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To carry out the financial analysis the Motorcycle Holdings Limited has been chosen. It is one of the leading motorbike company in Australia. First of all the difference in the equities of the company in the two financial years has been analysed in which all heads covered under it are also analysed and the reasons of the changes are also find out. In the later part the difference in the taxable income and the financial accounting of the com pany is made and the reasons of the same are also tried to be traced. The tax rate to which any company is subjected under the rules of law in the country is discussed and the tax actually paid by the chosen company is also part of it. The deferred tax assets and liability concept is also discussed in which analysis is made as to how they are settled against the taxability of the company is also part of the discussion. In the later part of the analysis there is a discussion of the difference of the tax that is calculated by the company shown in the income statement and the tax that is shown in the cash flow of the company. This discussion helps in finding the reasons of the difference and what steps are taken by the company are also part of it under the discussion. In this way entire analysis cover the full report of the financial year June 2016 and also June 2015 for the comparative analysis of the various aspects.
1.From your firm’s financial statement, list each item of equity and write your understanding of each item. Discuss any changes in each item of equity for your firm over the past year articulating the reasons for the change.
Equity:Shows the total reserves and capital which a company has. We can also say it is the net worth what remain with the company after deductions of the liabilities. The changes in equity takes places when there is less profit, when company buy back shares or does redemption of shares then the amount of shares reduces which causes the change in the equity of one year from other. In the financial statement of the Motorcycle Holdings Limited the total equity of the company are &35, 195 in which contributed equity are $29,635 and $5, 560 (Annual Report, 2016).
Companies issues shares when they are in need of the capital requirement and they wasn’t to borrow the money from the public and therefore they issues the shares by inviting the application from the interested investors and on the basis of the applications received the shares are allotted investor (Passant, 2015). Issue of shares is one of the major and generally adopted method of collection of money.
Retained Earnings:Retained earnings is the portion of shares of the total income that is retained by the company and which is not distributed as shares of the company.Under this two practices are adopted by the company, these are:
1.Reserves:Reserves is maintained in the company so that they can be utilised when the financial need in the company arises.
Surpluses:When the income earned by the company remains even after distribution among the various kinds of holders of the company than the remaining income is retained as surplus (Richardson, 2015). This is also retained so that it can be used in further kinds of activities.
Change in Equity:
The company’s annual report shows the tremendous reasons of the change in the total equity of the company from the annual statement of June, 2015. Financial statement shows that there is difference in the issue of the shares by the company. In 2015 total issued shares of the company and the income earned of out of that is $11, 198 and in $20, 132 were there. This is one of the major change in the equity between the two financial years of the Motorcycle Holdings Limited. Equities are the assets of the company. The higher the equity will be it will be good for the company only.
2. What is your firm’s tax expense in its latest financial statements?
The total expense on the Income tax is $2,276as per the June 2016 annual financial statement of the company. Whatever the company earning out of running the business the government charges a certain percentage over that as a tax. It is the liability of each and every company to pay the taxes to the government concern. The companies deals with the tax liabilities in the various ways. Like they creates the reserves beforehand that it’s totally based on the assumption of the company as to the extent to which they can be changed tax by the government. The tax reserves helps in meeting the big amount of tax in instalment so that company does not come under pressure at a single pint of time. The total tax is paid by the company annual to the government through the concern tax law of the country.
3. Is this figure the same as the company tax rate times your firm’s accounting income? Explain why this is, or is not, the case for your firm.
The expenses shows in the Annual financial statement of June, 2016 differs with the June 2015 and this is not same due to the tax rate time of the income of MotorcycleHoldings Limited’saccounting incomeis a taxability that is paid by the company in the current financial year only and this does not includes any tax benefit or tax expenses. The tax rate to which the company is subjected by the Tax authority of the country is 30%. The amount paid by the company for tax rate times the accounting income of the company is $7,847. This is the income of the company which is taxable. The deferred assets of the company shows that company charges higher rate of interest over the income of the company and puts that for paying the tax liability. The total deferred assets of the company in June, 2016 financial years are shown as $ 2,562 and this was lessen in 2016’s financial statement $ 1,906 only. There are also deferred tax liabilities of the company as well which $ 1,168 is. The deferred liabilities which the company incurred in the financial year of 2016 are higher than 2015. The company estimated tax rate 31% being the public listed company. The income that is actually earned by the company is differ from the income that is calculated for the tax purposes and this is the reason of the deferred assets and liabilities by the company. This situation arises when the company want to either evade the tax liabilities and also when the company makes assumption of about the certain transaction s as free from the taxability and in actuality they are not exempted by the government.
4. Comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded.
The deferred assets of the Motorcycle Holdings Limited in 2016 were reported as $ 2,562 which were less in 2015 as $ 1,906 in the same way company has shown its deferred liabilities as well in which $ 1,168 and in 2015 $ 1,114. When there is shows access of income and the taxable income calculated by the tax authority is less that ids the section of the differed assets of the company and when the accounting income calculated by the company is less than the taxable income calculated by the taxing authority then the deferred liabilities to the business arises.
The deferred liabilities to the company arose due to the doubtful debts of the company $29, employee benefits $ 995, warranties 199 and inventory write downs $1,026. In this way the net deferred liability of the company resulted in $ 1,394. Difference in the two are generally arises when the companies are found to engage in the tax evasion practices or when the companies are willing to show the correct accounting statement to the authorities. The deferred assets and liabilities of the company helps in maintaining the proper accoutring statements. The deferred assets shows the excess of provisional deductions made by the company to pay the tax to the government and the deferred liability shows the less amount that is deducted provisionally by the company to meet the tax liability (Lavermicocca and Buchan, 2015). When the tax charges is higher and the provisions tax is less than additions are made and when tax liability is less and tax provisional saving is higher, the reaming surplus is the assets of the company.
The purpose of recording the deferred assets and liabilities is to maintenance the proper accounting statement of the company showing the correct cash flow of the business in the various activities that are performed by it on regular basis.
5. Is there any current tax assets or income tax payable recorded by your company? Why is the income tax payable not the same as income tax expense?
The current tax receivable of the company is shows as the37,036 and the recoded tax payable by the company is shown as the $ 2,086. As per the figures given in the annual financial statement of the company the total current tax assets or the income tax payable has been recoded. This shows the difference between the two and they are not identical because the company has anticipated the payable tax by it in the future with the rate of 31% whereas the government actually charges only %30 tax on the total income which is earned by the company. The all adjustments of the deferred tax assets and liabilities (showing the temporary difference in the accounting income and the income that is taxable), the income on which tax is actually liveable all are to be taken into consideration in the determination of the current tax liability determination (Hitt, et. al., 2012).
The difference between the income tax payable by the company and the taxable expenses of the company arises when the accounting standards that business follows differs from the accounting standards according to which the calculation of the taxable expenses is made by the company. This is the biggest reason of the difference between the two (Villios, 2012). The difference in the taxable liability and the taxable income of the Motorcycle Holdings Limited is due to the variation in the accounting principles that are followed when they records the total income and the accounting principles when the actually tax that is paid to the tax authority of the country payable is calculated.
6. Is the income tax expense shown in the income statement same as the income tax paid shown in the cash flow statement? If not why is the difference?
The income tax paid by the company in 2016 shown in the cash flow of the company is $2,086. The income tax expenses shown in the income statement of the company in 2016 was $ 2,276. The two income tax expenses shown in the two different accounts in the same year differs from each other (Tricker and Tricker, 2015). The reason of difference in the two account is that amount of tax shown in the cash flow shows the taxability after deducting out of that any refund if any as to tax, offset of tax, tax losses etc. and the amount of tax shown in the income statement is the total taxability calculated by the company irrespective of the actual amount that is payable to the taxing authority of the government by the company. There is difference of the period also as the taxability is calculated and then the adjustment in any deductible then these adjustment takes place (Higgins, 2012). This is the reason of the difference between the two taxing statement in the two different account of the same company.
7. What do you find interesting, confusing, surprising or difficult to understand about the treatment of tax in your firm’s financial statements? What new insights, if any, have you gained about how companies account for income tax as a result of examining your firm’s tax expense in its accounts?
The analysis of the financial accounts of the company and thereby understanding the taxability principles of the company many interesting facts are deduced. Initial confusion arise regarding the understanding of the deferred tax assets and deferred tax liabilities, and also the concept of different transaction recorded regarding the tax payable to the government in the cash flow and the tax shown in the income statement of the company. The notes statement on the various taxability entries recoded in the financial statements help in understating the provisions as to taxability Cleary and thereby deducting the conclusions regarding the all relevant taxability of the company (Devos and Zackrisson, 2015).
The entire analysis of the accounting statement of the company has added knowledge as to the items that are important to be included in the total income of the company and on which tax will be charged. This analysis also added the key learning of the concept of tax offset, and the treatment of previous tax losses if any occurred (Statements, 2012). The analysis of the company’s overall accounting system is useful in clearing the theoretical concepts in the practical aspects and the real effect of the minutes of the business transactions is very useful for the professional understanding. The entire taxation system to which the companies are subjected by the government are discussed. In the items that are taxable and the items that are not taxable are also understood very effectively. The entire analysis of the financial position of the company is very useful in making and drawing various useful conclusions for the future business prospective by the different pioneers in the business industry.
The company Motorcycle Holdings Limited had been the base of the entire financial analysis of the company. The annual report of 2016 and for comparison the annual financial statement of June, 2015 has been taken. These financial reports were very useful throughout the analysis of the various accounting statements of the company. One of the main focus of the analysis was to examine the practical aspects of taxability of the company and for this all taxations statements shows in the financial statement of the company have been discussed minutely and the various concepts of tax liability, tax expenses, differed taxes, set off etc. have been understood and the reasons of the changes from year to year in these transactions is also analysed effectively. The entire analysis is very useful in clearing the entire concept of the taxation to which the companies are subjected and it also gives the idea when the company deals with various kinds of difficulties in the calculation of the taxability of it. The reasons of each and very changes that talks place in the transactions of the business is also discussed. All the covered points gives the full and complete understanding of the taxability of the companies to which they are subjected by the government of Australia.
1.Annual Report 2016. Motorcycle Holding. Available at:http://www.mcholdings.com.au/page/?page=5. [Assessed on: 23/12/2017].
2.Devos, K. and Zackrisson, M., 2015. Tax compliance and the public disclosure of tax information: An Australia/Norway comparison. eJournal of Tax Research.
3.Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
4.Hitt, M.A., Ireland, R.D. and Hoskisson, R.E., 2012. Strategic management cases: competitiveness and globalization. Cengage Learning.
5.Lavermicocca, C., and Buchan, J., 2015. Role of reputational risk in tax decision making by large companies. eJournal of Tax Research.
6.Passant, J., 2015. Some Basic Marxist Concepts to Help Understand Income Tax. J. Juris, 27, p.263.
7.Richardson, D., 2015. Corporate tax avoidance. The Australian Institute.
8.Statements, C.F., 2012. Consolidated Financial Statements.
9.Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
10.Villios, S., 2012. Measuring the tax gap of business taxpayers in Australia. Revenue Law Journal.