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this assignment relates to the accounting treatment and reporting of financial and accounting information of corporate bodies including companies through the presentation of financial statements the company for the analysis of financial statements and examination of the treatment of various accounting elements in the financial management statements is apollo tourism and leisure ltd group. the company is a multinational company with operations in australia, new zealand and north america. it is engaged in travel and leisure business including manufacturing, rental, sales and distribution of recreational vehicles. the company is listed in australian stock exchange and has the share price of $1.635.the financial statements of the company have been extracted from the annual report of the company for the year 2016-17. the assessment and examination of tax treatment by the company will be made and the results will be included in this report.
financial statement analysis
(i) 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 is the amount contributed by the owners in the business which is used to procure assets to generate profit and pay off liabilities of the business. equity is also represented by the difference in the assets and liabilities of the business. however sometimes equity is also stated as stock of listed companies in trading terms and due to this reason equity shareholders are also entitled to right and interest in the property and business of the company equivalent to the proportionate share of capital contributed by them (schaltegger, et.al, 2017). the elements of equity include issued and paid up capital of the company, retained profits of the business and reserves and surplus accumulated by the company over the years. the items of the equity of apollo tourism and leisure ltd, the changes in these items and the reasons for the changes are listed as follows:
1. issued capital – the issued capital of the company in the year 2017 amounts to $75,679,000 with 179,944,265 shares and the issued capital in the year 2016 was $1,000 with 13,320 shares. during the year there was a huge change in the issued capital of the company. there are many reasons for the changes in the issued capital and the number of ordinary shares issued during the year. the opening balance of 13,320 shares was transferred to apollo ultimate holdings pty ltd. 94,960,000 shares were issued to the founding shareholders and 50,000,000 shares were issued to the general public. in the process of merger and acquisition, 837,911 shares were issued and remaining 34,146,354 shares were issued as right shares (apollo tourism and leisure ltd, 2017). in this way a large number of shares were issued by the company during the year resulting in change in share capital.
2. reserves – the reserves of the company are negative amounting to $13,101,000 in the year 2017 which decreased from $630,000 in the year 2016. the amount of reserves includes foreign currency translation reserve and common control reserve. in the year 2016 the company only had foreign currency translation reserve of $630,000 and no other reserves. in the year the foreign currency gains and losses and hedging gains and losses from net investments in foreign operations resulting in increase in reserves. the common control reserve created during the year is the result of acquisition of affiliated entities by apollo tourism and leisure ltd group.
3. retained profits –the retained profits of the company amount to $38,838,000 in the year 2017 and the retained profits in the year 2016 were $30,918,000. the retained profits of the company increased during the year. the elements of retained profits include profits after tax earned and dividends paid during the year. the company earned a profit after tax amounting to $8,646,000 and paid dividends of $726,000. the net earnings of the company earned during the current year are observed to be higher as compared to the earnings in last year. this resulted in increase in retained earnings also in the current year. however, the dividend was not paid by the company in the current year.
(ii) what is your firm’s tax expense in its latest financial statements?
in the latest financial statements of the company apollo tourism and leisure ltd, for the year 2016-17 the tax expenses have been reported as a benefit of $641,000 for the year 2017 and tax expense of $1,430,000 for the year 2016. there were tax benefits for the company during last year and these have been converted to highly reported tax expenses in the current year. there are also reported income tax refunds, income tax payable, dta and dtl.
(iii) 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 figure of reported tax expense or tax benefit in the financial statements of the company is not as same as the tax rate times of the accounting income of the company since the tax rate times of accounting income results in tax payable by the company during the year and not the tax expense or benefit (laux, 2013). the statutory tax rate used by the company to charge tax expenses is 30%. the amount of tax rate times the accounting income of the company is $2,402,000. however the reportable tax benefit or expense during the year 2017 is a benefit of $641,000 and in the year 2016 was an expense of $1,430,000. the adjustment of tax effect on various amounts whichare not deductible or taxable in calculating the taxable income has been made in this figure in order to arrive at the reportable tax benefit or expense in the current year. the tax effect of non-assessable income on the associates of company is made for $175, 0000. the variances in the tax arising due to differences in corporate tax rates of different offshore entities of the company are adjusted in the tax payable for an amount of $411,000. the effect of tax uplift for the formation of tax consolidated group by the company has been shown to the extent of $2,311,000. the effect of prior year tax adjustment is made for $36,000. the tax amount of $420 on assessable interest income has been deducted as a tax benefit included and similarly tax of $343,000 on non-deductible acquisition costs has been added as tax expense not included. in this way there are many factors which result in the reported tax expense or benefit for the period being different from the tax rate times of the accounting income of the company. this is based on the concept that the corporate accounting income and the taxable income of the company are not the same and therefore when the tax rate is applied to both the incomes the amount of tax also differs. there are a number of reasons for these differences. these reasons include assessable income not reported in the book of accounts or non-assessable or period income reported in the financial statements. also, deductible expenses might not be reported and on the other hand non-deductible expenses reported in the financial statements(small, et.al, 2016). apart from this, there are many other factors as in the case of apollo tourism and leisure ltd such as prior year tax adjustments, tax uplift expenses, differences in the tax rates of group companies etc.
(iv) comment on deferred tax assets/liabilities that are reported in the balance sheet articulating the possible reasons why they have been recorded.
deferred tax asset and liabilities are the amounts which represent the temporary differences in the accounting income and taxable income of the company on which the tax expense or benefit is likely to be incurred when the assets will be recovered or liabilities will be settled (zhou, 2016).the deferred tax assets and liabilities can be offset only when the company possesses legal enforceable right to offset the deferred tax assets and liabilities against each other (hanlon, et.al, 2014). the deferred tax assets are recognised only if it is likely that the future taxable amounts can be used by the company to set off losses and temporary differences. a review of recognised and unrecognized deferred tax assets is made at each reporting date and the assets which are not probable to be used to adjust the tax losses are reduced. the reported deferred tax assets of the company amount to $296,000 for the year 2017 and $2,635,000 for the year 2016. the amount of deferred tax asset credited to profit and loss statement amounts to $3,456,000. the amount of deferred tax liability reported by the company is $7,321,000 for the year 2017 and $11,155,000 for the year 2016. the amou8nt of deferred tax liabilities charged to profit and loss account amounts to $9,712,000.
(v) 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?
current tax assets, as well as income tax payable for the year, have been recorded by the company. income tax payable amount does not match with the reported tax expense amount. this is due to the reason that various adjustments are made in the amount of tax payable to determine the reportable tax expenses for the period (johnston & kutcher, 2015).the temporary differences arise which create differences in the income tax payable and income tax expenses due to many reasons such as when the unutilized losses of the business are being carried forward for future years, earlier period accounting adjustments made in the current year, etc. these adjustments are being made in order to calculate the tax expense or tax benefit for the period.the tax payable by the company for the year 2017 amounted to $2,630,000. in the amount of tax payable the adjustment of deferred tax amounting to $6,256,000 has been made in order to arrive at the reportable tax expense or benefit for the period. the tax losses of previous years of $7,559,000 have also been adjusted in the current year tax expense. the amount of $2,311,000 is adjusted in the tax expense for the uplift on the tax consolidated group so formed. the non-deductible acquisition costs have also been added to the tax expense in the current year for an amount of $343,000.
(vi) 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 expense amount shown by Apollo in the profit and loss statement of the company does not match with the reported amount of income tax paid reported by the company in the cash flow statement of Apollo. the net amount of tax which is finally deposited to the government is the amount which is recorded in the cash flow statement of the company. this amount is arrived at after deducting and adding tax rebates, tax refunds, tax offsets, tax arrears etc. whereas the actual expense of tax that truly belongs to the reporting period for the company is the amount which is recorded in the profit and loss statement of the company. both these amounts are different and are irrespective of each other. however, the adjustments made can help to reconcile both amounts. also, the amount of tax payable relating to the period differs from the expense reported due the adjustments of other items the tax paid by the company as shown in the cash flow statement is $4,655,000.
(vii)what do you find interesting, confusing, surprising or difficult to understand 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 understanding and study of tax treatment in the financial statements of a company is very interesting since it involves reporting of tax figures at multiple places in the financial statements. but sometimes the multiple reporting also creates confusion and difficulties since the understanding of various elements of tax figures is difficult. also the understanding f temporary differences seem difficult at beginning but gradually it becomes easy and effectively understandable.from the examination of different tax related figures in the financial statements of the company the relevance and accounting of deferred tax assets and liabilities can be learnt in an effective manner.
The insights gained from the analysis of tax treatment by a company include the learning in context of items to be included in the estimation of deferred tax assets and liabilities. the method of tax offsets and treatment of prior year tax losses was also learnt. the exceptional tax treatment which was learned from the financial statements of apollo tourism and leisure ltd group is the treatment of tax uplift amount for the tax consolidation group formed by the company under the tax regime. the company is the head entity which has formed the tax consolidation with group with its subsidiaries so as to facilitate the accounting of their current and deferred tax assets. under the tax funding agreement among the group companies, the amounts receivable and payable were recorded as assets and liabilities. as a result neither any contribution nor any distribution was required between the head entity and subsidiaries since the intercompany charge was equal to the current tax liability.
from the examination and analysis of financial statements of apollo tourism and leisure ltd group, it can be concluded that the financial statements and notes to financial statements of a company are very helpful in developing the understanding of treatment of various financial and corporate accounting transactions of business. it can also be concluded that the company has effectively and accurately reported the tax expenses in its profit and loss statement, cash flow statement and statement of financial position with detailed notes about the deferred tax assets and deferred tax liabilities included in the adjustments with regards to tax amounts.
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