Corporate finance and accounting research - MyAssignmenthelp.com

Questions: 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: Answer 1: Within a companys balance sheet statement, there are three key items and one among them is deemed to be equity. Helloworld Travel Limited is not exempted from such item. Relied on the companys balance sheet statement for 2017, certain vital aspects encompass treasury shares, issued capital, retained earnings and reserves. Issued capital is considered as the business organizations equity (Armstrong et al., 2015). Issued capital is measured through multiplying the overall outstanding shares along with all its shares par value. The annual report of the company indicates that Helloworld Travel Limiteds issued capital has increased from$ 366,235 in 2016 to $ 395,081in 2017. Another equity aspect that is mentioned within the companys equity section encompasses reserves. It can be stated that reserves serves as a factor of equity in the company that is considered as the additional amount other than basic share capital (Atanasov Black, 2016). The recent annual report of Helloworld Travel Limited indicates that reserves of the company have decreased from$ 163,051 in the year 2016 to $ 7,150in the year 2017. Another aspect within the equity section of the company encompasses retained earnings. It indicates total profit and loss of the company from the time the company came into existence which decreased any dividends paid from the behalf of its shareholders. As per the annual report, it has been gathered that the company did not deal with any type of retained earnings and rather it has encountered certain accumulated losses. Such accumulated losses of the company have decreased from $ (292,218) in the year 2016 to $ (123,717) in the year 2017. This indicate s the company experiences more losses in comparison to its profits (Graham et al., 2017). The last aspect of Hello world Travel Limiteds equity section is the treasury shares. These shares might take place because of shares buyback or they have not issued the same within the first place. Such shares do not have any type of voting rights along with the dividend payments and for such reason, they are not considered within the outstanding shares computation (Graham et al., 2017). As per the balance sheet statement of Hello world Travel Limited of the year 2017, the treasury share value is being constant at $ 123,717in both the years from 2016 and 2017. For this reason, it indicates that the company has not repurchased shares from all its shareholders. Answer 2: In the current years, business companies experience several types of expenses that include selling and administrative expenses and many more (Cheng, Ioannou Serafeim, 2014). An organization does not offer its real percentage of taxation rate within its income statement. Tax expenses is deemed to be the last line aspect prior the calculation of net income and the company can recognize effective tax rate through observing other information within financial statement. Tax expense can be deemed as a part of it. In addition, tax expense is taken into account as a part of major liability of the company owing within the state along with municipal and federal government within the country. Tax expense is measured through multiplying the suitable business tax along with income before tax after factoring certain key items such as non-deductible items, tax assets along with tax liabilities. In case of Helloworld Travel Limited, tax expense of the company has dropped from $ (1,774) in the year 2016 to $(9,446) in the year 2017 (Christensen et al., 2015). In case of increase in profit before income tax, the tax expense of the company is decreased because of tax provision reversal. Answer 3: It is gathered that the corporate tax rate within Australia is 30%. Considering the scenario of Hello world Travel Limited, certain identical rate is applied that is recognized from the companys annual report. In addition, the profit before tax income is recognized to be$ 3,450 in the year 2017 in comparison to$ 31,037 in the year 2016 (Damodaran, 2016). In a scenario where implementation of above tax rate is considered, the total tax expense is deemed to be in the year 2017. In addition, the organization has taken into account certain items for calculating the overall tax expense. These items are explained below: Non-deductible amortization along with depreciation Entertainment Fair value adjustments in order to trust investment property Tax provision based reversal Insurance proceedings on the plant and equipment Expenditures those are on-deductible Through taking into consideration, the previously explained aspects along with domestic tax rate Hello world Travel Limited has reconciled the rate of tax (Dowling, 2014). This has led to changes on overall tax expenses of the company in comparison to the corporate tax rate along with the accounting income of the company. Answer 4: Liabilities and deferred tax assets are two major theories linked with the tax operation of the company. A deferred tax liability takes place at the time taxable income is less than the reported income within the statement of income (Dyreng et al., 2016). This has taken place because of the accounting difference of several expense and income accounts. The most important reason behind the deferred tax liability is the application of different depreciation techniques for the financial reporting. Deferred tax assets serves as certain reductions in future payable taxes due to the reason that the organization has already paid taxes within book income to be identified as prepaid tax in the upcoming years (Dyreng et al., 2016). The amount of deferred income tax is relied on effective tax rates at the time certain temporary differences take place. Differed tax assets explains the situation in which the company makes advance or on tax payment within their financial assets (Graham et al., 2017 ). In addition, deferred tax liabilities indicate a situation in which the companys pays advance over their financial assets based tax payments (Dowling 2014). In case of Hello world Travel Limited, it can be gathered that the company has disclosed the deferred tax liabilities and the deferred tax assets within the companys annual report. The deferred tax assets of the company are observed to be$ 888 in the year 2017 in comparison to$ 1,203 in the year 2016. However, the deferred tax liabilities of the company are observed to be$ 35,191 in the year 2017 in contrast to$ 32,796 in the year 2016 (Dyreng et al., 2016). Through taking into consideration the counting regulations along with the norms associated with the deferred tax liabilities and assets, there are certain reasons that are there in order to report deferred tax assets along with liabilities. In case of deferred tax assets, there might be a reason that there is additional payment for depreciation on the behalf of the company due to certain changes within the taxable depreciation rate along with its related difference (Graham et al., 2017). Because of the additional payment associated with the depreciation, the company does not require experiencing an increased tax in the upcoming years and for this reason it is adjusted as an asset. In case of deferred tax liability, it can be stated that they generally take place due to lesser tax amounts in the present year. The company requires paying the amount that is remaining for the future years and for such reasons they are considered in the liability form (Graham et al., 2017). Answer 5: Current tax asset or the income tax payable is considered as a considerable factor for the business organizations. Considering the annual report of Hello world Travel Limited, it can be gathered that the income tax expenses is$ (9,446) in the year 2017 and there is no income tax payable in the year 2016 (Dyreng et al., 2017). In the companies, it can be observed that there is certain difference between income tax payable along with income tax expenses and for certain specific reasons this might be considered responsive for the disparity. The vital cause is the existence of deferred tax assets. There are several instances in which the company experiences an additional amount of tax in comparison to the tax expenses. In this scenario, the additional paid tax amount might be adjudged in the form of deferred tax assets that develops certain difference. Another reason is the variation among the tax accounting norms along with the financial accounting norms (Elanorinvestors.com., 2018). Wi thin such scenario, the example of depreciation can be explained. Certain difference in the depreciation can be observed within the financial accounting and tax accounting for distinct depreciation rates. For this reason, the final depreciation amount might be either decreased or increased. These are the major reasons for the differences among the income tax payable along with the income tax expense (Graham et al., 2017). Answer 6: As per the financial statements of Hello world Travel Limited, the company has offered explanation considering its tax payments within the cash flow and the income statement. In addition, it can be observed that the company has published two distinct amounts set within the above mentioned statements (Graham et al., 2017). Considering the situation of Hello world Travel Limited, tax expense of the company is observed to be$ (9,446) in the year 2017 and $ (1,774) in the year 2016 (Goh et al., 2016). In addition to that, the income tax payable for the company has been recognized to be 5,879 in the year 2017 in comparison to$ 1,419 in the year 2016. Despite that there is no payment in the year 2016. There are certain specific reasons for such difference in consideration to payment of income tax. In consideration to the income statement, the company indicates the overall amount of tax expense through charging a tax rate of around 30% within the profit before income tax (Graham et al., 2017). Conversely, the situation is not identical in case of cash flow statement. Within the section of cash flow statement there are several treatments associated with certain items of the income statement. It indicates that certain changes takes place within the current liabilities and assets of the companies. For Hello world Travel Limited, the income tax payment is taken into consideration being current asset. Within the cash flow statement certain minimization in consideration to income tax is taken into account through indicating the cash use. This indicates that few aspects linked with tax expense have been decreased before they are taken into account within the cash flow statement (Graham et al., 2017). Because of such causes, certain differences in tax expenses can be expressed within t he cash flow and income statement of the organization. Answer 7: Taxes are deemed to exist in the form of three major financial statements that includes the income statement, balance sheet and the cash flow statement. In addition the deferred income tax liability can be considered as a liability that is due in the upcoming years. Moreover, the organization has already attained the income and has considered not paying taxes on such income till the end of that year (Dyreng et al., 2016). Long term liabilities are observed to be payable within more than 12 months. In addition, sales tax is observed t be mentioned within the balance sheet in the form of current liabilities. After careful consideration of tax treatment with the annual report of Hello world Travel Limited, it can be indicated that no surprising or confusing aspect is motioned within the tax treatments (Graham et al., 2017). The company has conducted all its tax treatment through abiding by the Taxation Law of Australia based norms and regulations. In addition, it has offered all the des criptions along with the justifications of certain taxation aspects that include current tax assets, tax rates, liabilities and tax assets along with few more items. In addition, certain important aspects are observed within the tax treatment of Hello world Travel Limited. The considerable aspect within the changes in tax payment is within cash flow as well as income statement (Helloworld Annual Report., 2018). All such factors are significant in enhancing the understanding along with taxation knowledge within the company. From such analysis, insight as well as knowledge might be gathered regarding the tax treatment of Hello world Travel Limited. References: Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D. Larcker, D.F., (2015). 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