Corporate Accounting Report: Treasury Wine Estates Financial Analysis

This report provides a comprehensive analysis of the corporate accounting practices of Treasury Wine Estates (TWE). It examines key equity items such as contributed equity, reserves, and retained earnings, detailing the reasons for changes in these items. The report further explores tax expenses, comparing the tax expense to the applicable tax rate and identifying the adjustments causing the difference. It delves into the treatment of deferred tax assets and liabilities, current tax liabilities, and the differences between income tax reported in the cash flow statement and the income statement. The analysis highlights the complexities of deferred tax recognition and the uncertainties in determining the final tax liability. The report concludes with new insights gained from analyzing TWE's financial statements, emphasizing the impact of calculations, adjustments, and transactions on tax provisions.

Running head: CORPORATE ACCOUNTING
Corporate accounting
Name of the student
Name of the university
Author note

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Table of Contents
(i) Equity items and their explanation.....................................................................................2
(ii) Tax expenses...................................................................................................................4
(iii) Difference in tax expense and tax rate............................................................................5
(iv) Reported deferred tax assets or liabilities.......................................................................5
(v) Current tax.......................................................................................................................7
(vi) Difference in the income tax as per cash flow statement and income statement............7
(vii) Confusing part and new insights.....................................................................................8
Reference....................................................................................................................................9

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Treasury Wine Estates (TWE) is the global distribution and making company for
wine that has its head quarter in Melbourne, Australia. The company operates as the wine
company in New Zealand, Australia, Europe, Asia and America. It is engaged in winemaking
and viticulture, sale, marketing and supply of wine. Further, the company offers luxury and
commercial wines. At Treasury Wine Estates, the company is focussed on continuous
improvement, innovation and commercial achievement. The business of the company is
driven by the leaders who are drawn from rich diversity of the industrial experience and then
combine the experience with skill, talent, passion commitment. The company is subject to the
Australian Income taxes and the other jurisdiction where it carries out its foreign operation
(Tweglobal.com 2018).
(i) Equity items and their explanation
As per the company’s annual report for the year ended 2017, it is recognized that the
item included under equity are –
 Contributed equity – the contributed equity of the company includes ordinary shares
and treasury shares. The ordinary shares allow the holders to take part in the
dividends and winding up procedures. It further allows 1 vote to each holder either by
proxy or in person at the meeting. On the other hand, the treasury shares are the part
of the shares that the entity keeps in own treasury (Abdul, Mohd and Kamardin 2016).
The stock in treasury are added through buyback or repurchase from the shareholders
or the situation may be that the shares were never been issued to public.
 Reserves – under the financial accounting the term reserve represent the part of the
shareholder’s equity without taking into consideration the basic share capital. The
reserve may include various items like capital reserve that is generally created through
issuing the shares at the value exceeding the par value. However, the reserve of TWE

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includes the items like reserves from cash flow hedge, reserves from the share based
payments and reserve with regard to the foreign currency translation.
 Retained earnings – it is the profit that is generated by the entity and not distributed to
the stockholders through dividend and are kept as reserve or reinvested in business
(AlTroudi and Milhem 2013). It is the cumulative income of the company since the
formation of the company and is reduced by the amount of dividend decorated since
that.
(Refer page no. 64 of annual report for year ended 2017)
Changes in equity items
Equity items 2017 ($’M) 2016 ($’M)
Contributed equity 3,528.6 3,533.6
Reserves (23.9) 17.1
Retained earnings 99.6 15.1
Reasons for changes –
 Contributed equity – it has been reduced from $ 3,533.6 million to $v 3,528.6 million
due to purchasing of own share amounting to $ 18.3 million and vesting of deferred
shares amounting to $ 13.3 million.
 Reserves – reserves has been change from $ 17.1 million to $ (23.9) million expenses
incurred for shares based payments amounting to $ 18.6 million, vesting of deferred

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shares amounting to $ (13.3) million and foreign currency translation reserve
amounting to $ (1.0) million.
 Retained earnings – the amount has been increased from $ 15.1 million to $ 99.6
million due to addition of profit for the year amounting to $ 269.1 million and
distribution of dividends amounted to $ (184.6) million.
(Refer page no. 65 of annual report for year ended 2017)
(ii) Tax expenses
Tax expensed by TWE amounted to $ 117.3 million for the year ended 2017. The
applicable tax rate for the company as per Australian taxation office and Corporation act
2001 was 30% for the year under consideration (Marshall 2016).
(Refer page no. 63 of annual report for year ended 2017)

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(iii) Difference in tax expense and tax rate
It has been recognised that the applicable tax rate on the company is 30%. However, it
does not match with the tax expenses of the company if the same rate is applied on net
income of the company (Guenther 2014). The reasons of changes are various adjustments
which are shown through the following table.
Particulars Amount (M)
Profit before tax $ 387.20
Tax @ 30% $ 116.16
Adjustments
Non-taxable profits and income $ 2.70
Deductible items $ (1.70)
Recognition of tax losses $ (6.00)
Changes in the tax rate $ 0.40
Difference in foreign tax rate $ 4.40
Other adjustments $ (0.20)
Under provision of previous years $ 1.50
Total expenses for tax $ 117.26
(Refer page no. 91 of annual report for year ended 2017)
(iv) Reported deferred tax assets or liabilities
Deferred tax is referred as the negative (liability) or positive (asset) recorded under
the balance sheet of the company with regard to the tax overpaid or underpaid owing to
temporary differences (Mullinova and Simonyants 2016.). Deferred tax can be categorised as

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liability or assets. However, both are shown under the balance sheet of the company.
Whether it is the liability or asset will be decided based on the tax overpaid or underpaid.
Looking into the company’s annual report it is identified that the amount of deferred tax
assets of the company for the year ended 2017 was $ 208 million whereas the amount of
deferred tax liability for the same period was $ 233.9 million. Deferred tax is calculated at the
applicable rate of tax on the company for the year under consideration (Kober, Lee and
2013).
(Refer page no. 64 of annual report for year ended 2017)
Further, the deferred tax liabilities are recognized for all the temporary differences
that are taxable. On the other hand, all the deferred tax assets are recognized for all the
temporary differences that are deductible. The unused losses for tax and assets under tax are
carried forward to the possible extent taken into account the probability that it will be used
(Laux 2013). Further, the unrecognized tax assets under income tax are reassessed at the
closing of each period and identified for the amount ill the extent is probable that the amount
will be used. Deferred tax liabilities or assets are offset if only there exists the enforceable
right for setting off the current tax assets with the current tax liabilities and the both the

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current tax liabilities and assets are associated with the same taxable company and are
applicable under the same authority for taxation.
(v) Current tax
Current tax liabilities and assets are computed at the expected amount that is to be
paid to or recovered from taxation authorities at the rate of tax and the substantially enacted
or enacted tax rates till the date of reporting (Kallianiotis 2015). As per the annual report of
the company for the year ended 2017, the amount of current tax liabilities were $ 51.1
million. However, the company did not have any current tax assets or income tax payable.
(Refer page no. 64 of annual report for year ended 2017)
(vi) Difference in the income tax as per cash flow statement and income statement
While going through the cash flow statement and income statement of the company it
is recognized that the taxes under both statements are not same (Piketty 2017). Tax expense
as per the income statement of TWE for the year ended 2017 is $ 117.3 million whereas the
income tax paid as per the statement of cash flow is $ 32 million. The reason of difference is
that the tax paid as per the statement of cash flow is the applicable tax on the operating
income of the company (Jones 2017). On the contrary, the income tax expenses in the
statement of income are the tax payable on the net income before tax after meeting various
expenses and making adjustments.

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(vii) Confusing part and new insights
Confusing part – analysing the tax related issues and treatments by the company; the most
difficult thing I came across is that the treatment of deferred tax assets and deferred tax
liabilities. Deferred tax is recognized for the temporary difference and does not take into
consideration the difference where there is a probability that the temporary difference will be
reversed. Here the main issue came into my mind that what are the indications that will be
considered as possibility for reversal. Chances are there that the management may not be
agreed upon the indication fact of reversal as there is no specified indication regarding the
deferred tax treatment or reversal of that.
New insights – I have gained some new insights regarding the treatment of income tax while
analysing the tax treatment of the TWE in their annual report. The very 1st insight is that the
reason of tax expenses as per the income statement being different as compared to the tax
paid as per the cash flow statement. 2nd important insight gained is that due to various
calculations, adjustments and transactions in ordinary course of the business ultimate
determination for tax is not certain. Moreover, these differences have the impact on the
deferred tax and current tax provision of the company.

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Reference
Abdul, R., Mohd, K.N.T. and Kamardin, H., 2016. Financial Characteristics and Cancelling
Treasury Shares Events. Indian Journal of Science and Technology, 8(32).
AlTroudi, W. and Milhem, M., 2013. Cash dividends, retained earnings and stock prices:
Evidence from Jordan. Interdisciplinary Journal of Contemporary Research in
Business, 4(12), pp.585-599.
Guenther, D.A., 2014. Measuring corporate tax avoidance: Effective tax rates and book-tax
differences. Browser Download This Paper.
Jones, D., 2017. Tax and accounting income-Worlds apart?. Taxation in Australia, 52(1),
p.14.
Kallianiotis, I.N., 2015. The Optimal Taxation and the Current Tax System. International
Journal of Economics and Empirical Research (IJEER), 3(3), pp.151-164.
Kober, R., Lee, J. and Ng, J., 2013. GAAP, GFS and AASB 1049: perceptions of public
sector stakeholders. Accounting & Finance, 53(2), pp.471-496.
Laux, R.C., 2013. The association between deferred tax assets and liabilities and future tax
payments. The Accounting Review, 88(4), pp.1357-1383.
Marshall, D., 2016. Accounting: What the numbers mean. McGraw-Hill Higher Education.
Mullinova, S. and Simonyants, N., 2016. Reflection of a deferred tax liability in the credit
union reporting according to IFRS (IAS) 12 “Income taxes”. Modern European Researches,
(1), pp.83-88.
Piketty, T., 2017. Capital in the twenty-first century. Harvard University Press.

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Tweglobal.com., 2018. Home - Treasury Wine Estates. [online] Available at:
https://www.tweglobal.com/ [Accessed 26 Jan. 2018].