Analysis of Income Tax Accounting for Two Australian Companies Report

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This report provides an analysis of income tax accounting for two Australian companies, Corporate Travel Management (CTD) and ALS Limited. The report focuses on the application of AASB 112, comparing income tax expenses, and deferred tax assets and liabilities over a two-year period (2016-2017). It examines the income tax paid, income tax expense, and reconciliations between tax expense and statutory profit before income tax for both companies. The analysis includes a comparison of the deferred tax assets and liabilities, highlighting the reasons behind their creation, such as provisions, employee benefits, depreciation, and foreign exchange rates. The report concludes by discussing the closing balances of deferred tax liabilities and assets for both companies, providing insights into the carrying amount versus tax base. The report uses data from the companies' annual reports to support its findings.

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By student name
Professor
University
Date: 25 April 2018.
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Contents
Background & Introduction......................................................................................................................... 3
Analysis........................................................................................................................................................ 4
References................................................................................................................................................... 8
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Background & Introduction
In the given report, a comparison of the income tax accounting for the two companies has been
done to find out the similarities and the differences in accounting for income taxes. It is primarily
governed by AASB 112 which discusses on the accounting treatment, presentation and reporting
for the income taxes (Boccia & Leonardi, 2016). The analysis has been done using two of the
major companies in Australia namely Corporate Travel Management which is one of the most
innoivative travel company in Australia and is an award winning provider of travel solutions to
many of the corporates in Australia. The second company being analysed here is ALS Limted
which is known for providing testing services. It also provides certification, inspection and
verification services and both these companies are listed on the Australian Stock Exchange
(Alexander, 2016).
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Analysis
 The tax being paid by the two companies in the last 2 years has been shown below in the
table. The amounts have been taken from the cash flow section of the annual report of the
company for the year 2017 and 2016. The snapshots from the annual report of the
company has been attached for reference (Dichev, 2017). The tax being paid by CTD has
been $ 19.96 Mn in 2017 and $ 12.20 Mn in 2000. On the other hand, the tax being paid
by ALS amounted to $ 41 Mn in 2017 vs $ 39 Mn in 2016.
(in $'000)
Particulars CTD ALS
2017 2016 2017 2016
Income Tax
paid 19,958 12,199 41,000 39,000
Reference Annual report, pg.29 Annual report, pg.46
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 The income tax expense for the company CTD was $ 19.79 Mn in the year 2017 vs $
12.13 Mn in the year 2016. Comparatively, the tax expense recognised in the profit and
loss account of ALS was $ 41.1 Mn for the year 2017 and $ 38.2 Mn for the year 2016.
The tax expense for both the given companies have increased over the past year implying
that the taxable profit of the company has increased and both the companies are not
carrying much of deferred tax assets (Goldmann, 2016). This information was also found
in the annual report in the notes section. The reconciliation of the same from income tax
expense to the tax payable by the company has also been given in the notes to accounts.
(in $'000)
Particulars CTD ALS
2017 2016 2017 2016
Income Tax expenses for the
year 19,788 12,126 41,100 38,200
Reference Annual report, pg.38 Annual report, pg.72
 There is a note in the annual report of both the companies which gives a reconciliation of
the income tax expense and the statutory profit before the income tax. The same has been
shown below in the table. This is in compliance with the AASB standard.
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 The above table shows the reconciliation of CTD company where the accounting profit is
$ 77.63 Mn on which the tax rate of 30% has been applied and then the adjustments for
temporary differences and prior period taxes have been done to arrive at the final income
tax expense to be recognised for the year (Annual Report, 2017, Pg. 38). In the similar
way, reconciliation has also been given for ALS limited which has been shown below.
This company had many more adjustments in the form of goodwill, impairment losses,
amortization, loss on sale of subsidiaries tax exempt revenues, etc. (Annual Report, 2017,
Pg. 72)
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 In case of CTD, the net deffered tax assets amounted to $ 8.98 Mn in 2017 ($ 4.26 Mn in
2016) and net deffered liabilities totalled to $ 10 Mn in 2017 and $ 5.54 Mn in 2016. The
main reason for deferred tax assets are provisions, employee benefits and other reasons
like sale of the entity, change in the foreign exchange rate. On the other hand, the reason
for creation of the deferred tax liability were accrued income, depreciation and
amortization and acquisition of subsidiaries (Das, 2017).
Similarly in the case of ALS Limited, the net deferred assets amounted to $ 20.5 Mn in
2017 ($ 23.8 Mn in 2016) whereas the net deferred laibilties amounted to $ 9 Mn in 2017
($ 8.7 Mn in 2016). The deferred tax assets were mainly created out of provision and
other payables, change in foreign exchange rates and subsequent losses/gains and
undeducted equity raising costs. On the other hand, the deferred tax liabilities were
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created out of profit/loss on sale of property, plant and equipment, land and building, fair
value derivatives, intangible assets and inventories, etc.
 Deferred tax assets ae those assets which is used to reduce the taxable income. It occurs
when the taxable income is more than the income reported in the profit and loss account.
Its benefit can be enjoyed in future years. On the other hand, deferred tax liabilities arises
when the taxable income base is lower or smaller than the income mentioned in the profit
and loss account. All these differences arise due to the temporary and permanent
differences where the tax deduction is allowed in different years as per the income tax
rules (Sithole, et al., 2017).
 In the case of CTD company, the closing balance is a deferred tax liabiltity and the
amount of the same is $ 1.03 Mn. On the other hand, in the case of ALS Limited, the
closing balance represents the net deferred tax asset amounting to $ 11.1 Mn in 2017 ($
15.1 Mn in 2016).
 With respect to the property, plant and equipment, the balance of deferred tax liability is
$ 1.2 Mn for the year 2017 (DTA : $ 1.6 Mn in 2016) in case of ALS Limited. On the
other hand, in case of the CTD company, the closing balance with respect to PPE is a
deferred tax liability amunting to $ 10.41 Mn in 2017 ($ 8.30 Mn in 2016).
 Since for both the companies, the final closing balance is a deferred tax liability, the same
depicts that the carrying amount is higher than the tax base. The company has paid lower
taxes in the given year on account of greater depreciation expense benefit being allowed
in taxation.
References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Boccia, F. & Leonardi, R., 2016. The Challenge of the Digital Economy: Markets, Taxation and
Appropriate Economic Models. s.l.:Springer.
Das, P., 2017. Financing Pattern and Utilization of Fixed Assets - A Study. Asian Journal of Social Science
Studies, 2(2), pp. 10-17.
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Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), pp. 617-632.
Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business.
Financial Environment and Business Development, Volume 4, pp. 103-112.
Sithole, S., Chandler, P., Abeysekera, I. & Paas, F., 2017. Benefits of guided self-management of attention
on learning accounting. Journal of Educational Psychology, 109(2), p. 220.
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