A balance sheet statement of an organisation consists of three items, namely, assets, liabilities and equity. CSR Limited contains these three items as well. According to the balance sheet statement of 2017 of the company, the main items of equity are issued capital, retained profits and reserves. The equity of the business organisations is considered as issued capital (De Simone 2016). By multiplying the outstanding shares with the par value of the securities, issued capital is calculated. It has been found out that the issued capital of CSR Limited has fallen from $1,041.1 million in 2016 to $1,036.8 million in 2017 (Csr.com.au 2018).
The next item in line of equity for CSR Limited is reserves. In the words of Klassen, Lisowsky and Mescall (2015), reserve is the equity portion of a firm, which is considered as the excess amount keeping aside basic share capital. The current annual report of the company states that reserves have fallen massively from $20.4 million in 2016 to ($73.4 million) in 2017.
The final item falling under the equity category of CSR Limited is retained profits. It signifies the total profit and losses that the company has made since its date of establishment decreased by dividend payments to the shareholders (Andries, Gallemore and Jacob 2017). As identified from the annual report of the company, the retained profits have increased from $123.2 million in 2016 to $191.6 million in 2017, which signifies that it has earned more profits than it has suffered losses.
A firm often incurs certain kinds of expenditures, which constitute of administrative expenses, selling expenses and other expenses. Out of these other expenses, tax expense is one of them. Moreover, a significant liability of the firm is tax expense, which should be paid to the state, federal and state governments of the nation (Armstrong et al. 2015). By multiplying the appropriate business tax with the income before tax after some significant items are factored such as tax assets, non-deductible items and tax liabilities. CSR Limited falls in this category as well, since the business incurs tax expense as well. The current annual report of the company states that it has incurred tax expense of $61.7 million in 2017, which was $64.4 million in 2016 from its profit before tax.
The regulations of the taxation law of Australia state that the corporate tax rate of the Australian firms is 30%. Depending on this tax rate, the organisation has computed its overall tax expense. It could be observed that the tax expense of CSR Limited has fallen in 2017, as the firm has experienced a fall in its net income compared to 2016.
It has been identified from the above section that CSR Limited has incurred tax expense of $61.7 million in 2017, which was $64.4 million in 2016 from its profit before tax. Along with this, the current annual report of the organisation denotes that the standard tax rate of 30% is applied in 2017 and 2016 to arrive at the total tax expense. If this particular tax rate is applied, the tax expense of CSR would be $80.04 million in 2017 and $70.11 million in 2016. However, the organisation has incurred tax expense in both the years, which do not match with the tax expense, if the standard tax rate of the nation is applied (Clausing 2016).
This is because certain items are not included in calculating the preliminary tax expense. These items could be adjudged as the reasons for the variation in tax expense. In case of CSR Limited, five items have additional impact on the tax expenses of the firm. The deductible expense is the initial item, which need not be added with the income of the firm. Due to this, those items are subtracted from the income of the firm. The second item is the availability of various tax rates, which are applied to the subsidiaries of the firm. Due to such difference in tax rate, a certain amount is subtracted from the original tax expense of the company. The availability of deferred tax assets comprises of the third item. It has been observed that the firms obtain tax benefits for the availability of deferred tax assets (Donohoe 2015). Due to this reason, the organisation has deducted a certain amount from its tax expense. Certain items are needed to be included in the tax expense of CSR Limited. The final item is the availability of non-assessable income, which is not needed to be evaluated under taxation. Thus, it needs to be included in the overall tax expense.
Deferred tax assets and liabilities are two considerable concepts in relation to the tax operation of the firms. As pointed out by Dyreng, Hoopes and Wilde (2016), deferred tax assets denote the situation, in which there is overpayment of taxes or prepayment of taxes on the financial assets. On the other hand, deferred tax liabilities signify a situation, in which the variation could be found in profit and carrying amount of tax of the firm (Ehrhardt and Brigham 2016). For CSR Limited, it could be stated that the firm has recorded both deferred tax assets and liabilities in the balance sheet statement.
It has been identified that the company has deferred tax assets of $0.6 million in 2017, which was $3.8 million in 2016. However, there is no deferred tax liability for the organisation in both the years 2016 and 2017. By taking into account the rules and norms pertaining to deferred tax assets and liabilities, few reasons are present to create the same. The additional payment of depreciation made on the part of the firm because of the difference in depreciation and rate related to taxable depreciation. Because of the additional depreciation payment, CSR Limited might not have to incur excess tax in the next year, which is the primary reason it is classified as asset. For deferred tax liabilities, the temporary differences in business profits might be the reason, which minimises the tax expense in the existing year (Gaertner 2014). Hence, the organisation needs to incur the same in the future years. Due to this reason, it is adjudged as liability.
Income tax payable or current tax asset is adjudged as the primary aspect for the business firms. According to the annual report of CSR Limited, it has recorded its income tax payable. The balance sheet statement of CSR states that the income tax payable of the organisation has been $10.3 million in 2017, which was $38.1 million in 2016.
In firms, it could be viewed that there is a variation between income tax payable and income tax expense and some particular reasons could be held accountable for such disparity. The primary reason is the availability of deferred tax assets. Several instances are inherent, in which the firm spends additional tax amount in contrast to the tax expense (Goh et al. 2016). In this condition, the additional amount of tax incurred would be taken into account in the form of deferred tax assets resulting in the variation. The second reason is the variation between the financial accounting norms and norms related to tax accounting. In this aspect, the instance of depreciation could be depicted. The depreciation difference could be viewed under tax accounting and financial accounting for various depreciation rates (Graham et al. 2017). Hence, the final depreciation amount payable could be increased or decreased. Hence, these are the primary reasons behind the variations between income tax expense and income tax payable.
According to the financial reports of CSR Limited, the firm has depicted regarding its tax expense in the profit and loss statement and the cash flow statement. However, it could be identified that CSR has disclosed two groups of amounts in the cash flow statement and the profit and loss statement. CSR Limited has incurred tax expense of $61.7 million in 2017, which was $64.4 million in 2016 from its profit before tax. On the other hand, the income tax paid identified from the cash flow statement of the organisation has been $52.7 million in 2017, which was $14.6 million in 2016. Some specific reasons could be cited for this disparity related to the income tax expense. In the income statement, the organisation depicts the overall amount of tax expense, if the tax rate of 30% on the profit before tax is applied (Zeff 2016).
However, for the cash flow statement, the case is not the same. In this regard, it is to be mentioned that the tax expense falls under the net cash provided by operations (Grubert and Altshuler 2016). In the segment of the cash flow statement, there is different treatment of few items in the profit and loss statement of the organisation. This denotes that various changes have occurred in the short-term assets and liabilities of the companies. In case of CSR Limited, the income tax payment is taken into account in the form of current asset. In the statement of cash flow, some minimisation in the constituents of tax expense is cut off before they are taken into account in the cash flow statement (Khan, Srinivasan and Tan 2016). Because of these causes, the variation in tax expense could be found in the cash flow statement and the profit and loss statement.
After the tax treatment is observed in the financial statements of CSR Limited, it is to be found out that the organisation has not presented any surprising or confusing tax treatment. It could be said that the organisation has carried out all its tax treatment by adhering to the norms and regulations of the taxation law of Australia. Along with this, RFG has provided all justifications and explanations of the different taxation factors that take into account deferred tax assets, deferred tax liabilities, rate of tax, current tax assets, current tax liabilities and others. However, some interesting factors have been detected in the treatment of tax of CSR Limited.
The most significant influential dynamic is the description of the firm regarding the variation between the overall tax expenses. CSR Limited has explained regarding the five main influential dynamics accountable to develop variation in the tax expense. CSR Limited has presented the calculations with the help of various tables and graphs (Sikka 2017). Another significant influential dynamic is the variation in tax expense in the cash flow statement and the profit and loss statement. All these exciting factors are highly beneficial in order to increase the understanding and knowledge in business taxation. From this evaluation, it would be possible to obtain an overview and knowledge in relation to the treatment of tax on the part of the firms.
Thus, based on the above discussion, it could be stated that a balance sheet statement of an organisation consists of three items, namely, assets, liabilities and equity. CSR Limited contains these three items as well. According to the balance sheet statement of 2017 of the company, the main items of equity are issued capital, retained profits and reserves. The regulations of the taxation law of Australia state that the corporate tax rate of the Australian firms is 30%. Depending on this tax rate, the organisation has computed its overall tax expense.
In the segment of the cash flow statement, there is different treatment of few items in the profit and loss statement of the organisation. This denotes that various changes have occurred in the short-term assets and liabilities of the companies. In case of CSR Limited, the income tax payment is taken into account in the form of current asset. In the statement of cash flow, some minimisation in the constituents of tax expense is cut off before they are taken into account in the cash flow statement. CSR Limited has explained regarding the five main influential dynamics accountable to develop variation in the tax expense. CSR Limited has presented the calculations with the help of various tables and graphs.
References:
Andries, K., Gallemore, J. and Jacob, M., 2017. The effect of corporate taxation on bank transparency: Evidence from loan loss provisions. Journal of Accounting and Economics, 63(2-3), pp.307-328.
Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D. and Larcker, D.F., 2015. Corporate governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), pp.1-17.
Clausing, K.A., 2016. The effect of profit shifting on the corporate tax base in the United States and beyond.
Csr.com.au. (2018). Annual Meetings and Reports. [online] Available at: https://www.csr.com.au/investor-relations-and-news/annual-meetings-and-reports [Accessed 29 Jan. 2018].
De Simone, L., 2016. Does a common set of accounting standards affect tax-motivated income shifting for multinational firms?. Journal of Accounting and Economics, 61(1), pp.145-165.
Donohoe, M.P., 2015. The economic effects of financial derivatives on corporate tax avoidance. Journal of Accounting and Economics, 59(1), pp.1-24.
Dyreng, S.D., Hoopes, J.L. and Wilde, J.H., 2016. Public pressure and corporate tax behavior. Journal of Accounting Research, 54(1), pp.147-186.
Ehrhardt, M.C. and Brigham, E.F., 2016. Corporate finance: A focused approach. Cengage learning.
Gaertner, F.B., 2014. CEO After?Tax compensation incentives and corporate tax avoidance. Contemporary Accounting Research, 31(4), pp.1077-1102.
Goh, B.W., Lee, J., Lim, C.Y. and Shevlin, T., 2016. The effect of corporate tax avoidance on the cost of equity. The Accounting Review, 91(6), pp.1647-1670.
Graham, J.R., Hanlon, M., Shevlin, T. and Shroff, N., 2017. Tax Rates and Corporate Decision-making. The Review of Financial Studies, 30(9), pp.3128-3175.
Grubert, H. and Altshuler, R., 2016. Shifting the burden of taxation from the corporate to the personal level and getting the corporate tax rate down to 15 percent.
Khan, M., Srinivasan, S. and Tan, L., 2016. Institutional ownership and corporate tax avoidance: New evidence. The Accounting Review, 92(2), pp.101-122.
Klassen, K.J., Lisowsky, P. and Mescall, D., 2015. The role of auditors, non-auditors, and internal tax departments in corporate tax aggressiveness. The Accounting Review, 91(1), pp.179-205.
Sikka, P., 2017, December. Accounting and taxation: Conjoined twins or separate siblings?. In Accounting forum (Vol. 41, No. 4, pp. 390-405). Elsevier.
Zeff, S.A., 2016. Forging accounting principles in five countries: A history and an analysis of trends. Routledge.
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