HI5020 Corporate Accounting: Financial Analysis of GWA Group Limited

This report provides a comprehensive analysis of GWA Group Limited's financial statements, focusing on the cash flow statement, income tax expenses, and deferred tax assets. The analysis includes a breakdown of cash flow from operating, investing, and financing activities over three years (2015-2017), highlighting changes and trends. It also examines the components of other comprehensive income, the differences between accounting income and taxable income, and the treatment of deferred tax assets and liabilities. The report further discusses the differences between income tax paid and income tax expenses, emphasizing the detailed tax treatment disclosures by GWA Group Limited, making it a valuable resource for understanding corporate accounting practices. Desklib offers similar solved assignments for students.

Running head: CORPORATE ACCOUNTING
Corporate accounting
Name of the Student
Name of the University
Author Note

CORPORATE ACCOUNTING
Table of Contents
Requirement i)............................................................................................................................2
Requirement ii)...........................................................................................................................3
Requirement iii).........................................................................................................................3
Requirement iv)..........................................................................................................................4
Requirement v)...........................................................................................................................5
Requirement vi)..........................................................................................................................5
Requirement vii).........................................................................................................................5
Requirement viii).......................................................................................................................6
Requirement ix)..........................................................................................................................6
Requirement x)...........................................................................................................................7
Requirement xi)..........................................................................................................................8
References list:.........................................................................................................................10
Appendix:.................................................................................................................................12

CORPORATE ACCOUNTING
Requirement i)
Analysis of elements of cash flow of GWA Group limited:
The cash flow statement of GWA Group is segmented into three parts comprising of
cash flow from operating activities, cash flow from financing activities and cash flow from
investing activities. Several items as reported under the operating activities include receipt
from customers, cash generated from operations, interest received, income tax paid and
interest and facility paid. Net cash from operating activities has increased from $ 54924 in
year 2016 compared to $ 57171 (Gwagroup.com.au, 2018). This increase in cash flow from
operating activities is because of reduction in payment made to suppliers and employees,
facility and interest fees paid and income tax paid. In addition to this, total amount of interest
received has increased in recent year. Cash flow from investing activities include items such
as acquisition of intangible assets, property, equipment and plant, proceeds generated from
sales of such assets, net transaction costs and business disposal. In year, total amount of net
cash generated from investing activities stood at $ 12 as against net cash used from investing
activities of amount $ 4911 (Gwagroup.com.au, 2018). This is so because a significant
amount has been invested for acquiring intangible assets, property, equipment and plant.
Items under the cash flow from financing activities include repayment of borrowings,
proceeds from borrowing, dividend paid, payment for on market share buyback and capital
return to LTI grants holders. There is decrease is net cash used in financing activities from $
53791 in year 2016 as against $ 51590 in year 2017. This decrease in net cash used is
attributable to higher amount of dividend paid and repayment of borrowings. There is
increment in payment from borrowings that has led to decrease in net cash used in financing
activities.

CORPORATE ACCOUNTING
Requirement ii)
Comparative analysis of cash flow items for three years:
Particular 2015 2016 2017
Net cash flows from operating activities
$
43,505.00 54,924 57,171
Net cash flows used in investing
activities
$
1,16,596.00 12
-
4,911
Net cash flows used in financing
activities -155524
-
53,791
-
51,590
It can be seen from above table that there is increase in net cash flow from operating
activities from $ 43505 in year 2015 to $ 54924 and $ 57171 in year 2016 and 2017. Now,
looking at the figures, the amount of net cash flow from investing activities in year 2016 and
2015 compared to net cash used from investing activities. There has been decrease in net cash
flow from financing activities from $ 155524 in year 2015 compared to $ 53791 in year 2016
and $ 51590 in year 2017 respectively (Gwagroup.com.au, 2018).

CORPORATE ACCOUNTING
2015 2016 2017
$-200,000.00
$-150,000.00
$-100,000.00
$-50,000.00
$-
$50,000.00
$100,000.00
$150,000.00
43,505 54,924 57,171
116,596
12
-4,911
-155,524
-53,791 -51,590
Comparative analysis of cash flow categories of GWA
group Limited
Comparative analysis of cash flow items of GWA Group limited:
(Source: created by author)
Requirement iii)
The items that are reported in the statement of other comprehensive income include
the items that are reclassified subsequently to profit and loss. Such items include cash flow
hedges and net of tax and exchange differences on net of tax and translation of foreign
subsidiaries. Other items included earning per share that is basic and diluted earnings per
share. Profit and loss statement includes cost of sales, sales revenues, operating profit, net
financing cost and items of discontinued operations (Delgado et al., 2014).

CORPORATE ACCOUNTING
Requirement iv)
Difference sin exchange rate is the difference that results from translation of given
number of one unit of currency to another currency at different exchange rate. Organizations
having foreign operations such as associate, subsidiary, brand and joint venture are exposed
to fluctuations from foreign exchange rate (Hopper & Bui, 2016).
A cash flow hedging is hedging against the exposure of any variation in cash flow of
specific liabilities or assets attributable from particular level of risks. It is a strategy that is
used by organization for hedging to eliminate the risks that arises from change in cash flow.
Earnings per share of organization that is the proportion of the profits that is
attributable to the shareholders of company. It is obtained by deducting net income from
preferred stock to the total numbers of outstanding shares (Hopper & Bui, 2016).
Requirement v)
The reason why the items of other comprehensive income are not recorded in the
profit and loss statement because it contains some of the items that does not impact the
dividend payment of shareholders of company and therefore, there should be a separate
presentation in the statement of profit and loss. Items such as cash flow hedges and exchange
rate differences on foreign subsidiaries translation and net of taxes do not have a direct
impact in the wealth of shareholders. They are kept aside by companies in the form of
reserves so that they can be used for specific purposes. For instance, the gain or loss that
arises from the revaluation of assets is treated separately. Moreover, any loss or gain resulting
from impairment of assets is also included in the other comprehensive income (Harakeh et
al., 2016). Such item does not impact the dividend payment to shareholders directly. On other
hand, the items reported in the profit and loss statement have a direct impact on the dividend
amount that is distributed to shareholders. However, organization can keep the amount of

CORPORATE ACCOUNTING
profit aside in the form of retained earnings for repayment in the business and such amount is
not attributable to dividend payment to shareholders.
Requirement vi)
The income tax expense recorded by GWA Group limited in financial year 2017 and
2016 stood at $ 21585 and $ 19837. It is indicated by the figures that there is reduction in
total amount of income tax expense incurred by organization. Income tax expense on other
hand in year 2015 stood at $ 3544 (Gwagroup.com.au, 2018). Therefore, there is consistent
increase in total amount of income tax expenses incurred.
Requirement vii)
The accounting income generated by GWA Group limited is recorded at $ 75256 and
$ 71757 for financial year 2017 and 2016. Applicable income tax rate for the corporation is
30%. Therefore, the accounting income times the tax rate of company is recorded at (30% of
$ 75256) = 22576.8 and (30% of 71757) = 21527.1 for both the financial year 2017 and 2016
respectively. The amount of income tax expense recorded by GWA Group limited in
financial year 2017 and 2016 stood at $ 21585 and $ 19837 (Gwagroup.com.au, 2018). It can
be seen from the figures that there is considerable difference between the amount of
accounting income taxation rate and the income tax expense incurred by company. The
reason for difference between the income tax expense and the accounting income is that the
computation of both the figures has been done ob different method. The income tax expense
incurred by organization is based on the taxation rule compared to accounting income
computation that is based on accounting rule (Cao et al., 2015). Therefore, the difference in
method of computation of accounting income and taxable income is the contributing factor
for creating difference between the values of income tax expense and accounting income.

CORPORATE ACCOUNTING
Requirement viii)
From the annual report, it can be seen that the company has not recorded any amount
of deferred tax liabilities in the current reporting year. On other hand, the amount of deferred
tax assets that is recorded in the balance sheet under section noncurrent assets stood at $
16023 in year 2017 compared to $ 18189 in year 2016 respectively. Total amount of deferred
tax assets recorded by GWA Group in year 2015 stood at $ 22103. It is suggested by the
figures that there is considerable decline in the amount of net deferred assets recorded in the
statement of financial position of company. On other hand, a deferred tax expense of amount
$ 1222 is recorded in year 2017 compared to $ 5120 in year 2016 respectively
(Gwagroup.com.au, 2018).
Organization offsets the amount of deferred tax assets and liabilities reported if there
is right that is legally enforced for offsetting current tax liabilities sand current tax assets.
Such offsetting is attributable to the tax that is levied by the income taxation authority. In
addition to this, it helps in settling of current tax liabilities and assets on net basis that will be
realized simultaneously (Petty et al. 2015).
The reason why the deferred tax assets are recognized is attributable to deductible
temporary differences relating to tax credits and unused tax losses. Recognition of deferred
tax assets are done to the extent that there will be availability of future taxable profits so that
they can be utilized. At each reporting date, the management of organization conducts
reviewing of deferred tax assets and the amount of such assets are reduced to the extent that it
is no longer possible to realize the benefits related to taxation. Recording of deferred tax
assets in the statement of financial position is because of the consequence of deferred tax that
are based on temporary difference between the expenses and revenue recorded resulting from

CORPORATE ACCOUNTING
accounting return and taxation return. Deferred taxes can be recorded for deferrals for either
tax payable and tax expenses that leads to the generation of tax liabilities and tax assets on
balance sheet (Grubert & Altshuler, 2016).
There is significant difference between the taxable profit and accounting profit due to
the existence of some items that are allowed or disallowed for purpose of taxation. Such
difference between the taxable income and accounting income is attributable to timing
differences (Bens et al., 2018).
Requirement ix)
Yes, GWA Group limited has recorded deferred tax assets under the heading
noncurrent assets and income tax payable under the heading current liabilities. Total amount
of deferred tax assets recorded by organization in year 2017 and 2016 is recorded at $ 16023
and $ 18189. On other hand, amount of income tax payable recorded by company stood at $
1851 and $ 7346 for financial year 2016 and 2017 respectively.
Requirement x)
The total amount of income tax paid as depicted in the cash flow statement of GWA
group limited stood at $ 19536 in year 2016 compared to $ 14788 in year 2017 indicating that
there has been decline in total amount of income tax paid by organization. The income tax
expense recorded by GWA Group limited in financial year 2017 and 2016 stood at $ 21585
and $ 19837. It is depicted from the figures that there exist difference between the amount of
income tax paid and amount of income tax expenses incurred. Income tax expense amount is
more than the amount of income tax paid as in the usual scenario. This difference in reported
figures is because of method applied for computing both the figures that involves taxation
rule and accounting rule (Acosta et al. 2017).

CORPORATE ACCOUNTING
Requirement xi)
Analysis of annual report of GWA group limited is illustrative of the fact that the
there is a detailed disclosure of tax treatment by organization which is relevant to the users of
financial statements. There is appropriate segmentation of different items of taxation such as
income tax expense, income tax paid, income tax payable, deferred tax assets and deferred
tax liabilities if reported by organization during a particular reporting period. Notes to
financial statement provide a detailed disclosure of the methods that is used by organization
for computing the taxation elements. Furthermore, there is separate section of deferred tax
liabilities and deferred tax assets that explains in details about the occurrence of such items
and the factors that attributes to it. Sensitivity analysis takes into account the factors related to
taxes. Each and every items relating to treatment of tax is explained in detail for which it will
make users understand the several adjustments. Such explanation is quite an interesting fact
for the financial statement users who are interested in making investment in that particular
organization (Petty et al., 2015).

CORPORATE ACCOUNTING
References list:
Acosta-González, E., Fernández-Rodríguez, F. and Ganga, H., 2017. Predicting Corporate
Financial Failure Using Macroeconomic Variables and Accounting
Data. Computational Economics, pp.1-31.
Balakrishnan, K., Blouin, J., & Guay, W. (2018). Tax Aggressiveness and Corporate
Transparency. The Accounting Review.
Bens, D.A., Monahan, S.J. and Steele, L.B., 2018. The Effect of Aggregation of Accounting
Information via Segment Reporting on Accounting Conservatism. European
Accounting Review, 27(2), pp.237-262.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., ... & Wende, S.
(2015). Understanding the economy-wide efficiency and incidence of major
Australian taxes. Canberra: Treasury working paper, 2001.
Delgado, F. J., Fernandez-Rodriguez, E., & Martinez-Arias, A. (2014). Effective tax rates in
corporate taxation: A quantile regression for the EU. Engineering Economics, 25(5),
487-496.
Gitman, L. J., Joehnk, M. D., Smart, S., & Juchau, R. H. (2015). Fundamentals of investing.
Pearson Higher Education AU.
Grubert, H., & Altshuler, R. (2016). Shifting the burden of taxation from the corporate to the
personal level and getting the corporate tax rate down to 15 percent.
Guenther, E., Jasch, C., Schmidt, M., Wagner, B., & Ilg, P. (2015). Material flow cost
accounting–looking back and ahead.

CORPORATE ACCOUNTING
Gwagroup.com.au. (2018). [online] Available at:
http://www.gwagroup.com.au/wp-content/uploads/Annual-Report-2017-1.pdf
[Accessed 25 May 2018].
Harakeh, M., Lee, E., & Walker, M. (2016). Does Changing Accounting Standards Affect
Dividend Policy?.
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial
accounting. Pearson Higher Education AU.
Hopper, T., & Bui, B. (2016). Has management accounting research been
critical?. Management Accounting Research, 31, 10-30.
Lang, M. (2014). Introduction to the law of double taxation conventions. Linde Verlag
GmbH.
Li, Z., Wang, L., & Wruck, K. H. (2018). Accounting-Based Compensation and Debt
Contracts.
Petty, J. W., Titman, S., Keown, A. J., Martin, P., Martin, J. D., & Burrow, M.
(2015). Financial management: Principles and applications. Pearson Higher
Education AU.

CORPORATE ACCOUNTING
Appendix:
Particulars 2015 (in 000) 2016 (in 000) 2017 (in 000)
Cash flows from operating activities:
Receipts from customers 610596 502464 483652
Payments to suppliers and employees -5,48,445 -4,21,842 -4,06,387
cash generated from operations 62,151 80,622 77,265
Interest and facility fees paid -8,319 -6,662 -5,881
Interest received 935 500 575
Income taxes paid on operating activities $ -
11,262.00
$ -
19,536.00
$ -
14,788.00
Net cash flows from operating activities $
43,505.00
$
54,924.00
$
57,171.00
Cash flows from investing activities:
Proceeds from sale property, plant and
equipment
$
33,059.00
70 370
Acquisition of property, plant and equipment $ -
3,681.00
$ -
2,708.00
$ -
3,344.00
Acquisition of intangible assets $ -
1,710.00
$ -
920.00
$ -
1,600.00
Proceeds from business disposal, net
transaction cost
$
88,599.00
3,750 0
Net cash flows used in investing activities 1,16,596 12 4,911
Cash flows from financing activities:
Proceeds from borrowing $
1,05,000.00
$
20,000.00
$
27,000.00
Repayment of borrowings $ -
1,55,000.00
$ -
25,000.00
$ -
35,000.00
Dividends paid $ -
35,251.00
$ -
18,718.00
$ -
43,551.00
Capital return to holders of LTI grants $
-
$ -
44.00
$ -
39.00
Payment for on-market share buy-back $ -
70,273.00
$ -
30,029.00
$
-
Net cash flows used in financing activities $ -
1,55,524.00
$ -
53,791.00
$ -
51,590.00
Net increase/(decrease) in cash and cash
equivalents
$
4,577.00
$
1,145.00
$
670.00
Cash and cash equivalents at beginning of year $
29,873.00
$
33,043.00
$
35,696.00
Effect of exchange rate changes $ -
80.00
$
181.00
$ -
6.00
Cash within assets held for sale $ -
1,327.00
$
1,327.00
$
-
Cash and cash equivalents at end of year $
33,043.00
$
35,696.00
$
36,360.00