Applying international financial reporting standard - Free Samples

Questions: Within your firms latest annual report 1. From your firms 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. 2. What is your firms tax expense in its latest financial statements? 3. Is this figure the same as the company tax rate times your firms accounting income? Explain why this is, or is not, the case for your firm. 4. Comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded. 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? 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? 7. What do you find interesting, confusing, surprising or difficult to understand about the treatment of tax in your firms financial statements? What new insights, if any, have you gained about how companies account for income tax as a result of examining your firms tax expense in its accounts? Answers: Requirement i) Items of equity are listed under liabilities section of the balance sheet profile of company. Analysis of financial statements of freedom food group limited depicts that the items of equity comprise of issued capital, non controlling interest, retained profits and reserves. Amount of equity capital for the financial year 2017 and 2016 stood at $ 249954 million and $ 169106 million respectively indicating that there has been increase in figures. Non controlling interest amounts to $ 8234 million in year 2016 and there is no amount attributable to this section in year 2017. Reserves value has increased from $ 2274 million in year 2016 as against $ 56397 million in year 2017 indicating increase in reserves generated by company (ffgl.com.au 2018). However, value of retained earnings has reduced in the current year 2017 to $ 127879 million as against $ 128527 in year 2016 respectively (ffgl.com.au 2018). Issued capital represents the amount that is invested and nominal value of shares that are held by shareholders of company (Tran and Zhu 2017). It incorporates shares that have been sold to shareholders in return for some considerations or cash. Non controlling interest is one of the elements of equity ownership that are not attributable to parent company having controlling interest in company. It is a type of investment where investors do not have any control (Kaya and Koch 2015). Retained earnings are the profits generated by company that is reinvested in business and they are not distributed to shareholders. Each organization has different reason by reinvesting and this might be to repay debts and for financing any new project. Reserves are one of the portions of retained earnings that is kept aside by business for particular purpose (Picker et al. 2016). Requirement ii) It has been ascertained from the observed figures of the financial statement of Freedom food group limited that the income tax expense has reduced in the current year. Value of income tax expense for financial year 2017 and 2016 stood at $ 6483 million and $ 1809 million respectively (ffgl.com.au 2018). Requirement iii) As depicted from the statement of comprehensive income and profit and loss, the accounting income for both the financial year 2017 and 2016 is recorded at $ 9348 million and $ 57114 million respectively. Income tax expense for both the years stood at $ $ 6483 million and $ 1809 million respectively (ffgl.com.au 2018). Effective tax rate applicable to Freedom food group limited stood at 30%. Figures for the accounting income times the tax rates for both the years are Accounting income times the tax rate for 2017= ($ 9348 million * 30%) = $ 2804.4 million Accounting income times the tax rate for 2016= ($ 57114 million * 30%) = $ 17134.2 million Now, looking at the figures for the tax expense and accounting income times the tax rate, it can be seen that there is difference between them. Income tax expense is higher than the above computed figure for financial year 2017. On other hand, income tax expenses are considerably lower than the above figures for year 2016. Differences between these two figures are attributable to differences in accounting treatment of tax accounting and financing accounting. The rules of financial and tax accounting is different and net income is not always same as taxable income (Popovic et al. 2015). Requirement iv) The balance sheet of Freedom food group limited has recorded deferred tax for both the financial year 2017 and 2016 at $ 1835 and $ 3720 million respectively (ffgl.com.au 2018). The reason why deferred tax has created or recorded in the balance sheet is taxes that have been paid or carried forward and they are not yet recognized in the income statement. Creation of deferred tax is also because of recognition of expenses and revenue at different times of accounting standard and taxation authorities. Deferred tax assets have been recorded attributable to differences between tax base for tax liabilities and tax assets and their carrying amount in the financial statements. Tax base for liabilities and assets are the amount that is attributable to liability and assets for the purpose of taxation (Florou and Kosi 2015). Recognition of the same is done to the extent there is availability of sufficient taxable amounts that is deductible from unused tax offsets and tax losses that can be util ized. It also arises from relevant tax credits of tax consolidated group members. Requirement v) Yes, Freedom food group limited has recorded income in the liabilities section of balance sheet. The amount of income tax payable is recorded at $ 11642 and $ 11568 respectively (ffgl.com.au 2018). Income tax expenses are the amount that appears on the income statement of company and it increases the expenses account of company. Income tax payable appears in the liability account of balance sheet. It appears as liability because it is yet to be paid by organization. Income tax payable is calculated based on the difference between income tax liabilities and income tax expenses of company and computation of income tax expenses is done based on total income generated by the organization within any particular financial year (Nastase et al. 2016). In certain situations, net income reported by company that is prepared under general accepted accounting principles is not equal to the taxable income that is reported under the tax return. Requirement vi) Total amount of income tax paid by Freedom food group limited is reported in the cash flow statement and the amount for the financial year 2017 and 2016 stood at $ 1381 million and $ 2675 million respectively. On other hand, income tax expenses for both the year stood at $ 6483 million and $ 1809 million respectively (ffgl.com.au 2018). These figures depicts that there is difference between income tax paid and income tax expenses attributable to company. Income tax paid by organization is calculated based on actual earnings for any particular financial year. On other hand, income tax expense is calculated based on the estimated income of company. Difference in the figures of income tax paid and income tax expenses is also attributable to computation of tax based on standard business accounting rules and tax accounting (Doukakis 2014). Requirement vii) After evaluating the treatment of taxation of Freedom food group limited, it can be said that there was nothing so surprising so far. However, users will be able to gain some insights regarding the treatment of taxation under different standard of accounting and taxation. Operating tax rate of company is reflected in income tax expense of approximately 19.4% (Bamber and McMeeking 2016). However, organization has the changed their effective taxation rate that has led to increase in claim of research and development. Taxation rate that was effective in previous year incorporated one off tax adjustments relating to sales transactions of a2 Milk Company. There were no deferred tax liabilities for the current financial year. New insights that have been gained from the evaluation of the financial statements of company are that the income tax expenses in both the financial year is different from that of accounting income times the taxation rate. However, tax expense in year 2017 is more tha n accounting income times the income tax rate. On other hand, in financial year 2016, income tax expenses is less than accounting income times the taxation rate. Company has recognized deferred tax assets and deferred tax liabilities that are arriving from relevant tax credits and unused tax losses. References list: Bamber, M. and McMeeking, K., 2016. An examination of international accounting standard-setting due process and the implications for legitimacy. The British Accounting Review, 48(1), pp.59-73. 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Modern European Researches, (1), pp.60-64. Nastase, G., Calin, A.M. and Margina, O., 2016. INTERNATIONAL ACCOUNTING STANDARD NO. 16 TANGIBLE ASSETS AND ITS PRACTICAL IMPLEMENTATION. Calitatea, 17(S1), p.285. Picker, R., Clark, K., Dunn, J., Kolitz, D., Livne, G., Loftus, J. and Van der Tas, L., 2016. Applying international financial reporting standards. John Wiley Sons Popovic, S., Majstorovic, A. and Grubljesic, Z., 2015. Valuation of facilities in use and application of international accounting standards. , (3), pp.379-387. Tran, A. and Zhu, Y.H., 2017. The impact of adopting IFRS on corporate ETR and book-tax income gap. In Australian Tax Forum (Vol. 32, No. 4, p. 757). Tax Institute.