Corporate Accounting: Analyzing Flight Centre and Webjet Financials

This report offers a comparative analysis of the financial statements of Flight Centre Travel Limited and Webjet Limited, both prominent companies in the travel and tourism industry. The analysis encompasses a range of financial aspects, including the examination of owners' equity, debt and equity positions, and cash flow statements. It also delves into the components of other comprehensive income statements and the reasons for their exclusion from profit and loss accounts. Furthermore, the report explores corporate income tax accounting, including effective tax rate calculations, deferred tax assets and liabilities, and the reconciliation of book and cash tax amounts. The comparative study provides insights into the financial health, investment strategies, and operational efficiency of both companies, highlighting their expansion phases, saturation stages, and risk profiles, along with a detailed interpretation of their financial performance over a three-year period.

CORPORATE
ACCOUNTING

Executive Summary
This report is presenting comparison of Financial Statements of two companies, Flight
Centre Travel Limited and Webjet Limited. These both companies are involved in travel and
tourism business. This report presents different items of Balance sheets, comparison of
borrowings with owner’s funds, benefits and uses of cash flow statements, comparison of cash
tax with book tax amount.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Owners’ Equity................................................................................................................................1
(i)The Items of Equity listed in Financial Statements and understanding of both companies-:. 1
The statement of changes in equity of both companies are given below-:.............................2
(ii) Comparative Analysis of Debt and Equity Position........................................................2
Cash Flow Statement.......................................................................................................................3
(iii)List of items of Cash Flow Statements.............................................................................3
(iv)Comparative analysis of three activities of Cash Flow Statements for past three years-: 4
(v)Comparative Analysis of Cash Flow Statements of both companies................................5
OTHER COMPREHENSIVE INCOME STATEMENTS..............................................................6
(vi)Items that are needed to report In Comprehensive Income Statements............................6
(vii)Stating reasons for items of Comprehensive Income statements are not recorded in P&L 6
(viii)Comparative Analysis of Other Comprehensive Income Statements............................7
(ix)Evaluation with Inclusion of Items of Comprehensive Income Statements.....................7
Accounting for Corporate Income Tax............................................................................................8
(x)The Tax expenses that are shown in both of companies for current year-:.......................8
(xi)Calculation of Effective tax rate for both companies.......................................................8
(xii)Stating Reasons why Deferred tax Assets and Liabilities occurs....................................8
(xiii)There was increase in Deferred Tax Assets reported from last years for both of
companies-:.............................................................................................................................9
(xiv)Calculation of Cash tax amount by using book tax amount with help of Deferred Tax
Liability and Deferred Tax Assets given in Balance sheets of both companies..................10
(xv)Calculation of cash tax rate of both companies that are calculated after adjustment of
DTA are-:..............................................................................................................................11
(xvi)Reasons stating difference in Tax rate and Book Rate.................................................11

CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Corporate accounting is that branch which deals with preparation of financial statements
which includes Profit and loss account, Balance Sheets, Cash Flow Statements, Statements of
Change in Equity (Schaltegger, 2017). The two companies which had been taken for
comparative analysis are operators of travel and tourism business, they are Flight Centre Travel
Group Limited and Web Jet Limited.
Webjet limited is an online travel agency that has operations in Australia and New
Zealand. It has been listed in Australia Securities Exchange from 18/12/1997 having a market
capital of $1999 million. The shares that are quoted in stock exchange are 101.1 million.
Flight Centre Travel Group Limited is a listed company in Australia Securities Exchange
has been doing principal business of leisure and corporate travels. They are having a market
capital of $5717 million and had been listed in exchange from 01/12/1995. The no. shares that
are quoted is stock exchange are 120.1 million.]
This reports consist of comparative study of companies which are stated above according
to their financial statements which will include Ratio analysis, comparison of book tax with cash
tax and many more.
Owners’ Equity
(i)The Items of Equity listed in Financial Statements and understanding of both companies-:
1. Capital- The capital is invested by owners of company to earn profits. They are economic
resource that are measured in terms of Money (Cao, 2015).
2. Reserves- These are provisions which are made for specific purpose for an unknown
expenditure that may arise in the future.
1. General Reserves-: They are accumulated profits which are yet to distributed to
shareholders.
2. Capital Reserves-: They are usually used in Long Term project. These reserves
also belong to shareholders but are not distributed to them.
3. Share Premium Reserves-: It is created when there is difference between face
value and issue value of shares.
3. Surplus- These are credit balances of P&L account in financial accounting. The surplus is
made after providing bonus, general reserves etc.
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4. Retained Profits-: These are profits that are retained for current years which are not
divided to shareholders.
5. Convertible Equity-: These are equity when issued with a condition that in near future
they may get converted into different securities that can be debentures, preference shares
etc.
6. Outside Equity-: These are invested money that are not repaid to investors in normal
course of business (Dixon, 2016). They are risk capital that are purchased by
shareholders of company.
The statement of changes in equity of both companies are given below-:
Statements of Changes in
Equity From Past year
amount in $ in
millions
Flight Centre Limited 2016 2017 2018
Increase in Capital 3.56 1.72 -7.87
Increase in reserves and surplus -12.85 -11.35 21.4
Increase in Retain Profits 85.11 92.43 107.3
Statements of Changes in
Equity From Past year
amount in $ in
millions
Web Jet Limited 2016 2017 2018
Increase in Capital 58.91 34.76 192.79
Increase in reserves and surplus -0.9 -6.29 13.54
Increase in Retain Profits 11.1 36.3 20.15
Interpretation
The Comparative analysis states that Webjet Limited is in expansion phase as they are increasing
their capital and doing investment for future benefits. Flight Centre Limited is in a saturation
stage as they have done all their investments for benefits in the future.
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(ii) Comparative Analysis of Debt and Equity Position
Debt-These are borrowed funds which are taken by one party from another and it can also be
said as this funds creates a duty or obligation to pay money that is borrowed under an implied
agreement (Cao, 2015).
Equity- These are any stock or securities representing ownership in any company.
Comparative Analysis-:
Particulars Webjet Limited Ratio Flight Centre
Travel Group Ltd
Ratio
Debt 2018 122.72 21.69% 35.5 2.25%
Equity 2018 442.82 78.31% 1544.44 97.75%
Total 565.54 100.00% 1579.94 100.00%
Debt Equity Ratio 0.27 0.02
Interpretation-:
The capital of Webjet limited consists of both debt (21.69%) and equity (78.31%). In which they
are having a debt equity ratio of .27. Flight centre Travel Group Ltd has an equity (97.75%), debt
(2.25%) and debt equity ratio of .02. So, after comparing ratios, Webjet limited possess more
risk, as it has higher debt equity ratio, to investor and lender for repaying interest and borrowings
from Flight centre.
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Cash Flow Statement
(iii)List of items of Cash Flow Statements
These are statements which shows changes in inflow and outflow of cash and equivalents
(Ball, 2016). There are three types of activities that are associated with cash flow statements that
are-:
1. Operating Cash Flow- These are cash flows that includes transactions from business
activities that happens daily in business. These can be-:
1. Receipts from sale and accounts receivable
2. Interest that received from Loans
3. Payment to Suppliers
4. Payment to employees
5. Tax Paid
2. Investing Cash Flow- This includes inflow of all cash and equivalents for capital
expenditures that are used for investment purposes (Graham, 2018). These type of cash
flows are-:
1. Purchase and sale of Assets
2. Related to Mergers and Acquisition
3. Loans Granted and Repaid
4. Proceeds from sale of investments
5. Purchase of investments
3. Financing Cash Flow-: This inflow and outflow includes cash from investors that are
used in business financing and by which they can manage their daily business operations
(Cash Flow Statements 2018). These cash flows can be-:
1. Proceeds from issue of Shares
2. Dividend Paid
3. Issue and Repayment of Long term borrowings I.e. debentures.
In flight centre cash from last year has decreased by $8.66 million (1272.99-1281.65) because
advance payments are made to suppliers and dividend paid was much higher than compared to
previous years.
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In Webjet Limited Cash from last year had been increased by $12.65 million (190.77-178.12) as
receipts from customers and payments to suppliers are just doubled from last year and company
raised funds through issue of share capital and even borrowed funds much higher from previous
years from general public.
(iv)Comparative analysis of three activities of Cash Flow Statements for past three years-:
Flight Centre Limited
Years
Particulars 2016 2017 2018
Amounts in $
Cash Flow from Operating
Activities
356.6 295.35 314.34
Cash Flow from Investing
Activities
-290.2 -161.25 -146.44
Cash Flow from Financing
Activities
-110.46 -155.99 -186.2
1. Cash Flows from operations of Flight Centre Limited has gone down as repayments made
to suppliers was higher than that off past years.
2. Cash Flows from Investing activities has been decreased from past years as they had
made huge investments in this year.
3. Cash Flows from Financing activities had declined from previous years as this time they
had paid excess dividend to shareholders.
Webjet Limited
Years
Particulars 2016 2017 2018
Amounts in $
Cash Flow from Operating
Activities
46.62 34.79 120.85
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Webjet Limited
Cash Flow from Investing
Activities
-67.49 37.19 -347.98
Cash Flow from Financing
Activities
63.29 -11.13 235.69
1. The activities of Operation of Webjet had inflate from last years as revenue from
operations had been doubled up.
2. The Cash from Investing activities had dropped because they had purchased a subsidiary
company for expansion purposes.
3. The Financing Activities had been increased as there was issuance of new shares and
borrowings taken by Webjet limited.
(v)Comparative Analysis of Cash Flow Statements of both companies
It states that Webjet Limited is planning to expand their business as they had purchased a
Subsidiary company and raised share capital and borrowings. They have doubled up their
revenues and payments to suppliers also on time. The Webjet limited is in expansion phase.
Whereas Flight Centre Limited are in a saturation phase as they are having stable revenues from
past years and no other big investment had been done by them. They had borrowed huge
amounts and repaid their borrowings from that money.
OTHER COMPREHENSIVE INCOME STATEMENTS
(vi)Items that are needed to report in Comprehensive Income Statements
Comprehensive income statements are sum of net income that has not been recorded in Profit
and loss account or income statements because they are not realized physically (Lin, 2017). For
ex- unrealized gain or loss that occurs because of sale and purchase securities that are available
for sale.
Items that are reported in each company;
1. Operating Revenue-: These are revenue which are generated from regular businesses like
purchase and sale of goods but they include all realised profit and loss that are based on
accrual concepts.
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2. Unrealized gains and losses are attained because of Hedging of financial instruments
3. Adjustments of Foreign Currency
4. Profit or loss of Post-retirement benefits plans
5. Unrealized Gain/Loss of investments that are available for sale.
(vii)Stating reasons for items of Comprehensive Income statements are not recorded in P&L
These statements are not reported in income statements because financial accounting uses
accrual basis method that means effect of transactions are recorded when they occur (Graham,
2018). The items which are included in comprehensive income statements are excluded from
profit and loss accounts, as income statements are prepared on Accrual Basis Concept. There
may be differences if done on cash basis. It includes those revenues, incomes, losses that are
excluded from net income from income statements. In this statement revenues expenses losses
are recorded even when they are not realized. This accrual concept states that revenues should be
recorded when they have earned but not when received in cash and same with expenses, they are
entered into books of accounts when occurred not when they are paid.
(viii)Comparative Analysis of Other Comprehensive Income Statements
Other Comprehensive Income statements is used for measuring owners interest. This is
statements where income and expenses are recorded that are by-passed in income statement as
they have not been realized according to accrual concept (Dixon, 2016). The items that are not
included in income statement are recorded here-:
1. Losses and profits from derivatives
2. Unrealized profit and loss from debt security
3. Gain and losses from pension and retirement plan
4. Foreign currency transactions
5. Unrealized gain and losses from securities that are available for sale
Comparison of Other Comprehensive Statements
Particulars Webjet Limited Flight Centre Travel Limited
Profit of Current Period 41474 264213
Comprehensive Incomes 13139 15804
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Particulars Webjet Limited Flight Centre Travel Limited
Total income 54613 280017
Profits of shareholders will have no effect as these gains which are shown in other
comprehensive statements that will be realizing in coming years and they will get their profits
whenever these items will actually be realised as per accrual concepts.
(ix)Evaluation with Inclusion of Items of Comprehensive Income Statements
The other comprehensive income should not be included in evaluating performance of managers
of company because this income and losses includes-:
1. Transaction of foreign currency
2. Gain and losses because of post-retirement benefits
3. Losses and Gains that are unrealized for investments that are available for sale.
These gains and loss have no role in evaluation of performance of company as these surplus and
deficits are abnormal which will not occur regularly (Schaltegger, 2017). These profits and
losses are not from business operations. So these must not be included in evaluation of
performance by management.
Accounting for Corporate Income Tax
(x)The Tax expenses that are shown in both of companies for current year-:
Particulars Tax amount in $ (in millions) For2018
Webjet Limited 17.09
Flight Centre Limited 60.26
Interpretation-:
Current tax expense of Webjet limited is $17.09 million and Flight Centre Limited is $60.26
million.
(xi)Calculation of Effective tax rate for both companies
Particulars Flight Centre Limited Webjet Limited
Income tax expense (a) 99.28 17.09
Earnings Before Tax (b) 363.49 60.26
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