petroni, K.R. and Wang, I.Y., 2010. Comprehensive income: Who's
afraid of performance reporting?. The Accounting Review, 85(1), pp.97-126
Fraser, L.M., Ormiston, A. and Fraser, L.M., 2010. Understanding financial statements Pearson
Harrington, C., Smith, W. and Trippeer, D., 2012,Deferred tax assets and liabilities: tax benefits,
obligations and corporate debt policy. Journal of Finance and Accountancy, 11, p.1

Laux, R.C., 2013. The association between deferred tax assets and liabilities and future tax
payments The Accounting Review, 88(4), pp.1357-1383
Manzon Jr, G.B. and Plesko, G.A., 2012. The relation between financial and tax reporting
measures of income Tax L. Rev., 55, p.175
Taylor, M., 2010, Financial statement analysis, pp 13-20
Woolworths Limited (2016), Annual Report -2016 online available
https://www.woolworthsgroup.com.au/page/investors/our-performance/reports/Reports at
accessed on 12-05-2018.
Woolworths Limited (2017), Annual Report -2017 online available
https://www.woolworthsgroup.com.au/page/investors/our-performance/reports/Reports at
accessed on 12-05-2018.