HA2032 Corporate Accounting Assignments Solution

HA2032 Corporate Accounting Assignments Solution

HA2032 Corporate Accounting Assignments Solution

Introduction:

The annual report depicts a clear picture of financial status and condition of companies. Financial statements are verified and analyzed in order to review the stability and position of the company. In this reading, the major purpose of preparing this report is to make proper and effective understanding of various financial statements which includes four parts, owner’s equity, cash flow statements, income statements and comparative business analysis between both chosen company. Westpac banking and ANZ banking group will be taken into observation for financial analysis which includes sources of owner’s equity and changes, comparative analysis of cash flow changes within organizations etc. it will depict the knowledge of debt and equity relation incurred in financial last financial years.

Owner’s Equity

(I)List of each item of equity and understanding & Changes in each item of equity

1. Owner’s equity: Owner’s equity is that equity which can be taken as a source of organizational assets. Owner’s equity is the major word which can be used in the terms of alistof equity which includes following things:

2. Common Stock:thecommonstock of owner’s equity can be taken ass ordinary shares of the company, which was 275 in 2017 in Westpac Company; it was higher than the common stock of ANZ Banking Limited.

3. Preferred Stock:Preferred stock: The unit of thesharewhichisentitled to the stakeholders as a fixed unit of dividend, whose payment has given the higher priority than the other ordinary stock in thecompany. In 2017 Preferred stock of the Westpac banking was 2750 and 1974 in 2016 which has been increasing in thelastfive years. ANZ banking group’s preferred equity was nil from last two years.

4. Retain Earning:Retained earnings are those profits which can be dividedintoprofit, cash, bonuses and dividend among shareholders. Total retain profit were 26,100 in 2017 of Westpac banking and ANZ defined Retained profit around 18765 in 2017.

Accumulated other comprehensive income

In financial accounts of Westpac and ANZ banking group, it is needed to make of list of equity items mentioned in the balance sheet of the companies.

In the financial statement of Westpac banking group, equity items which listed are: banking corporations, total non-controlling interests, reserves, retained profits etc. on the other hand the list of equity stated in thefinancialstatement of ANZ Banking Group Company are: common stocks, merged stocks and retained earning etc.The companyhas treasury stock which was in the form ofpaid-incapital (Law, 2018). 

Changes in cash proceed and expenditure off the company regarding projects to offer and boost assets of the company. Common stock is a type of corporate value proprietorship, a sort of security. The terms voting offer and standard offer are likewise utilized as often as possible in different parts of the world. Thus there is the reason behind changes in equity lists when reserves, cash and profits make large effects on it due to changes. Turing of profits: changes in stocks’ equity such as retained earnings, cash, merged stock etc would be increased with the increment in business profits. A preferred stock is a class of proprietorship in an enterprise that has a higher case on its advantages and profit than basic stock.Favouredoffers by and large have a profit that must be paid out before profits to basic investors, and the offers, as a rule, don't convey voting rights. In the financial statement of WestpacCompany,the retained earnings and other stock’s equity are increasedfromlast five years. Retained earnings are the benefits that an organization has earned to date, less any profits or different disseminations paid to financial specialists. This sum is balanced at whatever point there is a passage to the bookkeeping records that effects an income or cost account. Retained earnings were 26,100 in 2107 which was increased due to business profits. In the financial statement of theANZbanking group, all lists of equity are decreased years by years. In 2016, it was 77, 46 m and in 2017, it was reduced due to total deposits and investment in anumberof theasset(Khan, et. al., 2016). Accumulated other comprehensive income is a general record account that is ordered inside the value segment of the monetary record. It is utilized to gather undiscovered increases and hidden misfortunes on those details in the salary articulation that are characterized inside the other thorough pay class.

(II)Comparative analysis of the debt and equity position between both firms:

ANZ banking group & Westpac banking group: Deferred no cash items and deferral payments of different compensation emphasizes. Such deferral part granted as anequityperformance ANZ banking group and vested from last 3 years which increased the effect upon debt and equity relation in the company. On another hand, Westpac Company has created debt issues around 168,356 and 169,902 in 2016. Total retain profit were 26,100 in 2017 and reserve was 794 million as per thelistof the equity. The position and debt-equity condition of the Westpac bankingaregood (Gordon, et. al., 2017).

Cash Flows Statement

(III)List each item reported in the cash flows statement and discussion of changes into of each item.

Westpac Banking group:

In the financial statement and cash flow statement of Westpac banking group, it has been segregated into three parts, in the operating cash flow point view, interest isgivenand received; dividend received excluding life insurance and othernonrelated noncash itemshavebeen mentioned. In other life businesses, receipts from shareholders, theinterestof dividendhavebeen given. Total cash operation activities were 2820 million in 2017 and 5497 million in 2016. The total cash flow from investing activity includes proceeds and purchase of available of resale securities, net purchase for assets intangible and purchase of disposal and property. Total cash flow from investing activity was 1698 million in 2017 which were in loss. And it was 7245 million loss which less more than 2017.The reasonof behind such kind of changes was company faced losses due to higher purchases than sales from which companies faced difficulties in cash

Flow from investing activity (Gitman, et. al., 2015). 

ANZ banking group: in the year of 2017, cash from operating activities around 6060 and total cash flow were around 23657 million in the company the major fluctuation behind this changes in income tax paid and operating expenses and income. Cash flow form fund management and insurance business created great differences between in the cash flow from operations in last two years. Cash flow from investing activity was around 14,410 and 9776 loss in both theyear2017 and 2016 respectively.The reasonbehind such changes was theavailabilityof resale of assets, higher purchases than sales activity and Sandal dealer finance divestment (Patel, et. al., 2017).

(IV) Comparative analysis of organizational three broad categories of cash flows

Comparative analysis between both companies:

Cash flow from operating activities: in the financial statement of theANZbanking group, the cash flow from operating activity in 2017 was 6060 and in Westpac banking group it was around 2820 million in 2017. In 2016 it was 23,367, so in the comparative analysis, it can beobservedthat Westpac banking company condition is better than theANZbanking group (Gordon, et. al., 2017).

Cash flow from investment: in this activity, Westpac Company invests in the purchase of available securities of resale assets, purchase of property and equipment and proceeds from share entitlement offers, due to this, cash flow from investing activity was 1698 million in 2017 and 7245 million in 2016 (Free Cash Flow, .2016) ANZ banking group invested in net increment of debt shares, redemption on loan capital, proceeded from exercise of employee options and dividend reinvestment plan under while. Total cash flow from investment was 552 million and 3573 million in 2017 and 2106 respectively. On the other hand, the total investment cash flow for ANZ was & in 2017 and 2016 (Flannery, 2016).

Company

2017(in $)

2016(in $)

2015(in $)

Westpac banking group

9,356000

8,393000

4,685000

ANZ BANKING limited

5,184,389

6,804,740

5,071,462

(V)Insights that you can get from the comparative analysis:

Comparative analysis: thereareanumberof items which are involved in thestatement of cash flow related to hedges, foreign investment, proceeds and purchase of resale and available investment, incomes tax or stables security and unsecured loans and advances.Thereasonfornot including such things in the other financial statement is that results related to all transactionsoccurrarely. Hence while preparing incomes and expenses, dividend and other business transactions, which occurs on aregularbasis whichaffectscash flowbehaviourare basically related to discounting operations from cash flow activityisbased on stables security holder (Hall, et. al., 2016). The Air New Zealand is also making the payment of the tax and for that, the expenses which have been recognized in the income statements is $150 (Air New Zealand limited, 2018). These are the amounts which are calculated on the net profit which has been made by the companies in the current financial year.

Table: Comparative analysis between ANZ limited and Westpac Banking Group:

Comprehensive profit or loss

WestpacBanking Group ($)

ANZ banking Limited ($)

2015

14,526,672

(6,019,882)

2016

13.081,654

(7,680,683)

2017

213,7800

(13,811,804)

Other Comprehensive Income Statement

(VI)What items have been reported in the other comprehensive income statement for each company?

Westpac banking group:

The items that have been stated in statement of comprehensive income odd the company are, profit and loss available for securities, recognized equity, cash flow form hedging instruments, differences on translation of foreign operations and, cash flow hedging reserve and transferred from income statement etc. and other items which are temporary reclassified in profit and loss account of the company (Flannery, et. al., 2016).

ANZ banking group:

The items which are listed in the financial comprehensive of the company are reclassified items of profit and loss account, cash flow hedging activities related to investment and projects, shares of associates within other comprehensive income, credit instrument of financial liabilities at par and fair value. The foreign currency translations are there which have been included in this and with that, the other incomes from the investments are also incorporated. The defined benefits which are there are also taken into consideration in this. The tax which is there in relation to them is also taken into account and the same is also made for the Air New Zealand.

(Vii) Reasonsforitems not been reported in Income Statement:

The net income statement means profit and loss statements are considered aslong-termcapital financial books of the company t measurelong-termfinancial performance. Its’ results are oriented with the past movement basically to measure theprogressof theentityof the companies. But comprehensive income statement is the new concept which indicates informs performance and possibilities to obtain accounting results related to expenses and incomes. Comprehensive income stats those entries and transactions which are net income and gains directly recorded in the equity, its results are disclosed at the end of the financial year in the profit and loss account but calculation whicharenot made in P&L account would be shown in the comprehensive income statements (Bratten, et. al., 2016).

(viii) Comparative analysis of the items shown in the other comprehensive income statement section for the two companies.

Comparative analysis of thecomprehensive income statement of both companies:

Comprehensive income statement of Westpac Company includes various entries such as profit and loss on available sale series of securities which was 7997 million in 2017 and Comprehensive incomes statement of ANZ Banking group stats that profit or losses from sales for securities were around 72 million losses. Remeasurement gain of issues of shares and attributive changes in benefit plans were 11 million in ANZ Banking Company. Company has earned around 3 million form fair values of changes in credit risk of financial liabilities. On the other hand, the Westpac banking group has losses around 164 million amount from the fair value of attributable changes in financial liabilities. Remeasurement of definite profit obtained from equity based on net tax value was around 3 million as a profit. Total comprehensive profit for the year was 7991 million in the FY2017 for Westpac banking group and ANZ banking earned around 5135 million in 2017 financial years which were less than Westpac (Black, 2016).

Accounting for Corporate Income Tax

(x) Tax expensesshownin the latest financial statements of companies:

ANZ banking group:

Income tax expenses recognized which are recognized in the income statement of the company in the form of current expense tax were 2778 million and adjustment recognized in the relation to previous year tax expenses were around 23 million presenting loss. Toa income tax expenses chargeable in income tax statement were 2458 m. in 2017, where the tax expense of Westpac Banking group has been rated around 30% statutory rate of Australian standards. Total tax expense from adjustable business rates tax duties were 1 million in theloss. Total income tax expenses were 3518 million in 2017 which was comparatively higher than theANZbanking group (Air New Zealand limited. 2018)
(xi) Calculate the effective tax rate

Westpac banking group:

Income tax expense / earnings before tax = 3518 (million) / 11515 (million) *100

= 30.55%

ANZ banking group:

Income tax expense / earnings before tax = 2458 / 8178 * 100

= 30.05%

An effectivetax of Westpac banking group is higher than ataxof ANZ banking group.

(xii) Deferred tax assets/liabilities reported in the balance sheet:

Deferred tax liability and asset are accounted for using the comprehensive tax balance with the flow changes in reclassified in guaranteed temporary differences to carry out deferred tax liabilities and assets. Deferred tax assets and liabilities affect income tax gain and losses or companies attributive credit to besettingthem off and carried forward. Deferred tax expense related to theoriginof reversal of temporary differences was 257 losses. Deferred tax assets were 457 million in Australia of ANZ banking group and 38 m in AsiaPacificareas in 2017.The totalwas 623 million in 2017. Deferred tax assets recognized by profit and loss account was 1804 million and recognized in equity was nil (zero) in FY17 due to theavailabilityof resale revaluation reserve in Westpac banking group (Atanasov and Black, 2016).

(xiii)Reasonfor increase or decrease in the deferred tax assets or in the deferred tax liability:

Yes, it is observed that there is a changes in deferred tax assets and liabilities in the financial year of 2017 in both companies financial statement, financial statement of both company indicates that total deferred tax assets from equity was nil and deferred tax assets from resale from recognized directly in profit and loss were 1804 which was 1639 million in 2016. Total deferred tax assets were 603 million, 465 million respectively in 2016 and 2015 in ANZbanking industrygroup. In the case of Westpac Banking group, thedeferredtax asset was 545 million in 2017 and liabilities were 10 million in FY17. It was decreasedcomparedto FY2016 when it was 36 million. Total deferred tax liability to set deferred tax asset were 580 million in loss (Coleman, et. al., 2016).

(xiv) Calculate the cash tax amount using the book tax amount:

ANZ Banking group:

The tax paid the ANZ banking limited is around $81 million and the another of expenses which is to be obtained as deferred tax expenses is $ear so 510 m. this deviation is created in the financial statement of ANZ limited due to changes in various financial aspects in the current years so it would not be paid in the current year noted as expenses. Differences between deferred tax and liabilities would be adjusted with the help of deferred taxation method which will be raised in the next financial year (Barth, et. al., 2016).

Westpac banking group:

In this company, the cash tax that could be recognized in the cash flow statement was $34 m. but the deferred expense was around $456 million. The several adjustments will be made in next financial year due to deferred tax would consider temporary differences is being eliminated. In that situation, the previous year adjustment would be made and the cash tax recognized by $404 m.

Changes in the deferred tax assets and deferred tax liability:

Changes in deferred tax assets and liabilities can be easily understood by management or financial analyst that in ANZ limited the deferred tax assets in thecurrentyear would be $46 m. and liabilities was 257 million. Onanother handthe deferred tax liabilities and assets of Westpac limited was around $1112 m. and $345million respectively in 2017. The deferred tax assets are increased which means thecompanywill be able to meet their requirement in thefutureand give future increment in profit (Balakrishnan, et. al., 2016).

(xv) Calculate the cash tax rate for both companies:

Westpac banking group:

Particulars

Amounts

Cash tax amount

87

EBIT

560

Cash tax rate

17%

ANZ banking group:

Particulars

Amounts

Cash tax amount

81

EBT

540

Cash tax rate

15%

Through the above computation, it can be concluded that the condition of Westpac Banking group is better than ANZ banking limited. By the support of the above calculation, it is observed that the rate computed for ANZ is less than Westpac Group (Air New Zealand limited, 2017)

(xvi)Reasonof cash tax rate different from the book tax rate:

The company has to identify the tax rate which is based on per cash payment and fair book value of the tax. It is calculated as both of them might be different from one another. This is because of cash tax and book tax paid by the company in terms of cash in the current year but book tax rate is calculated on the total expense and cost for temporary motive and due to deviation and fluctuations the rate of effective tax and cash tax effect (Awate, et. al., 2015).

Conclusion:

The report of corporate accounting was made to elaborate various aspects and process of financial accounting in corporate. This report has been made which conclude the various aspects such as owner’s equity, financial analysis of comprehensive statement, in this reading, various aspects of equity sources; comprehensive statement s and deferred assets and liabilities were discussed. There were a lot of illusion related to tax rate matter, which was solved out in this reading, it has been included the explanation of deferred tax, cash flow changes and many more in order to explain and evaluate the financial growth of the company. For this intention, Westpac and ANZ banking group have been taken into observation for continuous analyzing the situation and deviation which were to occur while making a financial decision.

References:

1. Air New Zealand limited, (2017) Annual report. [Online]. Available at: https://p-airnz.com/cms/assets/PDFs/air-NZ-2017-financial-results.pdf [Accessed: 22 September 2018]
2. Air New Zealand limited. (2018) Annual report. [Online]. Available at: https://p-airnz.com/cms/assets/PDFs/Air-NZ-2018-Financial-Results.pdf [Accessed: 22 September 2018]
3. Atanasov, V. and Black, B., (2016) Shock-based causal inference in corporate finance and accounting research  Accounting & Finance. 56(1), pp.9-45
4. Awate, S., Larsen, M.M. and Mudambi, R., (2015) Accessing vs sourcing knowledge: A comparative study of R&D internationalization between emerging and advanced economy firms. Journalof International Business Studies, 46(1), pp.63-86
5. Balakrishnan, K., Watts, R. and Zuo, L., (2016) The effect of accounting conservatism on corporate, investment during the global financial crisis. Journal of Business Finance & Accounting, 43(5-6), pp.513-542
6. Barth, M.E., Clinch, G. and Israeli, D., (2016) What do accruals tell us about future cash flows?. Review of Accounting Studies, 21(3), pp.768-807
7. Bhandari, S. B., & Adams, M. T. (2017) On the Definition, Measurement, and Use of the
8. Black, D.E., (2016) Other comprehensive income: a review and directions for future research. Accounting & Finance, 56(1), pp.9-45.
9. Bratten, B., Causholli, M. and Khan, U., (2016) Usefulness of fair values for predicting banks’ future earnings: evidence from other comprehensive income and its components. Review of Accounting Studies, 21(1), pp.280-315.
10. Coleman, S., Cotei, C. and Farhat, J., (2016) The debt-equity financing decisions of US startup firms. Journal of Economics and Finance, 40(1), pp.105-126.
11. Flannery, M.J., (2016) Stabilizing large financial institutions with contingent capital certificates. Quarterly Journal of Finance, 6(02), p.1650006.
12. Free Cash Flow, (2016) Concept in Financial Reporting and Analysis: Recommendations. Journal of Accounting and Finance, 17(1), 11-19.
13. Gitman, L.J., Juchau, R. and Flanagan, J., (2015) Principles of managerial finance. Australia: Pearson Higher Education AU.
14. Gordon, E.A., Henry, E., Jorgensen, B.N. and Linthicum, C.L., (2017) Flexibility in cash-flow classification under IFRS: determinants and consequences. Review of Accounting Studies, 22(2), pp.839-872.
15. Hall, B.H., Moncada-Paternò-Castello, P., Montresor, S. and Vezzani, A., (2016) Financing constraints, R&D investments and innovative performance management: new empirical evidence at the firm level for Europe.
16. Khan, S. and Bradbury, M.E., (2016) The volatility of comprehensive income and its association with market risk. Accounting & Finance, 56(3), pp.727-748.
17. Law, J., (2018) A Dictionary of Finance and Banking. UK: Oxford University Press.
18. Patel, E. and McClelland, J., (2017) What Would a Cash-Flow Tax Look Like for US Companies? Lessons from a Historical Panel. Office of Tax Analysis Working Paper, 116.